How India’s New FTAs Are Rewiring Its Industrial Strategy

For decades, a free trade agreement was largely understood as a bargain over tariffs.

One country opened its market. The other did the same. Exporters gained cheaper access, consumers gained more choices, and governments measured success in tariff lines.

India’s newer trade agreements are beginning to look different.

The interesting change is not simply that India is signing more FTAs. It is that the bargain inside those agreements is becoming broader. Market access is increasingly being accompanied by investment commitments, technology cooperation, professional mobility, supply-chain arrangements and mechanisms intended to connect Indian production with global markets.

That changes the question.

The important question is no longer just: How much will tariffs fall?

It is: Can an FTA help India build the productive capabilities needed to become a deeper participant in global value chains?

The answer is not yet established. But the architecture of India’s newer agreements suggests that this is increasingly what India is trying to negotiate.

The FTA bargain is getting deeper

The older logic of trade agreements was relatively straightforward: negotiate preferential access and allow firms to respond.

India’s newer agreements add another layer — trying to shape what happens after market access is created.

The India-European Free Trade Association (EFTA) Trade and Economic Partnership Agreement illustrates the shift. Alongside tariff concessions, it places a large investment-and-employment ambition within the trade relationship: the 15-year framework refers to $100 billion in investment and up to one million direct jobs. These figures describe the intended scale of the commitment, not capital already deployed.

The India-New Zealand agreement follows a similar direction, with a 15-year framework for facilitating $20 billion of investment in India. It also contains a mechanism to address the commitment if the expected investment does not materialise.

The significance lies less in the headline numbers than in the fact that investment is being brought into the architecture of the trade relationship itself.

A tariff concession primarily changes the price at which an existing product crosses a border. An investment commitment can potentially change where production happens, where firms locate capacity and where supply chains are anchored.

But potential is the important word.

An agreement can create an opportunity for capital without guaranteeing that companies will use it. Investment decisions still depend on infrastructure, market conditions, regulation, skills, logistics and the ability of firms to operate competitively from India.

The FTA can open the door. It cannot make the factory walk through it.

From capital to capability

This is where India’s emerging trade strategy becomes more interesting.

Capital by itself does not create a value chain.

A country becomes deeply integrated into global production when capital interacts with technology, skills, suppliers, standards, logistics and market access.

That is why technology cooperation matters.

The India-EU relationship provides a particularly revealing example. Cooperation has moved toward specific areas including semiconductors, high-performance computing, quantum technologies, artificial intelligence and 6G, alongside efforts to strengthen resilient value chains. The semiconductor discussion is especially instructive because it does not assume that India must immediately reproduce every stage of the global chip industry domestically.

Instead, the focus includes heterogeneous integration and advanced packaging — processes that combine different kinds of chips within a single package and can capture significant value without requiring India to begin by competing at the most capital-intensive frontier of semiconductor fabrication.

The proposed cooperation also links India’s semiconductor design capabilities with European research infrastructure such as IMEC and Fraunhofer-Gesellschaft.

The underlying logic is important.

Value-chain participation does not require owning the entire value chain.

A country can enter at a particular high-value segment, build capabilities there, and deepen its position over time.

That is a very different industrial strategy from simply trying to replace every imported product with a domestically produced equivalent.

It also shows why an FTA can increasingly function as something more than a tariff document. If trade relationships connect markets to research institutions, technology partnerships and investment ecosystems, they can become channels through which countries attempt to shape the geography of production.

Yet technology cooperation should not be confused with technological autonomy.

Joint research can deepen capabilities. It does not automatically make a country technologically independent. Nor does a semiconductor partnership demonstrate that India has already captured a major share of the global semiconductor value chain.

The distinction matters because architecture is not outcome.

When bilateral deals become a network

There is another change taking place at the same time.

India’s FTAs are no longer best understood as isolated bilateral arrangements. Taken together, they are becoming a network of economic relationships across Europe, West Asia, Oceania and the Indo-Pacific.

That matters because global manufacturing itself is organised through networks.

A company deciding where to manufacture does not ask only whether one country offers a large domestic market. It asks whether that location provides access to inputs, suppliers, technology, skilled labour and multiple export markets.

An FTA can therefore become more valuable when it connects a production base to several markets.

Rules of origin are particularly important here. Their design determines how much foreign content can enter a product while still allowing the finished product to receive preferential treatment. Flexible rules can make it easier for firms to combine inputs from different countries while manufacturing and assembling within India.

This is one reason the broader China-Plus-One shift matters to India.

Global firms seeking to diversify production away from excessive concentration in China are looking for alternative locations. India’s expanding network of trade agreements can make the country more attractive as one node in that network because production in India can potentially serve multiple preferential markets.

But the FTA is only one part of the equation.

India has also deployed production-linked incentives across manufacturing sectors. As of March 31, 2026, the government reported more than ₹2.40 lakh crore in investment, over 14.15 lakh direct and indirect jobs, and more than ₹15.2 lakh crore in exports across the 14 PLI sectors. These are government-reported outcomes and do not, by themselves, establish that the PLI scheme caused all of the reported investment, employment or exports.

Taken together, trade access and domestic production incentives can create a more coherent proposition: produce in India, then use India as a platform to reach other markets.

That is the industrial possibility embedded within the newer FTA strategy.

It is not proof that the transformation has already happened.

The paradox: diversification without independence

There is an important complication.

India can diversify its export destinations and attract alternative production networks while remaining dependent on foreign inputs.

The two processes can occur simultaneously.

A factory may relocate from China to India while continuing to source machinery, components, chemicals or other intermediate inputs from China. A supply chain can therefore become geographically more diversified without becoming fully independent of its original source.

India’s merchandise trade deficit with China was $99.21 billion in 2024–25. Government and parliamentary material also notes that a substantial share of India’s imports from China consists of capital goods, intermediate goods and raw materials used by Indian industries, including sectors that feed into exports.

This creates a subtle distinction between diversification and resilience.

Diversification means having more trading partners or production locations.

Resilience means being able to absorb disruption because critical dependencies can be substituted, managed or strategically buffered.

The first does not automatically produce the second.

The same distinction applies to India’s technology partnerships. Working with European research institutions may reduce dependence in selected technological segments, but it does not establish technological autonomy across the wider ecosystem.

This is why India’s FTA strategy should not be understood as a simple attempt to replace one external dependency with another.

Its more ambitious possibility is to use multiple external relationships to build domestic capability at strategically important points in global production networks.

Whether that happens depends on what occurs inside India.

The domestic conversion problem

This is where the story becomes less comfortable.

India can negotiate sophisticated trade agreements. It can secure preferential access, investment commitments and technology partnerships. But none of these automatically creates competitive manufacturing.

The domestic production system has to be capable of converting those opportunities into exports.

That conversion can be weakened by high input tariffs, quality-control requirements, logistics costs, infrastructure gaps and insufficient scale.

The problem is particularly visible when trade policy and industrial policy pull in opposite directions.

Suppose an Indian manufacturer receives preferential access to a foreign market but faces relatively expensive imported intermediate inputs. Its foreign competitor may be able to source those inputs more cheaply. The tariff advantage created by the FTA can then be partly neutralised by the cost structure inside India.

This captures a recurring concern: an FTA can make it more attractive to manufacture in a partner country and then serve the Indian market through imports, rather than locate the production itself in India.

An FTA can increase market access without necessarily ensuring that Indian firms capture the production associated with that trade.

The result can be deeper imports rather than deeper domestic value addition.

India’s experience with earlier FTAs also provides a warning. Trade deficits with ASEAN, Japan and South Korea have widened substantially over time, although those outcomes cannot be attributed to FTAs alone. Differences in competitiveness, tariff structures, production capabilities and non-tariff barriers also matter.

Similarly, estimates showing changes in India’s participation in global value chains should not be treated as proof that one particular policy — such as inverted duties or quality-control orders — caused the entire movement.

The point is narrower:

An FTA creates an external opportunity. Domestic industrial capability determines how much of that opportunity India captures.

The real test is what happens after the signature

This changes how India’s FTAs should be evaluated.

The first test is no longer simply whether negotiators secured favourable tariff concessions.

The harder test begins after the agreement is signed.

Can Indian firms actually use the preferences? Can they meet foreign standards? Can they obtain inputs competitively? Can suppliers scale? Can logistics move goods reliably?

And can investment commitments become actual factories, production lines and research partnerships? Can technology cooperation create capabilities that Indian firms retain and build upon? Can those capabilities connect Indian production to several markets rather than a single export destination?

These questions make FTA utilisation important.

A preferential tariff that firms do not use has little economic value. A market that cannot be reached because of certification requirements, regulatory barriers or high compliance costs is only nominally open. India’s electronic Certificate of Origin platform, which supports paperless processing and real-time tracking of FTA utilisation at the product and country level, is one example of how the implementation side of trade policy is being addressed.

Modern trade policy therefore increasingly moves beyond tariffs toward standards, conformity assessment, rules of origin, customs procedures, investment facilitation, mobility and technology cooperation.

The newer agreements reflect this broader understanding.

They also raise the bar for domestic policy. If India wants FTAs to become instruments of industrial development, its own policies have to make production in India competitive enough for those agreements to matter.

From trade policy to industrial architecture

This is ultimately the deeper transformation.

India is not simply negotiating access to foreign markets. It is increasingly attempting to influence the conditions under which capital, technology, production and trade connect with one another.

That is why the emerging FTA architecture is more significant than any individual tariff schedule.

The EFTA agreement shows how investment commitments can be incorporated into a trade relationship.

The India-EU technology agenda shows how trade relationships can intersect with research, semiconductor capability and advanced technology.

The expanding network of bilateral agreements creates more potential routes into international markets.

And the domestic bottleneck reveals the limit of the strategy: external access cannot substitute for internal competitiveness.

The more sophisticated India’s FTAs become, the less sufficient the agreements themselves become.

A tariff concession can be negotiated at the border. A value chain has to be built across factories, suppliers, laboratories, ports, standards agencies, skills systems and firms.

That is why the future of India’s FTA strategy will not ultimately be determined by how many agreements India signs, or even by the size of the investment numbers written into them.

It will be determined by whether those agreements become production networks rooted in India.

The real prize from an FTA is therefore not simply cheaper access to another market.

It is the possibility of making India a place where capital comes to produce, technology comes to be developed, suppliers learn to scale, and firms can use domestic production to reach the world.

That is the point at which a trade agreement stops being merely a trade deal.

It becomes part of an industrial architecture.