India’s International Free Trade Agreements

India has been talking free trade agreements with several partners – both bilateral and regional – in a bid to boost export-oriented domestic manufacturing.

Contributing Advisor

Koushan Das

Manager, Business Intelligence

These FTAs cover a wide array of topics, such as tariff reduction impacting the entire manufacturing and the agricultural sectors; rules on services trade; digital issues such as data localization; intellectual property rights that may have an impact on the accessibility of pharmaceutical drugs; and investment promotion, facilitation, and protection.

India has signed 13 FTAs in the last five years with its trading partners, including the India-Mauritius Comprehensive Economic Corporation and Partnership Agreement (CECPA), India-UAE Comprehensive Partnership Agreement (CEPA – in effect from May 2022), and India-Australia Economic Cooperation and Trade Agreement (IndAus ECTA – in effect from December 29, 2022).

India is actively negotiating with the UK, Canada, EU, and Israel to conclude FTAs.

List of major free trade agreements

Major Free Trade Agreements

ASEAN-India Free Trade Area

The signing of the ASEAN-India Trade Area (AIFTA) paved the way for the creation of one of the world’s largest free trade area markets, creating opportunities for over 1.9 billion people in ASEAN and India with a combined GDP of US$4.8 trillion. The agreement set off tariff liberalization on over 90 percent of products, including palm oil, pepper, black tea, and coffee.

Asia Pacific Trade Agreement

The Asia Pacific Trade Agreement (APTA), also known as the Bangkok Agreement, includes Bangladesh, India, Lao, China, Mongolia, South Korea, and Sri Lanka. APTA’s key objective is to hasten economic development among the participating countries.

The trade and investment liberalization measures covering merchandise goods and services aim to contribute to intra-regional trade and economic strengthening.

India-Japan Comprehensive Economic Partnership Agreement

The India-Japan Comprehensive Economic Partnership Agreement (CEPA) removes duties on almost 90 percent of products traded between the two countries. Sectors that have benefited from the lower duties include textiles, pharmaceuticals, agricultural products, tea, petrochemical and chemical products, cement, and jewelry.

India-Republic of Korea Comprehensive Economic Partnership Agreement

South Korea reduced tariffs on 17 Indian products, while India reduced import tariffs on 11 items. The agreement eases restrictions on foreign direct investments for both countries and will provide better access for the Indian service industry, such as IT, engineering, and finance, in South Korea.

India-Singapore Comprehensive Economic Partnership Agreement

The two countries have reduced or eliminated tariffs on several items. The trade agreement also eliminates tariff barriers, double taxation, duplicate processes, and regulations and provides unhindered access and collaboration between the financial institutions of Singapore and India.

South Asian Free Trade Area

South Asian Free Trade Area (SAFTA) aims to reduce customs duties on all traded goods to zero.

SAFTA categorized Bangladesh, Bhutan, Maldives, and Nepal as Least Developed Contracting States (LDCs) and India, Pakistan, and Sri Lanka as Non-Least Developed Contracting States (NLDCs).

The SAFTA Agreement provides for a phased tariff liberalization program (TLP) under which, in two years, NLDCS would bring down tariffs to 20%, while LDCS will bring them down to 30%. Non-LDCS will then bring down tariffs from 20% to 0-5% in 5 years (Sri Lanka 6 years), while LDCS will do so in 8 years. NLDCs will reduce their tariffs for L.D.C. products to 0-5% in 3 years. This TLP would cover all tariff lines except those kept in the sensitive list (negative list) by the member states.

India-UAE Comprehensive Economic Partnership Agreement (CEPA)

The India-UAE CEPA is likely to benefit about US$ 26 billion worth of Indian products that are subjected to 5% import duty by the UAE. Overall UAE is offering elimination of duties on 97 % of its tariff lines corresponding to 99% of imports from India. 90% of India’s total exports to the UAE in value terms would become duty-free immediately upon entry into force of the CEPA.

The UAE’s immediate zero-duty market access offer to India covers all labor-intensive sectors such as gems and jewelry, textiles, leather, footwear, sports goods, plastics, furniture, agricultural and wood products, engineering products, pharmaceuticals, medical devices, and Automobiles. UAE can also become a hub for sourcing India’s capital goods and intermediates for further value-added exports to other destinations in Africa and Europe.

Also, for the first time in any Trade Agreement, a separate Annex on Pharmaceuticals has been incorporated to facilitate access to Indian pharmaceutical products, especially automatic registration and marketing authorization in 90 days for products approved by developed country regulators, namely the United States (USFDA), the United Kingdom (UKMHRA), the European Union (EMA), and Japan (PMDA).

India-Australia CEPA

Australia’s parliament ratified the India-Australia Economic Cooperation and Trade Agreement (ECTA) on November 22. Under the India-Australia ECTA, duties on 100 percent tariff lines will be eliminated by Australia, covering 6,000 broad sectors. Meanwhile, India’s tariffs on 90 percent of Australian goods exports, including meat, wool, cotton, seafood, nuts, and avocados, will be removed.

Exporters, businesses, workers, and consumers in both markets are set to benefit from the trade liberalization, market opening, and freer movement of people. 

Implementation of the trade agreement will create an estimated one million jobs as a boost in business is expected in several labor-intensive industries, including textiles and apparel, select agricultural and fish products, leather, footwear, furniture, sports goods, jewelry, machinery, electrical goods, and railway wagons.

Preferential Trade (PTAs)

India’s Preferential Trade Agreements seek to promote trade with other countries by lowering tariffs and providing access to new markets. This has helped ensure India’s position as a more appealing business location for exporters and importers.

Some strategic benefits of PTAs for India’s development include improved technology transfer, increased integration, and alignment with national standards, among others. A PTA is a formal trade agreement between countries that grants preferential access to specific products from participating countries by lowering tariffs and other trade restrictions.

India has signed six limited coverage Preferential Trade Agreements:

• Asia Pacific Trade Agreement (APTA);
• Global System of Trade Preferences (GSTP);
• SAARC Preferential Trading Agreement (SAPTA);
• India-Afghanistan PTA;
• India-MERCOSUR PTA; and
• India-Chile PTA.

Double Tax Avoidance Agreements (DTAAs)

India has one of the largest networks of tax treaties for the avoidance of double taxation and prevention of tax evasion. India has established over 94 comprehensive DTAAs and eight limited DTAAs, compared with China’s 110 and Vietnam’s 80. The purpose of such tax treaties is to develop a fair and equitable system for the allocation of the right to tax several types of income between the ‘source’ and ‘residence’ countries. 

Impact of Free Trade Agreements

• India's FTAs have significantly contributed to its economic growth. For example, FY 2023-24 closes with highest monthly merchandise exports of the current FY in March 2024 at USD 41.68 Billion, partially attributed to FTAs.
• Non-petroleum & Non-Gems & Jewellery exports  rose by 1.45 percent, from USD 315.64 billion in FY 2022-23 to USD 320.21 billion in FY 2023-24.
• Drugs and pharmaceuticals exports increase by 9.67 percent from USD 25.39 billion in FY 2022-23 to USD 27.85 billion in FY 2023-24.
• Engineering Goods exports increase by 2.13 percent from USD 107.04 billion in FY 2022-23 to USD 109.32 billion in FY 2023-24. While electronic goods exports increase by 23.64 percent from USD 23.55 billion in FY 2022-23 to USD 29.12 billion in FY 2023-24.
• The overall trade deficit is projected to improve significantly by 35.77 percent, decreasing from USD 121.62 billion in FY 2022-23 to USD 78.12 billion in FY 2023-24. Meanwhile, the merchandise trade deficit is expected to improve by 9.33 percent, reaching USD 240.17 billion in the current fiscal year compared to USD 264.90 billion in FY 2022-23.
• The average tariff reduction in FTAs ranges between 80 percent and 100 percent on various goods, making Indian products more competitive globally.
• Consumers enjoy lower prices due to reduced tariffs, with the average tariff rate for 2022 was 0.00 percent, a 5.87 percent decline from 2021.

Future of India’s Free Trade Agreements

India is negotiating FTAs with the UK, Canada, and the EU, targeting sectors like services, digital trade, and sustainable development. The FTA with the UK alone is expected to increase bilateral trade by USD 15 billion by 2030. Future FTAs will likely focus on enhancing digital trade, with projections indicating that the digital economy could add USD 1 trillion to India's GDP by 2025.

The shift towards regional supply chains and the impact of geopolitical changes, such as the US-China trade tensions, are influencing India's FTA strategies to ensure alignment with global trade dynamics.