March 28, 2025

India stands at a pivotal juncture in global trade, with the pressing need to navigate a protectionist world. Free Trade Agreements (FTAs) have long been a cornerstone of our foreign economic policy, offering potential benefits in enhancing trade volume, boosting industrial output, and generating employment. However, with each partnership comes a set of challenges. In 2025, as India negotiates or revisits its FTAs with the US, EU, New Zealand, and Mercosur, the stakes are high, both in terms of economic gains and potential trade-offs.  The US remains India’s largest trading partner, with bilateral trade crossing $119.7 billion in 2023-24. The potential FTA with the US aims to further reduce tariffs, expand market access, and streamline regulations. Sectors like IT, pharmaceuticals, and textiles stand to gain significantly, as reduced duties will enhance the competitiveness of Indian exports. However, the US is expected to push for stronger intellectual property (IP) protections, which could affect India’s pharmaceutical sector, particularly its generic drug industry, valued at $50 billion. The US demands for tariff cuts on automobiles (currently exceeding 100% duty) threaten India’s $21.2 billion (in FY24) domestic auto industry. Without this FTA, India risks losing competitiveness to rivals like Vietnam, especially amid Trump’s 25% tariff threats.  The US may also demand greater market access for agricultural products (mainly corn, cotton and soyabean), a sensitive area for India. The key to a successful FTA will be balancing these competing interests while leveraging India’s strengths in technology and services. India’s negotiations with the European Union (EU)  are particularly significant in 2025. During 2023-24, bilateral trade in goods between India and theEU reached an impressive $137.41 billion, with Indian exports to the EU amounting to $76 billion and imports from the EU standing at over $61 billion, firmly establishing the EU as India’s largest trading partner in goods. The bilateral trade in services in 2023 achieved a record high of $51 billion. This marks an unprecedented milestone in the trade of services between the two economies. Major exports from India include textiles, machinery and chemical products. An FTA could lead to substantial tariff reductions, particularly for Indian textiles and leather, where current EU tariffs range between 12-16%. On the downside, the EU is likely to push for stricter labour and environmental standards, which could increase compliance costs for Indian manufacturers. The EU’s Carbon Border Adjustment Mechanism (CBAM) could impose 20-35% tariffs on India’s $6.64 billion steel and aluminum exports, risking around $1.5-$2 billion in annual loss unless mitigated through FTA concessions. Failure to secure this deal could cede ground to China’s growing EU trade footprint. Another area of concern is the EU’s demand for easier access to India’s services market, especially in sectors like insurance and finance. While such an agreement could attract EU investments, it also opens India to increased competition from European service providers, potentially impacting domestic businesses. India’s trade relationship with New Zealand is smaller compared to other partners, with bilateral trade hovering under $2 billion in 2024. The FTA with New Zealand is expected to focus on niche sectors such as dairy, wool, and technology. New Zealand is keen on greater access to India’s dairy market, valued at over $135 billion, which is a politically sensitive issue in India. An influx of New Zealand dairy products could hurt domestic producers, particularly in regions like Gujarat and Punjab. On the other hand, India could benefit from New Zealand’s expertise in agricultural technology and sustainable farming practices, crucial for India’s food security and sustainability goals. The challenge for India will be in negotiating provisions that safeguard local interests while tapping into New Zealand’s advanced technology sectors. Mercosur, the South American trade bloc comprising Brazil, Argentina, Paraguay, and Uruguay, represents a new frontier for India. Mercosur signed a landmark FTA with the EU in December 2024, spotlighting India’s lagging Preferential Trade Agreement (PTA) from 2009.  Bilateral trade with Mercosur amounted to $16.59 billion in FY24, with major Indian exports including automobiles, pharmaceuticals, and chemicals. An FTA could help India expand its market share in the region, especially in sectors like automobiles, where India is a global leader. However, Mercosur countries are likely to demand greater access to India’s agricultural markets, particularly for soyabean, sugar, and meat products. This could create tension within India’s agricultural sector, which is already grappling with issues related to farm incomes and sustainability. Moreover, the distance between India and Mercosur adds logistical challenges, potentially increasing transportation costs and affecting the competitiveness of Indian exports. India’s FTAs with the US, EU, New Zealand, and Mercosur hold immense potential for boosting trade and investment. However, the benefits must be carefully weighed against the challenges. With each partner, India will have to navigate sensitive sectors like agriculture and pharmaceuticals while ensuring that its domestic industries remain competitive. The success of these FTAs will depend on India’s ability to negotiate balanced agreements that protect key domestic interests while opening up new avenues for growth. A well-structured approach could unlock billions in trade opportunities, but missteps could lead to disruptions in key sectors, making it crucial for India to tread cautiously.