Can FTAs Unlock India’s Export Potential
India and FTAs — Capitalism Se Darna Kya?
“Tariff king” is an unpleasant designation to carry, and sadly, it is one that sticks. This is a decade when countries are negotiating free trade deals across the planet. A time when India is taking baby steps, and as is our cultural tuning, erring on the side of optimism. On one hand our commerce minister sounds bombastic when he claims $100B worth of FD inflows & creating 1 million jobs via the EFTA trade pact. Yet, on the other hand, we had the NITI Aayog CEO B.V.R. Subrahmanyam pour cold water saying that India traded in stuff which the rest of the world does not want in large quantities NITI Aayog.
So is India ready for FTAs?
Some Facts First
On March 10, 2024, India and the European Free Trade Association (EFTA) — comprising four tiny countries: Switzerland, Norway, Iceland, Liechtenstein — signed the Trade and Economic Partnership Agreement (TEPA) after more than a decade of negotiation. The agreement covers goods, services, investment promotion, intellectual property, trade facilitation, and sustainable development. EFTA will cut tariffs on 92.2 % of its tariff lines for Indian goods, and India will open concessions on 82.7 % of its lines covering 95.3 % of EFTA exports, excluding sensitive sectors like dairy, gold, soyabean and coal. EFTA has committed to “aim to” invest US$100 billion over 15 years and generate 1 million direct jobs in India.
Now, the other side. In October 2025, B.V.R. Subrahmanyam, CEO of NITI Aayog argued that 66 % of global merchandise imports lie in sectors where India’s export share is just 0.2 %, whereas India has high shares in sectors that account for only 3 % of global imports. As he put it tersely but cuttingly, “We trade in stuff the world doesn’t require in large quantities”. Reuters reported that India risks falling unless it cuts tariffs on essential raw inputs, which our manufacturers can use to create high-value exportable products.
Caveats and Contextualisation
TEPA is a masterly diplomatic text, using “aim to increase”, that is, no firm promise made that can be taken to WTO if breached. The investment chapter also does not include an investor-state dispute settlement (ISDS) mechanism. India reserves the right to withdraw concessions if the investment/job targets are not met after 15 years. The biggest economies here, Switzerland and Norway, already have low tariffs on many industrial goods, so Indian exporters may not gain much.
However, EFTA’s biggest trade partner is the EU (which will, eventually, absorb these countries). That means they follow EU-dictated rules of origin, regulatory compliance, standards, scale, logistics and financing — all being non-tariff barriers. For Indian MSMEs, even if they want to profit from TEPA, they have to invest massively in EU standards. On the flipside, this may make them ready for the India-EU FTA, whenever that happens.
Now, let us put it in some context. There was global (or at least in Asia) heartburn when India ditched the Regional Comprehensive Economic Partnership (RCEP) in 2019. The question in chancelleries everywhere was whether India’s giant market was ever going to open itself to free trade, or whether domestic compulsions (social, economic, and political) were going to lock it (doom it?) into protectionism forever. So, if India is to extract any value from TEPA, the FTA with EFTA, the new India-UK FTA & future deals, it needs to change a lot of things.
First, of course, is its “tariff king” mindset Some sectors may need protection for cultural reasons, like dairy. That said, tariff liberalization is still the easier thing to do. What Trump did not call us was “bureaucracy king, but we still have tonnes of it:
· Customs, ports, inland logistics, single-window import-export systems remain a nightmare, as one company declared to media brouhaha — remember the Wintrack fiasco
· All FTAs need clear rules on origin-of-product and a regulatory/judicial system to support it. Given we have never had a serious FTA all this while, I doubt we have that in place.
· Global trade depends on institutional stability, predictable policy, low corruption, digital infrastructure, and single-window taxation systems.
While there is headway being made in cutting this bureaucracy and red-tape, it still is a long way off.
Second, we really must address our NITI Aayog CEO’s concern — real value from any FTA will come from transforming our export basket, not just gaining foreign market access. Else, we will be in the same place Trump says America is in — import-dependent and with a dead home industry.
According to Subrahmanyam, the current export basket is full of low-value commodities like jute, tea, coffee, cotton, et cetera, but what the world is ready to buy in large quantities are petroleum, gold, medicines (barring generic ones, where we have tariff wins, electronics and electronic circuits (despite making phones), precision instruments, medical devices, clean energy components, specialty chemicals — essentially China’s current export basket.
For us to get there will mean investment in research, design, quality systems, standards compliance, and certification capacity — the best thing I can say is that we are on the road to getting there.
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Third, how an FTA really works is by creating globalised value chains (GVCs) where one is free to import goods (say computer chips), put them inside value-added manufacture (say car dashboards) and export them equally freely to other countries that might then add more value (like putting those dashboards into cars). An FTA offers a genuine opportunity, more so than any level of protectionism and import-substitution in moving up the value chain, from raw materials to intermediate inputs and components and finally to final goods. That requires what I call the three I’s: input liberalization, incentives, and infrastructure. While we have schemes like the Performance-Linked Incentive (PLI) and various other tax carve-outs, again the most charitable thing I can say is that we are on the road to getting there.
Fourth, we need to prepare our industries, especially our SME clusters for export readiness. We have one industrial strength we don’t play to much: smaller, niche companies specialised in engineering or specialty chemicals and other things, rather than behemoths of the too-big-to-fail variety. Counter-intuitive though that might seem, they can, with the right resources (especially to absorb global compliance costs) and regulatory hand-holding, make better use of capital to scale production and innovate on the go. While we have 14 government-run export promotion councils (EPCs, their record is mixed at best.
Fifth, FTAs are not “signed, sealed, and delivered” — instead, like constitutions, they are living documents. Kamadhenu, to use another metaphor, which needs to be milked properly. Not every bilateral FTA will yield high gains. We should prioritize deals where industrial complementarity is strong (e.g. ASEAN + 6, Africa, UK). For a country as terrified of free trade as India has been, the EFTA-India FTA is a learning opportunity; we should be optimistic, but I am still sceptical of the expected astronomical numbers.
Sixth, we need a mindset for negotiating FTAs beyond just goods liberalization. After all, we are the “services king” who provides the back-office for most tech giants for everything from coding to call centres to medical transcription, and now rapidly growing our GCC capability in the age of AI. We are also “labour king” and despite rising anger against immigration in ageing countries, we need to push for mobility, especially for young, skilled workers. Data flows and their security, digital/servicing access, technology transfers to boost domestic innovation, and mutual recognition of degrees are some other points.
Seventh, and maha-most important, Indian companies need to start investing cash and human capital in being ready for real capitalism. Market research is a joke in this country[i], branding is terrible, compliance knowledge is a challenge, and local partnerships need to be built diligently.
FTAs will not deliver overnight transformation, other than flooding the market with goods from partner countries whose companies are prepared for global trade. Gains for Indian companies will take 5–10 years to fully unfold, but as the 1990s liberalisation reforms showed, they do happen and can set the stage for exponential growth. Ministers, bureaucrats, and some of our sycophantic industry captains really do need to set realistic expectations, prepare the public discourse, celebrate small gains — and not run their mouths with fantastic claims.
A dedicated FTA minister
In the context I shared above, a large, muddled bureaucracy — strangely understaffed where necessary — shouldn’t be the one making and implementing deals. Maybe it is time for the cabinet to consider a dedicated minister, with a small but qualified team, to coordinate among departments to make sure India’s FTA game is on par with the rest of the world.
Their KRAs will be:
· Tracking whether the promised investment flows materialize — and getting the diplomatic corps (which is still pathetically understaffed[ii]) to follow up on signed deals;
· Pushing for enforcement of non-tariff barrier removal, upgrading standards etc across ministries;
· While at the same time, aggressively pushing for non-tariff barrier reduction, regulatory convergence, and mutual recognition of standards with the FTA partners;
· Renegotiating or re-balancing concessions if outcomes diverge in existing FTAs, and pushing for more than just goods trades in future FTA negotiations; and,
· Overseeing those EPCs I talked about, or preferably some alternative to them that is less bureaucratic and more bank-like. These bodies can really help with:
o Providing incubation houses and cloud compliance labs
o Financing and credit support for export-ready upgrades
o Sectoral cluster formation for scale and collective bargaining
Conclusion
A dedicated FTA minister is not a panacea, but just a start to changing mindset. As the RCEP heartburn showed, India’s readiness for full-blown globalised capitalism was still tempered by its old school socialism, protectionism, and cultural sensitivities (some of which remain, such as the reluctance to talk about dairy). But that was 2019. In 2025, the government seems to have changed its mindset, for example with the notification of the new labour codes.
An extensive public awareness campaign on the benefits of FTAs and retraining our bureaucracies are both important. But more important is for all of us to develop a Schumpeterian mindset: understanding that some companies will fail to adapt and die, some will learn and survive, others will learn and thrive. Softening the blow for job losses, while creating incentives for retraining people will help India become the “FTA king”.
