Turning India’s FTA Access into Actual Exports

A free trade agreement can remove a tariff overnight.

It cannot make a factory produce faster. It cannot make a foreign regulator recognise an Indian certificate. It cannot make a small exporter understand rules of origin. It cannot reduce the cost of moving a container from a factory to a port. And it cannot persuade a foreign buyer to switch suppliers simply because a government has signed a document.

That is the paradox at the heart of India’s expanding network of trade agreements.

India is negotiating and concluding FTAs with increasing speed. The India-UK agreement, the India-EU agreement, the India-New Zealand agreement and the Oman CEPA all promise Indian businesses greater access to foreign markets. In the India-EU agreement, the Department of Commerce’s India’s Free Trade Agreements (2025-26) – Key Highlights states that preferential access covers 96.8% of tariff lines, accounting for 99.5% of India’s exports to the EU, with 90.7% of export value receiving duty-free access upon entry into force.

But preferential access is only the first step.

The Economic Survey 2023-24, in its assessment of India’s external sector, notes that trade growth following an FTA depends not only on tariff concessions but also on rules of origin, the removal or easing of non-tariff barriers, domestic supply capacity, physical and institutional infrastructure, production policies, conditions in importing markets and export price competitiveness.

The real economic question begins after the signing ceremony: Can an Indian firm actually use the access it has negotiated?

That question changes how an FTA should be understood. A trade agreement is not an export outcome. It is the opening of an implementation pipeline. Somewhere between that opening and an actual foreign order lie several tests.

The first test: Is the preference worth using?

The simplest way to imagine an FTA is through tariffs.

If an Indian garment previously faced a 12% tariff in a foreign market and the FTA reduces that tariff to zero, the exporter gains a 12-percentage-point advantage. That can materially change the economics of the product.

But not every tariff preference is equally valuable.

Many developed economies already operate with relatively low or zero most-favoured-nation tariffs across large portions of their imports. For an Indian exporter, therefore, the question is not simply whether an FTA offers preferential treatment. It is how large the preference margin is and what it costs to claim it.

An exporter seeking an FTA preference may have to demonstrate that its product satisfies rules of origin, obtain certificates, maintain documentation and establish traceability across its supply chain.

If the tariff saving is substantial, these costs may be worthwhile. If the preference saves only one or two percentage points, the calculation changes. A small exporter may decide that the administrative burden is greater than the commercial benefit and simply export under the normal tariff regime.

This helps explain why the utilisation of India’s FTA preferences has historically been much lower than the headline coverage of the agreements suggests. The Department of Commerce, in its Lok Sabha answer on “Evaluation of FTAs” dated 18 December 2017, reported that available preferential-import data from certain key FTA partners showed overall preferential imports were low relative to overall imports from those partners.

That finding needs to be interpreted carefully. It does not establish a single current utilisation rate across all of India’s FTAs, and utilisation statistics have methodological limitations. Low utilisation does not mean that an FTA has produced no benefit.

It does, however, show why legal access and commercially usable access are not the same thing.

The second test: Can the product actually enter?

Even when the tariff becomes zero, the border does not disappear. It changes character.

The modern trade barrier is increasingly found not in customs duties but in the regulations that determine whether a product is allowed into the market at all.

These include technical standards, sanitary and phytosanitary requirements, product testing, labelling rules, environmental requirements, certification, registration and conformity assessments.

Such measures are not inherently protectionist. Governments impose many of them for legitimate reasons involving health, safety, consumers and the environment. The problem for exporters arises when different regulatory systems create costly duplication or when compliance becomes difficult for smaller firms.

A tariff answers, “How much does it cost to enter?” A regulatory requirement can determine “Whether you can enter at all.”

India’s experience with pharmaceutical exports illustrates the difference.

An Indian pharmaceutical company may possess a product that is competitively priced and enjoy preferential tariff access. But if the destination market requires lengthy approval procedures, separate testing or certification that India does not recognise, the tariff preference may have little immediate commercial value.

The same problem can occur in food, chemicals, agricultural products, medical devices and other regulated sectors.

This is why newer trade agreements increasingly contain provisions dealing with mutual recognition, conformity assessment, technical barriers and regulatory cooperation. The objective is not simply to lower tariffs; it is to reduce the distance between two regulatory systems.

The India-Oman CEPA provides an example. The Department of Commerce’s official India-Oman CEPA materials provide for recognition of Indian organic and halal certification arrangements, cooperation on standards and conformity assessment, and faster regulatory pathways for certain pharmaceutical products. The agreement also provides for acceptance of relevant certificates issued through India’s Export Inspection Council.

These provisions may appear less dramatic than a headline tariff cut, but they can be just as important. A tariff preference helps only when the product reaches the market. Regulatory cooperation determines how difficult that journey becomes.

The third test: Can India supply competitively?

Suppose the tariff is zero. Suppose the certification is accepted.

There is still one question left: Can the Indian exporter deliver the product at a price, quality and speed that a foreign buyer actually wants?

This is where an FTA meets the domestic economy.

Export competitiveness is not created at the customs border. It is created much earlier—in factories, supply chains, ports, logistics networks, financial systems and input markets.

A fragmented manufacturing base can make it difficult to meet large orders consistently. High logistics costs can erase part of the tariff advantage. Delays at ports or customs can make delivery schedules unreliable. Expensive electricity, credit or intermediate inputs can raise production costs. Limited access to technology can constrain quality and productivity.

These problems are particularly important for labour-intensive sectors because their competitiveness depends on assembling multiple stages of production efficiently.

This is why the idea of simply “opening markets” is incomplete. A foreign market can be opened. Someone still has to fill the order.

Consider textiles. If an FTA eliminates a 10% or 12% tariff on Indian apparel, the Indian producer receives a potential pricing advantage. But that advantage can disappear if the producer faces fragmented sourcing, expensive inputs, slow logistics or an inability to meet the volume and quality requirements of global buyers.

The same logic applies to engineering goods, chemicals, electronics, pharmaceuticals and processed food.

The FTA changes the opportunity set. Domestic productive capability determines whether that opportunity can be captured.

The Economic Survey 2020-21, in its discussion of trade facilitation, highlights measures such as E-Sanchit, Turant Customs and other digital and logistics initiatives aimed at reducing transaction costs and time in international trade. Customs and logistics systems are part of the infrastructure through which preferential market access becomes commercially usable.

The fourth test: Is domestic policy aligned with export competitiveness?

There is another layer that is easy to overlook.

Sometimes the obstacle to using an FTA is not the foreign market. It is India’s own policy environment.

Exporters depend on imported machinery, components, chemicals, fabrics, specialised materials and other intermediate goods. If these inputs become expensive because of tariffs, quality-control requirements or complex classification rules, the cost of the final export can rise.

This creates a policy tension.

A measure designed to encourage domestic manufacturing may raise the cost of inputs required by exporters.

A quality-control order may improve standards and reduce dependence on poor-quality imports, but if domestic substitutes are unavailable or expensive, downstream exporters may face higher costs.

The issue, therefore, is whether the entire policy chain is aligned with the objective of becoming competitive in global markets.

An exporter does not experience trade policy in separate boxes. For the exporter, an FTA, an input tariff, a quality-control order, a customs procedure and a logistics delay all enter the same cost calculation.

That is why export policy cannot be reduced to negotiating tariff concessions abroad. It also requires ensuring that domestic policy does not unintentionally neutralise those concessions.

The hidden importance of rules of origin

There is another reason why preferential access is not automatic.

FTAs need rules of origin because otherwise goods could simply enter one partner country from the rest of the world and be re-exported under preferential treatment.

Rules of origin therefore establish the conditions a product must satisfy to qualify.

For businesses, however, this means another layer of compliance. A manufacturer may need to demonstrate where its inputs came from, how much value was added domestically and whether the product meets the agreement’s product-specific rules.

This makes supply-chain visibility increasingly important.

The more fragmented a production network becomes, the more difficult it can be to prove origin.

That creates a trade-off. Global value chains can make production more efficient by allowing firms to source components from wherever they are most competitive. But FTAs require firms to demonstrate sufficient domestic or qualifying regional value addition if they want preferential access.

The modern exporter therefore needs to manage two systems simultaneously: the physical supply chain and the regulatory supply chain.

The first moves the product. The second proves that the product qualifies.

The administrative side of that process is also becoming more digital. The Directorate General of Foreign Trade’s eCoO 2.0 platform provides a common digital platform for certificates of origin across FTAs and preferential trade agreements, with preferential certificates of origin routed through the system from January 17, 2025.

Why utilisation matters more than the signing ceremony

India’s earlier FTA experience provides an important caution.

The ASEAN-India agreement has been in force since 2010. Yet preferential utilisation by Indian businesses has remained limited. The evidence points to non-tariff barriers, certification requirements, registration procedures and other compliance difficulties as part of the explanation.

Similar issues have appeared in India’s trade relationships with Japan and South Korea.

The lesson is not that FTAs are ineffective. An agreement cannot substitute for the capabilities required to use it.

This distinction also matters when interpreting trade deficits.

India’s trade deficit with ASEAN, for example, has expanded substantially over time. Similar patterns have occurred with Japan and South Korea.

But the existence of an FTA and the subsequent expansion of a trade deficit do not by themselves establish that the FTA caused the deficit.

Imports may rise because domestic demand for capital goods, raw materials or other products has increased. Exchange rates, competitiveness, investment patterns and broader economic conditions also influence trade flows.

The Economic Survey 2019-20, in its analysis of India’s trade agreements, found that the effects of different agreements on exports varied rather than producing a uniform outcome across agreements and trading partners. That reinforces the need to distinguish the existence of an FTA from the actual export response.

The more useful question is narrower: Why can preferential access sometimes be easier for foreign exporters to exploit in India than for Indian exporters to exploit abroad?

One part of the answer lies in tariff asymmetry.

India has historically maintained higher MFN tariffs than many of its FTA partners. When India reduces those tariffs, foreign exporters can receive a substantial new price advantage in the Indian market.

But if the partner’s tariffs were already low, the Indian exporter may receive a much smaller incremental benefit.

The commercial incentives are therefore asymmetric.

This does not make an FTA inherently flawed. It means the agreement has to be supported by something beyond tariff negotiations: the ability to compete.

The architecture of implementation is changing

The encouraging part is that India’s newer agreements increasingly recognise this problem.

Modern trade agreements are moving beyond a simple exchange of tariff concessions.

They increasingly contain provisions on mutual recognition of standards, digital certification, rules-of-origin procedures, customs facilitation, technical barriers to trade, sanitary and phytosanitary measures, professional mobility, services, investment and regulatory cooperation.

This is an important evolution.

The trade agreement is becoming less like a tariff schedule and more like an operating system for cross-border commerce.

The India-Oman CEPA illustrates this shift through certification recognition, streamlined customs procedures and regulatory cooperation.

The India-New Zealand agreement similarly places emphasis on rules of origin, digital certification, customs facilitation and mobility alongside tariff access.

The India-EU agreement also moves beyond merchandise tariffs into services, where commitments cover a wide range of sectors including IT/ITeS, professional services, education and business services.

These provisions matter because the value of market access increasingly depends on the institutional machinery surrounding it.

The question is no longer simply, “Did the government negotiate zero duty?”

It is whether the government built the conditions under which a firm can actually operate at zero duty.

When market access becomes market share

This changes the way India’s FTAs should ultimately be evaluated.

The first metric is easy: Was the agreement signed?

But that is the least informative measure.

The next question is whether exporters can claim the preference. Then whether they can meet the destination market’s standards, produce at a competitive cost, deliver reliably and win orders.

Finally: Can they retain and expand market share?

That is the complete chain:

FTA signed → preferential access → compliance → competitive supply → preference utilisation → orders → market penetration → sustained exports.

A failure at any stage can weaken the final outcome.

This also explains why the same FTA can produce very different results across sectors and firms.

A large pharmaceutical company with regulatory teams and established foreign-market relationships may be able to absorb certification costs that a small manufacturer cannot.

A large textile exporter with integrated sourcing may exploit a tariff preference more effectively than a fragmented producer.

A firm already familiar with international standards has an advantage over one encountering them for the first time.

The FTA is identical. The capacity to use it is not.

The real post-FTA agenda

This means the work of trade policy does not end when negotiators leave the room.

It begins there.

Government has to make exporters aware of the preferences available to them. Industry associations have to translate complex agreements into usable sector-specific information. Testing and certification infrastructure has to improve. Customs processes have to become predictable. Digital systems have to reduce paperwork. Standards need greater compatibility where legitimate. Logistics need to become faster and more reliable.

Domestic industrial policy also has to be examined from the perspective of the entire export chain rather than individual interventions.

The objective should be to create an environment in which an exporter does not merely know that an FTA exists. The exporter should know which market to target, which preference to claim, which rules to satisfy, which certificate to obtain, which inputs to source, how to prove origin, how to clear customs and how to deliver competitively.

That is what converts a trade agreement from a legal instrument into an economic instrument.

The FTA is not the export

For years, the success of trade negotiations has been presented through the language of market access.

Tariffs fall. Markets open. Agreements are signed.

But exports happen somewhere else.

They happen inside factories, through supply chains, at laboratories, in certification offices, across ports and warehouses, and eventually in the purchasing decisions of foreign buyers.

That is why the most important transition in India’s trade policy may not be from protection to openness. It may be from negotiation to execution.

An FTA gives an Indian exporter permission to compete on better terms. It does not give the exporter the capability to win.

The next phase of India’s trade strategy therefore has to be judged not by how many agreements it signs, or even by how much tariff access those agreements contain, but by whether the entire chain between negotiated access and commercial success actually works.

The decisive work begins once preferential access exists.

And the question is no longer simply whether India has access to global markets.

It is whether Indian firms are equipped to turn that access into market share.