Signed and Unused: The Gap in India's Trade Agreement Strategy

The Lift Line

Indian exporters claim perhaps a quarter of the preferences India negotiates. Foreign exporters claim two-thirds of theirs coming the other way. Nothing in the text of any agreement explains that gap.

Why This Editorial Matters for Your Exam

External-sector answers in GS3 routinely list India’s agreements and stop. This editorial supplies the three filters that stand between an agreement and an export, utilisation, rules of origin and non-tariff barriers, which lets a candidate assess trade policy rather than recite it. The utilisation point in particular is the kind of analytical move that separates a strong answer.

GS Paper 3: Effects of liberalisation on the economy; external sector; industrial policy and its effects on industrial growth.

GS Paper 2: Bilateral, regional and global groupings and agreements involving India or affecting India’s interests.

For Prelims, fix the in-force dates: TEPA 1 October 2025, India-UK CETA 15 July 2026, and the conclusion of India-EU negotiations on 27 January 2026. These are the dates most likely to be tested and the ones most published material still gets wrong.

Background and Context

The source for this piece is The Hindu’s data analysis of 4 August 2026, whose thesis is that India’s free trade agreements risk widening trade deficits and weakening export competitiveness, and that the corrective lies in domestic industrial capability rather than in further negotiation. The three-filter framework developed below, on utilisation, rules of origin and non-tariff barriers, is this article’s own account of why that outcome occurs; it is not the source’s argument, and a candidate should keep the two apart.

The deficit evidence is the source’s strongest ground. On Global Trade Research Initiative work of June 2026, between 2007-09 and 2023-25 India’s trade deficit grew 381 per cent with ASEAN, 318 per cent with Japan and 268 per cent with South Korea, averaging around US$62 billion a year across the three over the last three years. The comparator is what makes those numbers an argument rather than an observation: over the same period India’s deficit with the rest of the world grew 142 per cent. Deficits with FTA partners therefore grew roughly two to three times faster than deficits with countries India has no agreement with. A related structural complaint is that agreements have worsened India’s inverted duty structure, since finished goods enter duty-free from partner countries while the inputs used to make them domestically still attract higher most-favoured-nation rates, which penalises manufacturing in India relative to importing the finished article.

Against that background, India’s posture has changed direction twice within a decade. The country withdrew from the Regional Comprehensive Economic Partnership in November 2019, citing import surges, the trade deficit with China and inadequate protection for agriculture and dairy. It then moved into a period of rapid bilateral conclusion:

Two of these are worth noting precisely. TEPA is the first agreement India has signed carrying a linked investment commitment, of US$100 billion over fifteen years together with one million direct jobs, structured as $50 billion within ten years of entry into force and a further $50 billion in the succeeding five, rather than tariff concessions alone. CETA entered into force only three weeks before this edition; under it about 99 per cent of India’s exports to the United Kingdom enter duty-free or at reduced tariffs, while India reduces or eliminates tariffs on 90 per cent of tariff lines covering 92 per cent of current UK exports, 64 per cent of them duty-free from the first day.

The volume of activity is not in dispute. What is in question is the inference drawn from it.

The Core Argument / Issue

Utilisation is the number nobody cites

An agreement lowers a tariff for a qualifying good from a qualifying origin, on production of the required documentation. Each of those conditions is a filter.

Consider an exporter facing a most-favoured-nation duty of 5 per cent and a preferential rate of zero. The gain on a consignment is 5 per cent of its value. Against that stands a fixed cost: obtaining a certificate of origin, maintaining records sufficient to establish origin if verified, and understanding a schedule of product-specific rules written in tariff-classification language. For a large consignment from a large firm with a customs department, the calculation is easy. For a small consignment from a small firm, the compliance cost can exceed the preference.

The consequence is that preferences go unclaimed, and the scale of it is now estimated rather than merely suspected. Global Trade Research Initiative work of June 2026 finds that only 20 to 30 per cent of India’s eligible exports use FTA preferences, while partner-country exporters use their preferential access into India at 60 to 70 per cent. GTRI counted 15 agreements covering 27 countries as of June 2026; with the India-UK CETA in force from 15 July 2026 the operative count is now 16 agreements covering 28 countries, with further agreements concluded but not yet implemented.

That asymmetry is the single most useful fact in this whole subject, and it should be stated carefully: it means Indian firms are systematically leaving negotiated concessions unclaimed while foreign firms are collecting theirs. GTRI attributes it to high compliance costs, thin margins of preference where partner MFN tariffs are already low, and distortions in India’s own tariff architecture.

One qualification belongs with the figure. These are think-tank estimates, not official statistics. Official Indian statistics do not routinely report utilisation by agreement and product line, which means the principal evidence of whether an agreement worked is absent from the government’s own record and has to be reconstructed by outside researchers.

Rules of origin: a legitimate purpose with a distributional cost

Rules of origin exist to prevent trade deflection, the practice of routing third-country goods through a partner state to capture a preference the third country has not negotiated. Without them, an agreement with any one country becomes, in effect, an agreement with everyone that country trades with.

The standard tests are:

India’s CAROTAR Rules, 2020, framed under Section 28DA of the Customs Act, 1962 and in force from 21 September 2020, placed a due-diligence obligation on the importer to possess information establishing that a good genuinely qualifies. Mere production of a certificate of origin is not sufficient; origin information must be held in the prescribed form and records retained for five years. Customs must first seek that information from the importer before initiating verification with the exporting country, and may suspend preferential treatment and assess provisionally against a bond in the meantime. The policy purpose is sound and the concern that prompted it was real.

The cost is administrative and it is regressive. A large importer can maintain supplier declarations and audit trails. A small one, facing the prospect of a verification request, may decline the preference and pay the MFN duty rather than risk a dispute. The rule therefore deters some legitimate claims alongside the illegitimate ones it is designed to stop, and the deterrence is concentrated among smaller firms.

Non-tariff barriers operate on a different axis

This is the constraint tariff negotiation cannot reach, and it is where the disappointment in agricultural and pharmaceutical access has consistently originated.

A tariff of zero on a product that cannot obtain certification is worth nothing. This is why mutual recognition agreements, under which each party accepts the other’s testing and certification, are frequently more valuable in practice than the tariff schedule they accompany, and why they are correspondingly harder to negotiate.

The counter-argument deserves serious statement

The utilisation critique can slide into an argument against agreements as such, which would be a mistake.

Trade agreements do work that does not appear in utilisation statistics. They anchor investment decisions, because a firm choosing where to locate production for a market values guaranteed access more than a current tariff rate. They signal policy predictability, which has a value independent of any particular concession. They embed a country in rule-making processes, on standards, digital trade, sustainability requirements, from which exclusion is expensive and difficult to reverse. And they create the legal architecture within which utilisation can subsequently be improved.

India’s RCEP withdrawal in 2019 is the natural test case, and it is genuinely contested. The concerns cited were substantive. But the years since have also seen the argument that non-participation in the largest regional arrangement in Asia carried costs in supply-chain positioning that were not fully weighed at the time. Whatever one concludes, the episode establishes the general point: not signing is also a decision with consequences, and an argument that only counts the costs of agreements is incomplete.

How to Think About This (Analytical Frame)

When policy success is measured by the completion of an instrument rather than by the outcome the instrument was meant to produce, look for the step between the two and ask whether anyone is measuring it. Agreements signed, schemes launched, laws enacted, portals built: each is an input that is easy to count and politically legible, and each stands proxy for an outcome that is harder to measure. The diagnostic question is whether the intermediate step, uptake, utilisation, compliance, enforcement, is being measured at all, because a step nobody measures is a step nobody is accountable for. Apply this test to scheme disbursal versus scheme outcomes, to legislation versus rule notification, and to infrastructure commissioned versus infrastructure used.

The Diagram in Words

Picture a new gate built into a wall between two markets, with a sign saying that traders may pass through it free of charge. The gate is real and the sign is accurate. But the gate keeper requires a document proving where each cartload was made, and obtaining that document takes a morning at an office across town. Beyond the gate, an inspector checks that the goods meet a specification written by the market on the far side, and only a laboratory in that market can certify compliance. A large merchant with clerks and a standing arrangement passes through easily. A small trader looks at the morning lost and the laboratory fee, and takes the old road with the toll on it, because the toll is smaller than the trouble. The gate is open. Most of the traffic still goes around.

Way Forward

1. Publish utilisation rates by agreement and by product line, since the single most important fact about a trade agreement is currently not in the public record.
2. Fund exporter-facing facilitation, so that small firms can identify and claim the concessions they are already entitled to; the return on this is immediate because the access already exists.
3. Simplify and digitise origin certification, including self-certification with post-clearance audit for established exporters, which preserves the anti-deflection purpose while lowering the fixed cost.
4. Prioritise mutual recognition agreements on conformity assessment, because standards, not tariffs, are the operative barrier in the sectors where India’s export potential is largest.
5. Conduct and publish ex-post review of each agreement against its projected gains, so that the next negotiation is disciplined by evidence about the last one.
6. Correct the inverted duty structure created or worsened by agreements, so that domestic manufacture is not penalised relative to importing the finished article from a partner country.
7. Address behind-the-border constraints in parallel, since logistics cost, port turnaround and inspection delay reduce competitiveness in ways no trade agreement can offset.

PYQ Linkage and Practice

UPSC has tested RCEP, India’s bilateral trade agreements, rules of origin, non-tariff barriers and the external sector across recent GS3 cycles, and has repeatedly asked whether India’s trade strategy serves its industrial objectives. The utilisation framing is the analytical addition that most answers lack.

Practice question: “The number of trade agreements a country signs measures its diplomatic activity; the share of preferences its exporters actually use measures its trade policy.” Examine this distinction with reference to India’s recent agreements, and suggest what would have to change for the second measure to improve. (250 words, 15 marks)

Interview angle: If a large share of eligible exports never claims the preferential tariff an agreement provides, the binding constraint is administrative rather than diplomatic. Where would you put the next rupee: into negotiating the next agreement, or into making the existing ones usable by a small exporter?

Sources: The Hindu, Ministry of Commerce and Industry, Central Board of Indirect Taxes and Customs

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