Rising trade ambitions

Finally, it was the rising grocery prices and general discontent with his policies, reflected in the revived popularity of Democrats in the Mayoral elections, which forced US President Donald Trump to act. On 14 November, Trump removed tariffs he had imposed on more than 200 imported food products. Indian agricultural exporters were among the winners from the US President’s exemption of dozens of food items from his reciprocal tariff regime – a move which his advisors told him could help to revive lost demand. It was the first concrete signal from Washington that Trump’s policies weren’t working – and that he was amenable to resolving the trade logjam with India.

New Delhi responded in kind, with the state-owned oil companies concluding a one-year deal for imports of 2.2 million tonnes per annum of liquefied petroleum gas (LPG) in 2026 from the US. The imports, accounting for close to 10 per cent of the country’s annual imports, will be sourced from the US Gulf Coast – the first structured contract of US LPG for the Indian market. Officials, however, said that the deal was in the works for a long time, but its timing raised eyebrows. The government claims that LPG procurement is separate from the bilateral trade agreement (BTA). Rajesh Agrawal, Union commerce secretary, says that the arrangement is aimed at helping maintain the overall trade balance between the two countries.

The deal followed the commitment expressed by India to scale up energy imports from the US and pare down imports from Russia. Besides LPG, Indian oil companies are increasing crude oil imports from the US, with the monthly crude imports in October climbing to their highest level since March 2021. India’s largest conglomerate, Reliance Industries, has stopped importing Russian crude oil for its export-only refining unit at Jamnagar in Gujarat. While the move aims to comply with an EU ban on fuel imports made from Russian oil through third countries, which takes effect next year, it is meant to align with US sanctions on major Russian oil producers Rosneft and Lukoil, which have kicked in. “This transition has been completed ahead of schedule to ensure full compliance with product-import restrictions coming into force on 21 January 2026,” Reliance said in a statement. The White House welcomed the move by Reliance. The energy sector is emerging to be central to the two countries finalising their trade agreement.

As for the removal of US tariffs on food products, $2.5-3 billion of exports will benefit from the tariff exemptions, says Ajay Sahai, director general, Federation of Indian Export Organisations (FIEO). “This order opens space for premium, speciality and value-added products,” he adds. “Exporters who shift towards higher-value segments will be better protected from price pressures and can tap rising consumer demand.” Officials involved in trade and farm export policy said the exemptions are also a positive signal for ongoing US-India trade talks and could ease export pressure triggered by this year’s tariff increases.

Step to the India-US pact

A lot is at stake. The US remained India’s largest trading partner for the fourth consecutive year in 2024-25, with bilateral trade valued at $131.84 billion ($86.5 billion exports). It accounts for about 18 per cent of India’s total goods exports, 6.22 per cent in imports, and 10.73per cent in the country’s total merchandise trade. Merchandise exports to the US declined by 11.93 per cent (to $5.46 billion) this September due to the high tariffs imposed by Washington, while imports increased by 11.78 per cent (to $3.98 billion) during the month. Goods exports to the US dropped 8.6 per cent year-on-year (to $6.3 billion) in October 2025,

The proposed pact aims to more than double the bilateral trade to $500 billion by 2030 from the current $191 billion. Top officials are expressing optimism about the detailed deal, which will consist of two components: a first tranche aimed towards resolving tariff-related issues, including reciprocal tariffs and oil tariffs, and the second, relating to technology transfer, data protection, increased market access for Indian goods and access for Indian services professionals to the US market, a critical demand for India’s growing IT and services sectors. The first tranche is ready, while the second may take some time.

Officials, however, add a rider that unless the deal addresses the issue of a 25 per cent penalty on India on account of Russian oil imports, the agreement would have no meaning. If the Russian oil issue gets settled – and Trump has hinted at an ongoing settlement – the penalty tariffs could be withdrawn. India’s imports of Russian oil have come down in October, and from November, a sharp fall is expected as both public and private refiners have cut down orders following the US sanctions on Russian oil companies.

If the trade deal with the US happens soon, it could open the doors for a deal with the European Union as well. Other FTAs that have been in the pipeline may also fall in place soon. These FTAs will be catalysts for export-led growth, an economic strategy for wealth creation, employment and industrial prosperity that China and the Southeast Asian tigers followed.  In our case, this strategy relies on policies that promote exports, such as the Production Linked Incentive (PLI) scheme, crucial in creating jobs and boosting foreign exchange reserves. Key sectors driving this growth include pharmaceuticals, electronics and textiles, with a recent surge in smartphone exports. India aims to achieve $2 trillion in exports by 2030, which will require continued investment in key sectors and a focus on improving infrastructure and policies.

Across Asia, Europe and the Middle East, India is systematically expanding its economic footprint. Together, these moves signal a coordinated push to diversify trade, attract investment and strengthen India’s geopolitical and economic influence. Prime Minister Narendra Modi has been urging exporters to make the most of the existing FTAs that India has signed and “leave their comfort zones” to capture new market opportunities. His latest exhortation came on 4 November at a high-level meeting with export councils.

As of 2025, India has 13 active Free Trade Agreements (FTAs) and several ongoing negotiations aimed at strengthening bilateral and regional trade partnerships. Additionally, India is reevaluating its investment treaties and preferential trade agreements to align with contemporary economic realities, ensuring a balanced approach between global investor protection and national interests.

Among other countries, India has bilateral trade agreements covering goods and services with Singapore, South Korea, Japan, Malaysia, Mauritius, United Arab Emirates (UAE), Australia and an FTA in services and investment with the Association of South East Asian Nations (ASEAN) at present. Supply chain disruptions, rising protectionism and impending tariff wars brought to the forefront the importance of bilateral trade deals like never before.

India spent a better part of 2024 negotiating for tweaks in existing FTAs in a bid to ensure more balanced outcomes. It is in the process of reviewing the trade deal with the 10-nation grouping of the Association of Southeast Asian Nations (ASEAN), as New Delhi feels that it has lost more than it gained.

Apart from that, India is also seeking a review meeting with the UAE over issues around rules of origin in the Comprehensive Economic Partnership Agreement (CEPA) between them, signed in May 2022. This comes amid concerns over concessions to the UAE via the trade deal on imports of silver and gold, which may have led to a sharp rise in inbound shipments of precious metals in India, thereby pushing up India’s trade deficit.

India-UK FTA a turning point?

But, in 2025, the India-UK FTA was officially signed and formalised during Modi’s visit to the UK, where he held bilateral discussions with his counterpart Keir Starmer. The trade pact, finalised on 6 May 2025, is projected to double bilateral trade from $56.9 billion in 2024-25 to $120 billion by 2030. The UK will grant duty-free access on 99.1 per cent of its tariff lines, while India will cut duties on 90 per cent of its lines, covering 92 per cent of UK imports. Key Indian sectors like textiles, agriculture, and handicrafts are expected to benefit, while UK industries such as manufacturing, alcoholic beverages (namely Scotch) and life sciences are also anticipated to gain. The agreement is expected to drive new investments, with Indian companies already signalling plans to invest billions in the UK.

The agreement is actively being processed for ratification in both India and the UK. The UK’s ratification is expected to take longer, potentially up to a year, due to parliamentary procedures. Ratification in India is expected to be quicker, requiring only Cabinet approval. Trade experts believe that, with the India-UK FTA, India has shown that it means business.

A Trade and Economic Partnership Agreement (TEPA) with the European Free Trade Association (EFTA) has also been implemented from 1 October. On 12 July, Switzerland formally ratified the TEPA with India, marking the completion of the ratification process by all four member states. The pact marks another key milestone in India’s trade diplomacy. Under the agreement, EFTA – which comprises Iceland, Liechtenstein, Norway and Switzerland – has committed to invest $100 billion in India over a 15-year period. This includes $50 billion in the first 10 years, followed by an additional $50 billion in the subsequent five years. The investment is expected to generate around one million direct jobs in India. This is the first time India has secured such a large-scale investment commitment as part of an FTA.

Burying the fear of RCEP

If all goes well, FTAs will become an integral part of India’s trade policy, marking a serious departure from the days when India shied away from the landmark Regional Comprehensive Economic Partnership (RCEP) involving the 10 member states of ASEAN and their five free trade agreement partners: Australia, China, Japan, South Korea and New Zealand. This was done under the fear that Chinese goods would flood India. The new FTAs are meant to eliminate or reduce trade barriers such as tariffs, quotas and non-tariff barriers, allowing countries to freely trade goods and services with each other.

For Indian manufacturing, FTAs so far have had both positive and negative impacts. On one hand, FTAs have opened up new markets for Indian manufacturers, providing them with access to a wider consumer base and promoting export-led growth. On the other hand, they have also exposed domestic manufacturers to intense competition from foreign firms, leading to concerns about potential job losses and a decline in the competitiveness of Indian manufacturing.

One of the major concerns for Indian manufacturing under FTAs is the influx of cheap imports from partner countries. For instance, the India-ASEAN FTA has resulted in a surge of imports of electronic goods and machinery from member countries such as China and South Korea, leading to the closure of several small and medium enterprises in India. This has also put pressure on the domestic manufacturing sector to become more efficient and competitive to survive in the global market. Additionally, FTAs have also led to a shift in the pattern of trade, with India exporting more raw materials and importing more finished goods, which can have a negative impact on the domestic value-added and employment generation.

Significant benefits

However, some FTAs have also brought in significant benefits for Indian manufacturing. For example, the India-Japan FTA has facilitated the inflow of Japanese investment and technology in the Indian automobile sector, promoting its growth and development. Similarly, the India-South Korea FTA has led to an increase in bilateral trade and investment, particularly in the areas of electronics and chemicals, creating new opportunities for the Indian manufacturing sector. Further, FTAs have also helped in reducing the costs of imported raw materials and intermediate goods for Indian manufacturers, making them more globally competitive.

In conclusion, FTAs have had a mixed impact on Indian manufacturing. While they have opened up new opportunities for growth and development, they have also posed challenges for domestic manufacturers. The Modi government claims its strategy has been to carefully assess the potential benefits and costs of FTAs and implement policies to support and strengthen the domestic manufacturing sector.

But the key to this strategy will be the success of the India-US BTA and how it is finally negotiated, and what shape the final pact will take. Trump’s latest move provides a silver lining. Unlike EU and Vietnamese suppliers facing 15-20 per cent duties, Indian exporters of tea, coffee, spices and cashew nuts were hit harder after Trump doubled tariffs to as high as 50 per cent on imports of certain Indian goods, including a punitive 25 per cent levy from the end of August on India’s Russian oil purchases. Exports of Indian goods to the US fell by nearly 12 per cent year on year in September to $5.43 billion after tariffs were raised. Indian farm exports, estimated to account for $5.7 billion of the country’s $87 billion of exports to the US in 2024, were among those hit.

This may now change. “Trump’s latest move now benefits Indian farmers and exporters of tea, coffee, cashew and fruits and vegetables,” says a senior official involved in Indian farm export policy, unable to hide his joy. However, India’s US-bound farm exports – focused on a few high-value spices and niche products – would register limited gains, given its weak presence in key exempt items, such as tomatoes, citrus fruits, melons, bananas and fruit juices, concedes Ajay Srivastava, founder, Global Trade Research Initiative, a lobby group.

“The tariff shift would marginally strengthen India’s position in spices and niche horticulture and help revive some lost US demand after the tariff hikes,” adds Srivastava. However, Latin American, African, and ASEAN suppliers are likely to make larger gains as it was not immediately clear whether Indian exports will be exempt from 25 per cent reciprocal tariffs or full 50 per cent tariffs.

Some exporters also fear that other factors will keep potential gains in check, pointing to high freight costs, strong competition from Vietnam and Indonesia and tougher US quality requirements. After all, while tariff relief is important, market recovery also depends on logistics and our ability to match prices.

Silver lining

Yet, it was seen by the Union commerce ministry as another silver lining in the clouds. As trade talks with the US entered the final phase, there was talk of a bilateral trade deal emerging by the end of the year. If the US pares down the tariffs, India will open its market to duty-free imports of soyabean, corn and certain dairy products. The two sides have also finalised reciprocal tariff rates on industrial and agricultural goods. 

Two options are being discussed – 12-15 per cent or 15-19 per cent. The Indian side is pushing for the lower rates. Most of the Asian countries, which had entered trade deals with the US earlier, have tariff rates at 19-20 per cent. India will have a better rate compared to the Asian peers, whichever option is finalised.

The deal with the EU, which may follow, will be the crowning achievement. In February, India and the EU decided to ramp up talks for the proposed FTA, targeting to close it by the end of 2025. Both sides have narrowed differences in key areas, especially after a negotiating team from the EU visited New Delhi during 3-7 November for discussions on the proposed FTA. During the talks, the two parties agreed to further accelerate efforts toward a balanced trade pact.

The EU is India’s largest trading partner, accounting for 12.2 per cent of its trade, ahead of the US (10.8 per cent) and China (10.5 per cent). The bloc is the second-largest destination for Indian exports after the US. India is the EU’s ninth-largest trading partner, accounting for 2.2 per cent of its trade in goods in 2023, well behind the US, China and the UK.

As negotiations proceed, India is pushing for lower tariffs and relaxed quotas on steel exports to the EU in return for reducing import duties on automobiles, as part of negotiations for the proposed FTA between the two sides. Currently, the import duty levied by India on completely built-up (CBU) passenger vehicles is 110 per cent for cars costing over $40,000 and 70 per cent for cars costing up to $40,000.

Quid pro quo

“The automobile sector is a sensitive issue, but it has been linked to steel in the (FTA) discussions,” says a commerce ministry official. “India’s position is that if the EU wants concessions on autos, it should offer something on steel. The existing quota for steel imports is not based on 2024 trade flows; it is tied to the 2013 benchmark, which effectively halves the quota and doubles the duty”.

The European Commission, on 7 October, announced the proposal to limit tariff-free import volumes of steel to 18.3 million tonnes a year, reducing it by 47 per cent, compared to the quota set in 2024, while also doubling the out-of-quota duty to 50 per cent. This proposal will replace the steel safeguard measure set to expire by June 2026.

However, the domestic steel industry cautions that it may not be easy to directly link the two sectors, as the EU’s proposed steel safeguards are part of a broader effort to curb dumping and protect its domestic industry. India, too, back in April, imposed a 12 per cent safeguard duty on some steel products to check rampant imports.

India exported iron, steel, aluminium and related products worth $565.7 million to the EU in September 2025 – up 26.5 per cent year on year. Of this, iron and steel accounted for the largest share at $336.49 million.

Indian exporters have already urged the government to seek concessions from the EU during the ongoing FTA negotiations, citing that dual trade restrictions in the form of steeper duties and tighter quotas may severely impact exports of engineering goods, with nearly 50 per cent of those in the steel segment affected.

India exported engineering goods worth $27.5 billion to Europe in 2024-25, making them the top category of exports to the region. “The EU should not take the 50 per cent duty imposed by the US as the correct benchmark,” a source added. As last-minute hurdles are crossed, there is optimism in Brussels and New Delhi about a deal materialising soon.

De-risking the portfolio

Meanwhile, the recent trip of Piyush Goyal, minister for commerce & Industry, to Auckland, followed by his New Zealand counterpart Todd McClay’s visit to Delhi, signals that India is ready to reopen a chapter that has been stuck since 2015. Indeed, after years of cautious trade diplomacy, punctuated by India’s withdrawal from RCEP in November 2019 and the slow recalibration of its FTA strategy, the near-closure of talks with New Zealand, a Pacific economy, carries significance far beyond the relatively small size of bilateral trade. The announcement that negotiations for the proposed India-New Zealand free trade agreement are “almost completed... may take a few more weeks” last fortnight points to a significant geopolitical moment for India. It is a sign that India is re-engaging with a category of partners it has long kept at arm’s length – small, open, high-standard economies known for demanding deep commitments on tariffs, transparency and services.

“An India-New Zealand FTA supports India’s push to diversify beyond the US and China by adding a stable, complementary, high-value partner in the Indo-Pacific,” says trade expert Srivastava of Global Trade Research Initiative, when asked how an India-New Zealand agreement fits into India’s diversification map. “New Zealand offers predictable regulatory systems, modest demand for pharmaceuticals, machinery and IT services and a gateway to the wider Pacific.”

This FTA is not about volumes. It is about direction. It strengthens India’s Indo-Pacific footprint. New Zealand is a key democratic actor in the Pacific. India needs such partners as China increases its economic presence in the region. It also complements India’s services-driven growth model.

And the geographies go beyond that. India and Israel have again launched talks for a free trade pact, after having unsuccessfully attempted one eight years ago. Israel is seen as a strategic ally of India, though trade has not been a strong point. While Israel does not have a large market, it is home to a number of high-tech companies. India would like these companies to set up base in India to cater to our domestic needs and also for exports. The move is being seen as yet another indication of India’s appetite for trade deals as it seeks to diversify exports to de-risk the portfolio.

We have come a long way since the days of RCEP.

Box

Goyal-speak

FTAs: new vs old

• The expansive trade liberalisation will shift toward a strategy rooted in protecting national interests and building partnerships that complement, not compete with, India’s economic priorities.

• Countries that come to India with products, goods and services that straight away impact our own businesses, we have stopped all those types of engagements.

• India is forging trade partnerships that complement its domestic economy. Look at the FTAs we have done with, for instance, Australia. It gives us coking coal.... and they opened their doors for a lot of our products, such as automobiles and students. The FTA with the European Free Trade Association, comprising Switzerland, Norway, Iceland and Liechtenstein, is a model of mutually beneficial trade with assured investments.

• India was not part of RCEP’s original framework of Asean, Japan, Korea, Australia, New Zealand and China, but joined negotiations in 2011 without clear reasoning.

• The previous government’s experience with China, when India’s trade deficit ballooned from under $2 billion to nearly $48 billion during 2004-14, was worrying. Despite that, it (the UPA government) was looking at doing a trade agreement with China (in the form of RCEP). That would have been disastrous. India’s exit from the China-led RCEP in 2019 underscored a decisive shift in our trade approach.

• As India deepens ties with advanced economies, the government’s focus remains on ease of doing business, decriminalisation of laws, simplification of procedures and reducing compliance burden, steps aimed at helping industry leverage both domestic opportunities and global markets.