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India has recently signed several free trade agreements (FTAs), shifting its trade strategy towards deeper integration with global value chains. However, trade experts caution that securing market access is only the first step; the real challenge lies in enhancing the competitiveness, scale, and compliance capabilities of Indian exporters, particularly MSMEs, to fully utilize these agreements and navigate emerging non-tariff barriers like the EU's (CBAM).
The economic impact of Free Trade Agreements (FTAs) is contingent on FTA utilization rates, which reflect the extent to which exporters actually claim tariff preferences. The article highlights a significant disparity: while India is expanding its FTA network, its utilization rate is estimated at only 20-30%, compared to 60-70% for partner countries exporting to India. This low utilization often stems from the administrative burden of proving Rules of Origin (criteria needed to determine the national source of a product) and obtaining necessary certifications, especially when the tariff differential (preference margin) is minimal, as is common in developed economies with low applied tariffs. Furthermore, India's export competitiveness is hindered by structural issues like the inverted duty structure, where tariffs on raw materials are higher than on finished goods, increasing production costs and reducing the price competitiveness of Indian exports. Addressing these structural bottlenecks is crucial for transforming market access into actual export growth.
India's recent trade strategy reflects a strategic pivot from a protectionist stance to proactive engagement through Comprehensive Economic Partnership Agreements (CEPAs) and FTAs with key partners like the UAE, Australia, and the EFTA countries. These agreements are tailored to leverage India's specific sector strengths and partner market needs. For instance, the India-UAE CEPA acts as a strategic gateway for Indian goods into West Asia and Africa, while the ongoing negotiations with the European Union aim to unlock significant export potential but come with stringent regulatory challenges. The varying impacts of these deals underscore the importance of targeted trade diplomacy that aligns with domestic manufacturing capabilities and addresses specific market nuances, such as leveraging the Indian diaspora for distribution channels and consumer demand in markets like the UK.
A critical governance challenge highlighted is the shifting nature of trade barriers from traditional tariffs to complex regulatory and compliance requirements, often termed non-tariff barriers (NTBs). The impending Carbon Border Adjustment Mechanism (CBAM) by the European Union exemplifies this trend, imposing carbon pricing on imports and posing a significant compliance burden on Indian MSMEs due to data gaps and high verification costs. Effective governance requires a shift from an 'agreement-centric' to an 'implementation-centric' approach. This involves proactive state support for capacity building among Micro, Small and Medium Enterprises, establishing decentralized and affordable domestic testing and certification infrastructure within MSME clusters, and facilitating compliance with global sustainability standards to ensure that India's export ambitions are not derailed by regulatory hurdles.