India’s ambitious push into Free Trade Agreements (FTAs) is throwing up challenges that need urgent attention, such as widening trade deficits, worsening inverted duty structures and low utilisation of the pacts, according to a new report by the Global Trade Research Initiative (GTRI).

Worrying trend

Compounding these issues is a worrying shift of manufacturing to FTA partner countries and incorporation of new provisions in the pacts that are shrinking policy spaces and influencing domestic policies and regulations, the report noted.

Additionally, the EU’s growing number of regulatory measures, most importantly the Carbon Border Adjustment Mechanism (CBAM), could offset tariff concessions gained by India in its biggest free trade pact that it forged with the 27-member bloc.

“India now has 15 implemented FTAs covering 27 countries, while another nine agreements are pending implementation or under negotiation, covering 42 additional countries. Together, these 69 countries account for more than three quarters of India’s exports, highlighting how central FTAs have become to India’s trade strategy,” the report pointed out.

The government should set up an FTA impact-monitoring authority to track utilisation, sectoral gains, import surges, import surges and trade deficits, the GTRI report proposed. “It should also periodically assess the impact of regulatory changes and loss of policy space on account of FTA commitments,” it said.

It is not just the older FTA, like the ones with the ASEAN, Japan and South Korea, that have led to increased trade deficits; even the new ones signed over the last few years have widened trade gaps, the report stated.

“In FY25, India exported $48.6 billion [of goods] 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,” it said.

India’s trade deficit with the ASEAN grew by 381 per cent, with Japan by 318 per cent, and with South Korea by 268 per cent, between 2007–09 (before the FTAs took effect) and 2023–25, while India’s trade deficit with the rest of the world increased by a much lower 142 per cent, the report said.

Over the past three years, India’s average annual trade deficit with ASEAN, Japan and South Korea has reached about $62 billion.

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

India’s sub-optimal benefit from the free trade pacts is also evident from the low rate of utilisation. An estimated 20-30 per cent of India’s eligible exports take advantage of FTA preferences, with many small firms preferring to give up the modest tariff savings (as average duties in many FTA partner countries is low) to avoid the compliance burden, the report highlighted.

FTAs have made it harder to fix the inverted duty structure in several sectors (when duties on finished products are lower than on inputs)  because many finished goods now enter India at low or zero duty from partners such as ASEAN, Japan, South Korea, the UAE and Australia, the report further noted.

“For example, steel and aluminium attract MFN duties of 7.5–10 per cent, but machinery, industrial equipment and engineering products made from these materials can enter India duty-free under several FTAs. Indian manufacturers, therefore, face higher input costs when competing with tariff-free imported machinery produced with globally priced inputs,” the report said.

Moreover, India’s newer FTAs are increasingly seeking to influence policy choices behind the border by introducing rules on labour, environment, digital trade, intellectual property rights (IPR), government procurement, competition policy, anti-corruption, gender, MSMEs and data governance, the report underlined.

“At the insistence of developed-country partners, these agreements often require India to align domestic laws, regulations and administrative practices with standards designed by advanced economies,” the report noted.

Published on June 9, 2026