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India currently has 15 implemented free trade agreements (FTAs) covering 27 countries, while another nine FTAs involving 42 countries are either signed, awaiting implementation, expected to be concluded soon, or under negotiation. Together, these 69 countries account for 75.3% of India’s exports and 65.5% of its imports. In addition, India has six preferential trade agreements (PTAs) with several other partners, extending its preferential trade network further.

Caveat: The trade data in this report reflect total trade with FTA partner countries, not trade conducted exclusively under FTA preferences. In practice, only a small share of this trade utilises FTA tariff concessions, while the majority continues under the Most-Favoured-Nation (MFN) tariff regime outside FTA provisions.

India’s 15 implemented FTAs covering 27 countries account for 28.5% of India’s exports and 32.2% of its imports.

The 10 FTAs, concluded before 2012 and covering 19 countries, account for 16.6% of exports and 18.0% of imports.

The five FTAs, signed since 2020 with eight countries – the UAE, Oman, Australia, Mauritius and the four EFTA members (Switzerland, Norway, Iceland and Liechtenstein) – account for 11.9% of exports and 14.1% of imports.

 FTAs awaiting implementation or under negotiation

India has nine additional FTAs involving 42 countries awaiting implementation or under negotiation. Together, these countries account for 46.8% of India’s exports and 33.3% of its imports.

Two signed agreements with the UK, and New Zealand account for 3.2% of exports and 1.3% of imports: awaiting implementation.

The European Union, comprising 27 countries, accounts for 16.5% of exports and 8.9% of imports, making it India’s largest pending FTA partner-awaiting signing.

Six ongoing FTA negotiations covering 13 countries – including the United States, Canada, Israel, Peru, the Gulf Cooperation Council members and the Eurasian Economic Union countries – account for 27.1% of exports and 23.1% of imports, the largest share among all FTA categories.

Six challenges that demand attention

As India expands its network of FTAs, six key challenges need attention: rising trade deficits, low use of FTA benefits by Indian exporters, worsening inverted duty structures, the shift of manufacturing to FTA partner countries, European carbon tax measures, and new FTA provisions that increasingly influence domestic policies and regulations.

Let’s examine how these challenges are shaping India’s trade patterns, industrial competitiveness, and economic outcomes.

1. Rising trade deficit

Between 2007–09 (before the FTAs took effect) and 2023–25, India’s trade deficit with ASEAN grew by 381%, with Japan by 318%, and with South Korea by 268%. In comparison, India’s trade deficit with the rest of the world increased by 142%. Over the past three years, India’s average annual trade deficit with ASEAN, Japan and South Korea has reached about $62 billion.

India’s newer FTAs are also associated with large trade deficits. In FY2025, India exported $48.6 billion to the UAE, Australia, Mauritius and EFTA countries, but imported nearly $100 billion, resulting in a trade deficit of over $50 billion. As tariff cuts under these agreements deepen, the deficit may increase further.

South Asia remains the major exception, where India’s trade surplus expanded from $6.7 billion to $20 billion during the same period.

The difference between India’s tariff structure and those of its FTA partners helps explain why imports often grow faster than exports after FTAs.

Most of India’s FTA partners are already open economies with low tariffs. Average MFN tariffs are close to zero in Singapore and below 4% in Japan, Australia, Malaysia and the UAE. In contrast, India’s trade-weighted MFN tariff is about 12.6%, with rates ranging from zero to 150%.

As a result, when India cuts tariffs under an FTA, exporters from partner countries gain a significant price advantage in the Indian market. A 50% tariff reduction, for example, can translate into a major cost advantage over competing suppliers.

Indian exporters, however, often gain little additional market access because tariffs in partner countries were already low or zero before the agreement.

The difference becomes even clearer when actual trade flows are examined. Almost all imports into Singapore enter duty-free under MFN rules, while more than 80% do so in Japan and Malaysia. In the EU and the UK, more than half of imports face zero customs duty. In India, however, only about 6% of imports enter duty-free under MFN treatment. As a result, FTAs........

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