India is undertaking one of the most ambitious trade pivots since 1991. The pivot doesn’t involve mere tariff reductions or is part of diplomatic symbolism. It also concerns whether India establishes its manufacturing prowess embedded in global supply chains, or remains as a large consumption market economy that is dependent on imports.
With Commerce Minister Piyush Goyal confirming the operationalisation of recent Free Trade Agreements with the UK and Oman by April 2026 followed by New Zealand in September, New Delhi is decisively redefining its trade posture, which merits a closer scrutiny.
India is gradually integrating into global supply chains not by lowering its multilateral World Trade Organization tariffs, which average roughly around 15.8%, but through targeted bilateral agreements. As former Chief Economic Adviser Arvind Subramanian argued in The Economist, this marks a clear dismantling of recent protectionist tendencies. If these agreements endure, India could emerge as one of the world’s most open large economies.
India commands around 2-3.5% of low-skilled global exports compared to China’s 53%, while merchandise exports remain at 12-13% of GDP. The new treaties aim to close that gap.
However, trade pacts expose competitiveness. Share of manufacturing in India’s economy has remained between 15% and 17% for over a decade, far below the government’s 25% aspiration. The question is whether domestic industry is capable of rising.
The utilization paradox
India has attempted this integration before by signing agreements with ASEAN, Japan, and South Korea to plug Indian firms into the Asian growth engine.
The results were sobering. Since the ASEAN pact took effect in 2010, India’s trade deficit with the bloc widened from $7.5 billion to nearly $44 billion by FY23, with imports growing to roughly double the value of exports. Trade expanded, but the benefits flowed unevenly.
The reason was the Inverted Duty Structure. India reduced tariffs on finished goods, while keeping import duties on intermediate inputs elevated.
It became cheaper to import fully assembled products than to import components and manufacture domestically. Instead of strengthening local production, the policy framework incentivised dependence on foreign assembly lines.
Regulatory asymmetry compounded the distortion. As India lowered tariff barriers, partner countries tightened non-tariff measures. Indian exporters confronted sanitary, phytosanitary, and technical standards that proved difficult to meet at scale.
The deeper issue was institutional capacity. India’s FTA utilisation rate has hovered around 25%, against 70-80% among developed peers. In practical terms, three-quarters of eligible exporters could not effectively use the preferential access that had been negotiated on their behalf.
Trade agreements amplify underlying strengths and weaknesses. When domestic industry lacks scale, compliance capacity, and cost competitiveness, openness magnifies asymmetry rather than correcting it.
The geoeconomic pivot
The current wave of agreements reflects a strategic recalibration. India is moving from a ‘Look East’ strategy, where it competes directly with established Asian manufacturing hubs, to deeper engagement with developed markets that offer income complementarity and demand for higher-value goods and services.
India’s domestic demand base is central to this shift. In a fragmented global economy, a consumption-driven system accounting for roughly 60% of GDP represents leverage. The pact with the European Free Trade Association, which includes a binding pledge of $100 billion in foreign direct investment over 15 years, illustrates how trade policy is now being deployed as industrial policy.
Yet this pivot introduces a structural contradiction. India seeks to replicate elements of the export-led manufacturing successes of East Asia. Those models relied on wage discipline, rapid labour absorption, and tightly coordinated industrial upgrading. India, as a politically competitive democracy dependent on rising real wages, cannot pursue labour compression as a development strategy. The ambition, therefore, is to achieve export dynamism without suppressing incomes.
Bottlenecks that remain
India’s industrial landscape remains skewed toward large firms. If mid-size manufacturers cannot scale, formalise, and absorb compliance costs, new treaties will once again disproportionately benefit the largest players.
Human capital remains an equally binding constraint. Manufacturing employs only 11-12% of the workforce. Without sustained investment in skills, tariff concessions will not translate into durable competitiveness.
Developed markets are also intensifying regulatory pressure by tightening environmental and traceability standards. The EU’s Carbon Border Adjustment Mechanism represents the new frontier of non-tariff barriers. Zero-duty access offers little advantage if exports fail to meet carbon or compliance thresholds.
A Defining Test
India’s new trade agreements are more carefully structured than earlier pacts and reflect clearer strategic intent. They represent a deliberate wager that market access can catalyse domestic transformation.
If domestic reforms deepen, firms scale, skills improve, and logistics costs fall, these agreements could mark the long-awaited breakthrough in India’s industrial trajectory. If structural bottlenecks persist, openness will once again widen trade imbalances and concentrate gains among a narrow set of firms.
Deepanshu Mohan is Professor of Economics and Dean, IDEAS, Office of Interdisciplinary Studies, and Director, Centre for New Economics Studies, OP Jindal Global University; Ankur Singh Is a Research Analyst with Centre for New Economics Studies (CNES), OP Jindal Global University.