India on an FTA signing spree, but limited utilisation & widening trade deficits temper gains

India has signed or concluded several major trade agreements since 2021, including CEPAs with Mauritius (2021) and UAE (2022), ECTA with Australia (2022), TE...

What Happened

India has signed or concluded several major trade agreements since 2021, including CEPAs with Mauritius (2021) and UAE (2022), ECTA with Australia (2022), TEPA with EFTA (entered into force October 1, 2025), CEPA with Oman (2025), CETA with the UK (signed July 24, 2025), and an FTA with New Zealand (2026).
Despite this signing spree, India's FTA utilisation rate stands at approximately 25%, far below the 70–80% seen in developed economies.
Merchandise exports grew 4.22% between FY25 and FY26, while imports rose 6.47%, widening the overall trade deficit from $94.66 billion to $119.30 billion.
Sector-specific deficits remain large: ASEAN (~$43–46 billion in FY24), South Korea CEPA (~$15.2 billion in FY25), Japan CEPA (~$10.7 billion in FY26 through November 2025).
Barriers to utilisation include complex rules of origin requirements, high compliance costs, limited MSME awareness, non-tariff barriers, and weak manufacturing competitiveness.

Static Topic Bridges

Types of Indian Trade Agreements: PTA, FTA, CEPA, ECTA, and TEPA

India's trade agreements follow a spectrum of ambition. A Preferential Trade Agreement (PTA) covers a positive list of products with reduced (not eliminated) tariffs. A Free Trade Agreement (FTA) uses a negative list — tariffs are eliminated on everything except specifically excluded goods. A Comprehensive Economic Partnership Agreement (CEPA) or Comprehensive Economic Cooperation Agreement (CECA) goes further, covering goods, services, investment, intellectual property, government procurement, and dispute resolution in an integrated package — making them significantly more ambitious than traditional FTAs. An ECTA (Early Harvest/Economic Cooperation and Trade Agreement) is typically an interim or transitional arrangement moving toward a full CEPA. A TEPA (Trade and Economic Partnership Agreement), used in the India–EFTA deal, is functionally equivalent to a CEPA.

India–UAE CEPA (2022): covers goods, services, and investment; first implemented CEPA in the Gulf.
India–Australia ECTA (2022): provides duty-free access for over 96% of India's export value to Australia.
India–Oman CEPA (2025): nearly 98% of Indian exports gain duty-free access to Oman.
India–UK CETA (signed July 24, 2025): duty-free access for 99% of India's exports to the UK; India opens 89.5% of its tariff lines; covers 29 chapters including a first-ever innovation chapter; aims to double bilateral trade from ~$56 billion by 2030.
India–EFTA TEPA (in force October 1, 2025): EFTA commits $100 billion in investment over 15 years.

Connection to this news: The diversity of agreement types reflects India's strategic pivot — newer deals emphasize services, investment, and supply-chain integration rather than goods-only tariff cuts, attempting to address India's structural goods deficit with FTA partners.

Rules of Origin (RoO): The Gateway to Preferential Tariffs

Rules of origin determine the "economic nationality" of a product — they specify the conditions a product must meet to qualify for preferential tariff rates under an FTA. Without stringent RoO, third-country goods can be minimally processed in an FTA partner nation and re-exported to India at preferential rates, undermining domestic industries. India has historically faced "import surges" from FTA partners exploiting weak rules of origin, most notably with ASEAN — between FY 2009 and FY 2023, ASEAN imports into India rose 234.4% while Indian exports to ASEAN grew only 130.4%. India's newer agreements incorporate stricter value-addition and transformation criteria. A 2025 Customs Circular clarified that "Proof of Origin" can include both certificates from designated issuing authorities and eligible self-declarations by exporters/producers.

RoO criteria typically require a minimum value-addition threshold (e.g., 35–40% domestic content) or a specified change in tariff heading (CTH).
Non-tariff barriers in partner countries frequently negate the advantage of preferential tariffs even when RoO are met.
MSME exporters often lack the documentation capacity to certify compliance, suppressing actual utilisation.

Connection to this news: The 25% utilisation rate is directly traceable to RoO complexity: exporters forgo the FTA preference and pay the MFN duty rather than navigate certification requirements, especially for small consignments.

Trade Deficit and Its Macro Implications

A trade deficit exists when merchandise imports exceed exports. India has historically run a structural goods deficit, financed partly by services surplus and remittances. When FTA-driven import growth outpaces export gains, the merchandise deficit widens, putting downward pressure on the current account. A widening current account deficit (CAD) must be financed through the capital account (FDI, FPI, borrowings), making the economy vulnerable to sudden capital flow reversals. The Department of Commerce (nodal ministry for FTAs) conducts periodic reviews to assess whether agreements deliver net trade benefits.

ASEAN deficit: ~$43–46 billion (FY24) — one of India's largest bilateral trade imbalances.
Overall trade deficit: rose from $94.66 billion (FY25) to $119.30 billion (FY26).
India's FTA utilisation ~25% vs. 70–80% in advanced economies.

Connection to this news: The widening deficit despite multiple FTAs signals that tariff concessions alone are insufficient; supply-side competitiveness and export promotion must accompany market-access agreements.

Key Facts & Data

India's current FTA utilisation rate: approximately 25% (vs. 70–80% in developed economies).
Trade deficit FY25: ~$94.66 billion; FY26: ~$119.30 billion (widened by ~$25 billion).
Export growth FY25–FY26: 4.22%; Import growth: 6.47%.
India–UK CETA signed July 24, 2025; covers 29 chapters; targets doubling trade from ~$56 billion by 2030.
India–EFTA TEPA in force October 1, 2025; EFTA investment commitment: $100 billion over 15 years.
India–Oman CEPA (2025): ~98% of Indian exports get duty-free access to Oman.
ASEAN imports into India rose 234.4% between FY09–FY23; Indian exports to ASEAN rose 130.4%.
South Korea CEPA deficit: ~$15.2 billion (FY25); Japan CEPA deficit: ~$10.7 billion (FY26 through Nov 2025).
Nodal ministry for FTAs: Department of Commerce, Ministry of Commerce and Industry.
RoO verification mechanism: "Proof of Origin" — can be certificate from designated authority or eligible self-declaration (per 2025 Customs Circular).