Why it will take more than just signing FTAs to boost India’s exports
These days Ashish Gujarati, chairman and managing director of Surat-headquartered Aditya Textile Solutions, is busy racking up manufacturing certifications, to prove, among other things, that his products are devoid of harmful substances and chemicals. He is proud to have already secured the Global Recycled Standard (GRS) certificate, which proves that his yarn is made of recycled plastic or yarn. “Many top European brands have set internal targets to sell more recycled fabric so this could be a big market for us. It is not rocket science but getting all these certificates will take up to a year,” he said.
Gujarati has been excited about the prospect of exploring the European Union market since a free trade agreement (FTA) with the bloc was announced at the beginning of the year and began pursuing certifications to ensure his company complied with the EU’s stringent compliance norms. Likewise, exporters across India’s industrial hubs, from textile and garment factories to engineering and auto-component clusters, are gearing up to tap the opportunities that will arise once the FTA is formally implemented early next year.
In conference halls, trade association offices and online workshops, hundreds of business owners and executives are learning the fine print of India’s new free trade agreements. They want to know how to qualify for lower tariffs, prove where their products are made, meet foreign quality standards and navigate the paperwork needed to sell in overseas markets.
For many exporters, the challenge is no longer just finding customers abroad or making products at competitive prices. It is about understanding complex trade rules and meeting the standards that determine whether their goods can enter foreign markets on favourable terms.
“The market may be open on paper, but the ability to use that access is uneven. Businesses with finance, reliable suppliers and strong compliance systems are better placed to move first,” said Sanjay Notani, partner at Mumbai-headquartered law firm Economic Laws Practice, where he heads International Trade and Customs. “The policy challenge is to help smaller firms build those capabilities, so the gains do not remain concentrated among companies that already have them.”
To that end, industry bodies and government agencies are scrambling to ensure that Indian manufacturers, particularly smaller ones, know how to take advantage of them.
The stakes go well beyond tariff savings. India wants to emerge as a global manufacturing powerhouse and a credible alternative to China, but signing trade agreements is only half the battle. Turning preferential access to overseas markets into actual export orders requires businesses to upgrade their processes, documentation, quality controls and, in some cases, entire supply chains.
FTA push
India has emerged as one of the world’s most active negotiators of free trade agreements. After nearly a decade of limited progress, marked by a brief turn towards protectionism, New Delhi has revived its trade agenda with a sharper focus on strategic partnerships, investment and supply-chain integration.
This new wave, beginning after 2020, includes recently implemented pacts with the UK and New Zealand, a deal with the European Union (called the mother of all deals, and awaiting implementation), as well as ongoing negotiations, notably a much-awaited bilateral trade agreement with the US. Together, the economies covered by India’s existing and proposed FTAs account for more than 75% of its exports, underscoring the growing importance of trade agreements to India’s economic strategy.
In a recent press release, the Indian government said that beyond newer engagements, it is also focusing on their effective utilisation. The emphasis, it said, is on translating market access into wider export participation, investment and employment. Officials understand the risk of broadening market access without widening the number of Indian businesses able to benefit.
“This time, we see that the Indian government is being more proactive. If you look at the learnings from the case studies of Vietnam, Korea and Japan, what they did to increase the offtake of FTAs was a lot of awareness creation,” said Rajat Bhargava, chief executive, speciality sector, at RPG Enterprises. He is also the chair of trade body FICCI’s trade and supply chain committee.
Poor track record
History is not on India’s side. Only an estimated 20–30% of India’s eligible exports ever take advantage of FTA preferences, according to a report by Bank of America released in September. This, it said, is in sharp contrast with an FTA utilisation rate of 60–70% in developed markets.
The country’s first wave of free trade agreements, implemented before 2012, focused largely on neighbouring countries and East Asian economies that had pursued export-led growth strategies. These FTAs did not do much for Indian exporters, and instead, the trade deficit with the new partners only widened.
India has put older FTAs with South Korea, Japan and ASEAN countries, seen to be one-sided, under review to fix the trade imbalance. The deficit with South Korea since the 2010 pact tripled to $15.24 billion in fiscal year 2025, according to ministry of commerce and industry data shared with the Rajya Sabha, as Korean steel, electronics and auto components flooded India. The deficit with Japan also tripled to $12.66 billion in fiscal year 2025 from 2011.
The reasons for poor FTA usage have been multifold and complex, generating a vicious circle that is hard to break. Apart from the compliance burden and non-tariff barriers regulations around food and safety, consumer standards and tracing requirements, India’s high landed costs versus its Asian neighbours deter exporters from even trying to break into new markets. Sometimes, despite stringent and high anti-dumping duties imposed on Chinese goods by developed economies, they still remain cheaper than India’s.
For MSMEs, the biggest hurdle is often the upfront cost of becoming export-ready. Testing, certification, emissions tracking, supplier documentation and customer audits demand both money and management time, often before a single export order is secured. While lower tariffs make products attractive in the global market, smaller businesses must first find the resources to meet the requirements needed to benefit from them.
According to a Niti Aayog report, MSMEs account for 38.4% of total manufacturing output and contribute 45.03% of the country's overall exports.
Pain points
The India-UAE Comprehensive Economic Partnership Agreement (CEPA), a landmark FTA that came into force in 2022, helped Himanshi Sharma, the third-generation leader at Marc Salon & Beauty Equipments, break into the new market. She has also started taking advantage of the newly enforced FTA with the United Kingdom. But Sharma acknowledges the extensive work that goes into using the FTAs.
“It took a while to gather everything together and build momentum with our exports. For the longest time, we also had to put it off because of the amount of paperwork. Each country has different compliance requirements and certifications that are needed to be eligible for the agreement,” she said. Her company needs to declare each and every component of salon chairs at customs: metal, steel, leatherite, wires, electricals, and so on.
Cremica Food Industries is in the midst of an expansion in the UK market to take advantage of the FTA with that country. Complying with regulations there is expensive, but product export prices address those costs, said Akshay Bector, the company’s managing director. “It has taken a year just for product development, trials, shelf-life studies and compliance with local laws to create products for new export markets, including the UK. If you are entering a market from scratch, it is a 3–5-year game plan,” he added.
Using the benefits under an FTA makes Indian products more competitive on price for clients abroad. The clients don’t have to pay an extra tariff for importing goods from India, but qualifying for such benefits requires multiple documents, especially proof of origin. The POO document certifies that goods in a shipment are wholly obtained, produced, manufactured or processed in a particular country.
“The purpose of FTAs is to support both countries and their own manufacturing and products. The biggest challenge in India is that we import most components from China, so we struggle to claim that they are of Indian origin. We are masters of assembling, but when it comes to component manufacturing, not so much,” said Haresh Calcuttawala, founder of Trezix, a global trade platform.
Getting the POO certificate requires an Indian exporter to reveal to authorities and their global counterparts the sources of their raw materials and whether enough value addition has taken place in India. Some countries even ask for production logs and cost sheets to stop tariff evasion through third-country routing.
And therein lies the challenge. It is no secret that Indian manufacturing is dominated by family-run small and medium-scale enterprises that care more about keeping their financial goals conservative than opening their books to foreign inspection agencies. The inspectors seek granular information about the carbon footprint, labour and hygiene at the factories of exporters and those of their suppliers, who can sometimes refuse to share such details, killing opportunities.
Indeed, the focus on environmental sustainability is translating into demands on Indian companies that were earlier unheard of. One of these is the European Union’s Carbon Border Adjustment Mechanism. There are several different forms of these in other developed economies such as the UK, New Zealand and Australia.
Showroom B2B, a fashion and apparel sourcing platform, had to conduct a carbon emissions study to trace how much carbon it was generating at its multiple factories spread across India to become eligible to sell to new UK clients. “You have to check what kind of ACs, what kind of diesel is being used, whatever carbon footprint is being generated company-wide. It was a difficult and lengthy process. How many hours are the lights on in a unit? What kind of lights are being used, LED or CFL? How do you deal with scrap,” the company’s CEO Abhishek Dua said, listing some of the tedious tasks.
The company has not yet conducted a similar study at its partner factories because the promoters of those firms were not ready to share such detailed information. The company runs seven units of its own and works with 15–16 units on a contract basis. “That is a daunting task in front of us,” said Dua.
Marc Salon’s Sharma is also currently struggling with something similar with a prospective client in New Zealand. The company there wants Marc Salon to provide a certificate of sustainability for a component that it imports from China.
“We import some electrical equipment from China, and the client in New Zealand has a very specific guideline on the certifications they need, and we have not been able to get those certifications from our vendor in China. We haven’t been able to close the deal because of that,” Sharma said.
Customs hurdle
Importing for exporting is another facet of the complex FTA puzzle. Importers not using FTAs incur higher input costs and, consequently, have higher export prices, making India less competitive on price versus its Asian neighbours.
“Many exporters outside don't want to expose bills of material to Indian buyers. There is a lack of trust there. Indian customs often make them open up their compliance records to see if they are evading duties unfairly by citing FTAs,” said Calcuttawala.
Trouble with customs is a huge pain point for importers. When customs disputes an import, the whole shipment gets held up, playing havoc with the supply chain and production pipeline. A toy exporter in Bengaluru, whose products are sold in high-end retail chains across the US and Europe, has had a shipment stuck at the airport for weeks. One of his employees has been waiting outside the customs office for days on end. The delay is proving prohibitively expensive.
“India does not have a full-fledged toy components ecosystem that sells motors used in toy cars at affordable prices so we have to import. But the customs rules are meant to break us, not make us. Sign as many FTAs as you want but until our prices are competitive versus China or Vietnam no one will buy from us,” said the exporter, who did not want to be named.
To avoid this pain, some importers simply do not avail of FTA benefits and opt to pay the full tariff on goods.
“Companies may choose not to manufacture in India because they know this pain exists. Also, existing manufacturers cannot be competitive and expand their production because their inputs are expensive. Blocking imports makes your manufacturing exports less competitive. That is the main problem with Indian FTAs,” said Rahul Ahluwalia, founding director at the Foundation for Economic Development, a New Delhi-based think tank.
Ahluwalia suggested that tariff rationalization on imports into India can go a long way in reducing customs disputes at the border. Customs have, once you count cesses and surcharges, dozens of different rates. “If you reduce them to, for example, three, you automatically have less scope for disputes and classification errors,” he said.
For now, exporters are hopeful about the many changes the government has brought in to simplify labour codes and improve the pace of approvals. But they warn that higher land and power prices make the landed costs of Indian products on global shores expensive despite the benefits from FTAs.
Smaller Indian factories are also inherently less financially competitive than the mega factories of China and Bangladesh. A manufacturer can face more than 1,400 compliance obligations a year, BofA estimates.
“You need to be able to produce as efficiently as Vietnam, Bangladesh and China,” said Ahluwalia. “The moment you can produce as efficiently as these countries, the FTA advantage will fully kick in.”