What should India focus on in its next trade agreements

Globally, trade agreements have seen a change in recent years, moving away from comprehensive agreements to issue-specific agreements. For example, in 2020, the United States (US) and Japan signed two agreements: the US-Japan Trade Agreement (USJTA) on tariff reductions and quota expansions to improve market access and the US-Japan Digital Trade Agreement, covering rules on digital trade and e-commerce. This was followed by the Critical Mineral Agreement (CMA), signed in 2023, which gave Japanese companies certain benefits under the Inflation Reduction Act (IRA, Public Law 117-169) to support the diversification of the US companies’ supply chains. While the European Union’s (EU) trade agreements continue to be comprehensive, covering trade, non-trade measures, and regulatory commitments, the EU has taken out investment from its trade agreements and is negotiating three parallel agreements – trade, investment, and geographical indication (GI), with countries like India. 

India’s trade agreements are driven by geo-strategic interest and enhancing exports

Post-2020, India’s trade agreements have seen a shift in terms of identification of trade partners, scope, and coverage. Before 2020, the majority of the trade agreements were with countries in South Asia, the Association of Southeast Asian Nations (ASEAN), or under the "Look East Policy" (for example, Japan and South Korea). After walking out of the China-led Regional Comprehensive Economic Partnership (RCEP), India announced its intention to sign free trade agreements (FTAs) with trusted trade partners and key export markets, based on the country’s trade and geo-strategic interests.

In June 2022, India and the EU relaunched their trade agreement negotiation. Along with this, negotiations for a separate investment agreement and a GI agreement were also initiated. While this agreement delinked trade and investment, India and the European Free Trade Association (EFTA) countries signed the Trade and Economic Partnership Agreement (TEPA) in March 2024, which had a binding commitment of US$100 billion investment in India and the creation of 1 million direct jobs in the next 15 years.

The India-EFTA agreement, like that of the UAE, covered a wide range of topics to make it look comprehensive, but kept the contentious issues out, and sought limited binding commitments. After withdrawing from all bilateral investment treaties (BITs), India has started selectively negotiating BITs with like-minded partners. The India-UAE BIT, signed in February 2024, is one such example.

Multiple trade agreements are likely to be signed in 2025

This year India plans to close multiple trade agreements, including major ones with key export markets namely, the US, the UK, the EU, and Australia. While the India-EU negotiations are progressing, they are unlikely to conclude in 2025. India launched its trade negotiations with New Zealand in March 2025 with an ambitious target to close the trade deal in 60 days. In some cases, the agreements are closed quickly because the trade interests of both sides are in limited areas and the agreements deliberately avoid contentious issues.

The most awaited trade agreement of 2025 is the India-US bilateral trade agreement, the announcement of which was made under the Trump’s "reciprocal tariff" threat. The Indian finance minister stated that the first tranche of a "mutually beneficial, multisector" bilateral trade agreement would be finalized by this autumn. The US is India’s largest export market for both goods and services. Both countries have set a target to raise bilateral trade to reach US$500 billion by 2030. This figure is much higher than current trade flows and would require bilateral trade to increase by around US$250–270 billion in the next five years. This can only be achieved by a significant reduction in trade barriers on both sides.

The US has now alienated itself from China, and given the tariff war, it needs the large Indian market, just as India needs to secure its largest export market. Therefore, the two countries need the trade deal – the negotiations for which began on 23 April, 2025 in Washington. India is looking forward to closing a mini deal or an early tranche, within the 90-day tariff pause window given by the US.

What India needs to rethink to benefit from the trade deals?

As India is trying to close multiple trade agreements in a globally uncertain trade scenario, the core question is what India should focus on in its trade deals, that help to maximize benefits from trade agreements, enhance its share in global value chains, and manage domestic opposition to opening up of sensitive sectors like agriculture or automobile and auto-components. India has already started opening up sensitive sectors like alcohol and agri-products in its trade agreements with Australia and more recently with the UK. As trade agreements are becoming deeper and the trade partners are asking for regulatory certainty, it is the right time for India to use the trade agreements to implement domestic reforms to attract investment and improve industry competitiveness, especially of India’s micro, small, and medium enterprises (MSMEs). In some cases, reforms may require regulatory changes (like setting up a process for imports of organic products which will help to import organic ingredients for Make in India), while in others, tweaking the existing foreign direct investment (FDI) and other policies could help India to get more investment and assume a more significant role in the global value chains. For instance, in the Union Budget (2025-26), an announcement was made to liberalize FDI in the insurance sector. Further liberalizing FDI in sectors like e-commerce and retail and specifically allowing FDI in inventory-based e-commerce, will help in attracting investment in supply chain and infrastructure development.

Trade negotiations can focus more on regulatory certainty rather than only on regulatory cooperation. While it is important to impose quality controls, these should not be used as trade barriers. Mutual recognition agreements for standards, processes, and tests will reduce trade costs. India should watch out for dumping from China, closely monitor what competing countries are doing, how supply chains are changing, and accordingly diversify and de-risk its supply chains and continue to work with key export markets and FTA partners, including the EU, the US, the UK and Australia, to ensure some stability and predictability in this uncertain trade environment. The recent tariffs by the US on its FTA partners show that FTAs cannot guarantee trade certainty, especially at a time when the dispute settlement mechanism in the World Trade Organization is defunct. Therefore, the legal clauses of the trade agreement and the reasons for exemptions are very important.

In areas like digital trade, India can explore the possibility of signing separate digital trade agreements with the US, Singapore, the EU, Australia, and the UK, to permanently remove moratorium on custom duties and secure some regulatory commitments. Positive interventions to support vulnerable segments like MSMEs and farmers may be adopted to help increase their competitiveness. India has to pre-empt future protectionism. Research and industry consultations are needed to identify barriers in key markets. A carefully designed strategy, with a mix of domestic reforms and knowledge about the barriers imposed by trade partners, will help the trade negotiators negotiate better. A holistic approach to trade negotiations will help India to play a bigger role in global trade.

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