Free Trade Association – India now appears poised to seal an FTA (Free Trade Agreement) with New Zealand, even as talks continue with Oman, Chile, Israel, Canada and others. As one observer joked, we seem to have an FTA with every country except the Vatican! The quip may be exaggerated, but the question stands: Why is India pursuing so many agreements, each demanding political capital and administrative effort? India is signing not only broad regional deals, such as with the EFTA (European Free Trade Association), but also bilaterals with countries already embedded in other regional blocs. What explains this sudden acceleration? Trade theory provides one clue.
Empirical evidence suggests FTAs rarely create new trade; they tend instead to formalise existing, substantial bilateral flows. Any FTA creates winners (exporters) and losers (firms competing with cheaper imports). Unless these political forces balance each other, agreements stall or underperform, as happened with the ASEAN (Association of Southeast Asian Nations) FTA.
Only when pre-existing trade volumes are large enough to generate both significant support and opposition do these pressures cancel out. FTAs, therefore, often codify what already exists rather than transform the trading landscape. Advertisement If they do not expand trade, why negotiate them? Increasingly, FTAs serve as platforms for cooperation in areas the World Trade Organisation (WTO) has struggled with, including services, investment, and other WTO-plus commitments.
These demand deeper engagement but enable forms of integration that multilateral processes cannot presently deliver. FTAs have also become tools of foreign policy.
In an unstable world shaped by the end of the old US-USSR order and, more recently, by US President Donald Trump’s retreat from the WTO (please refer to ‘The new Cold War’, IE, October 20), regional and bilateral agreements offer strategic insurance. States increasingly view them as mechanisms to reinforce political alignments rather than merely expand trade.
What, then, explains India’s recent burst of agreements? If preferential trade deals are to achieve even their limited economic purpose, intra-RTA trade (Regional Trade Agreement) should rise relative to global trade. Yet data from agreements concluded more than a decade ago show the opposite.
Advertisement FTA partner Share of FTA region in India’s total exports before FTA (%) Share of FTA region in India’s total exports after FTA (%) ASEAN 10. 2 10.
8 Korea 1. 9 1.
4 Japan 2. 1 1. 9 The numbers indicate that India’s export and import shares with RTA partners have remained flat or declined after implementation.
The reasons are familiar. Most of these deals revolved around commodity trade, where partner tariffs were already low, limiting India’s gains.
Partner countries often benefited more, sometimes via Chinese goods routed through RTA members, fueling resistance among Indian industry. Meanwhile, India’s comparative advantage in services remained underutilised because ASEAN members resisted meaningful services liberalisation; even today, Singapore is the lone partial exception.
India has now about 18 RTAs/PTAs (Preferential Trade Agreements) in force across Asia, the Asia-Pacific, Latin America and Africa. Yet only eight include services agreements, and only two, South Korea and ASEAN, have known end dates for implementation. Even there, movement has been limited.
Only South Korea and Singapore show hints of progress in services trade. Why, then, sign so many? The answer lies largely outside economics. Some RTAs, like ASEAN, were crafted to advance broader strategic objectives of the QUAD (India, the United States, Australia and Japan), especially in the Indo-Pacific.
India’s later agreement with Australia seems similarly driven by political logic rather than prospects of significant economic gain. More recently, RTAs with economically significant partners such as the United Arab Emirates reflect a clearer services-and-investment rationale. Negotiations with the European Union and the United Kingdom, long in the pipeline, remain works in progress, and it is too soon to assess gains beyond commodity trade.
Trump’s flurry of bilateral FTAs has now scrambled global strategic calculations. If the United States and China crystallise into a new “Big Two,” what happens to the QUAD, and to the RTAs built around it? This uncertainty partly explains India’s own burst of agreements with almost every imaginable partner. As geopolitics shifts, the purpose of RTAs is shifting with it: From economic instruments to political safety nets.
About time — after a lull of four years, an India–Russia FTA looks increasingly logical. One conclusion is unmistakable: In the emerging world order, RTAs will be driven far more by strategic considerations than economic logic.
The MEA, not the Commerce Ministry, is increasingly in the driver’s seat. Pant is Visiting Professor, Shiv Nadar University and former VC, IIFT and Dean, SIS/JNU. Rahul is Assistant Professor, Institute of Economic Growth.