India’s early trade agreements with Asian economies were meant to give its exporters better access to the markets, deepen economic integration with the region and expand trade.
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Imports were expected to grow too, just not quite like this.
Trade has expanded, and Indian exports to all three markets have increased. But imports have grown much faster.
According to a Global Trade Research Initiative (GTRI) comparison of trade flows in 2007-09 and 2023-25, India’s trade deficit increased 381% with ASEAN, 318% with Japan and 268% with South Korea. The deficit with the rest of the world rose 142% over the same period.
ET OnlineOver the three years to 2025, India’s combined trade deficit with ASEAN, Japan and South Korea averaged about $62 billion annually, according to GTRI.A widening bilateral deficit does not, by itself, mean a trade agreement has failed. Imports can include raw materials, components and capital goods, while trade flows are shaped by demand, exchange rates and competitiveness.
But the scale of the imbalance raises a different question: did India secure and use enough export opportunities to match the market access it offered its partners?
Exports grew. Imports ran much faster
More recent figures cited by the Federation of Indian Export Organisations (FIEO) suggest the imbalance has continued.
Ajay Sahai, Director General and CEO of FIEO, said India’s exports to ASEAN increased from about $19 billion in 2008-09 to around $38 billion in 2025-26, while imports climbed from $26 billion to nearly $90 billion.
With South Korea, exports have risen to around $6 billion while imports have crossed $21 billion. In Japan’s case, exports increased from $5.1 billion in 2010-11 to around $6 billion in 2025-26, while imports rose from $8.6 billion to more than $21 billion.
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“These numbers merit attention, but the lesson is not that free trade agreements (FTAs) are undesirable. Rather, tariff concessions to our partners have translated into imports much faster than preferential access has translated into Indian exports,” Sahai told ET Online.
ET OnlineIndia gave away a bigger tariff advantage
India entered many of its early FTAs with relatively high import tariffs, while several partners were already low-tariff economies.
According to GTRI, India’s trade-weighted Most-Favoured-Nation (MFN) tariff — the average tariff rate after giving greater weight to products that account for a larger share of imports — is around 12.6%. Average tariffs, which broadly measure the typical import duty applied across traded products, are close to zero in Singapore and below 4% in markets including Japan and Malaysia.
That matters because eliminating tariffs under an FTA does not necessarily create the same price advantage on both sides.
GTRI founder Ajay Srivastava explained it through a hypothetical example.
“If I am exporting pencils to Japan and their tariff on pencils is 2%, then when I export, I have to pay $100 plus $2, making it $102. If there is an FTA, then it will become $100. So, I get a $2 benefit,” he said.
“But what happens if Japan exports pencils to us? Our tariff on pencils is, say, 30%. Instead of paying $100, they will have to pay $130. So, the $30 benefit is a huge price advantage.”
In practice, customs duty is generally paid by the importer, but the example illustrates the impact on landed cost. Removing a low tariff abroad may give an Indian exporter only a modest advantage, while eliminating a much higher Indian tariff can create a larger one for the partner-country exporter.
Sahai said the asymmetry extended beyond tariffs.
“On the tariff front, they gained much more as our weighted average or average tariff was much higher. Standards, certification requirements, SPS/TBT measures and other non-tariff barriers have often constrained effective market access for our exporters.”
SPS refers to sanitary and phytosanitary measures covering food, animal and plant safety, while TBT refers to technical barriers to trade such as product standards, testing, certification and labelling requirements.
India also left FTA benefits on the table
GTRI estimates only around 20-30% of India’s eligible exports use FTA preferences, compared with 60-70% utilisation by exporters shipping goods into India.
ET OnlineIf the normal tariff in a destination is already zero or only 1-3%, an exporter may decide that certificates, rules of origin and additional documentation are not worth the small saving. The calculation can be different for a foreign exporter to India if the tariff saving is larger.
But tariffs and FTAs alone do not explain India’s export performance.
Abhijit Das, an independent international trade policy and WTO (World Trade Organization) expert and former head of the Centre for WTO Studies, said: “India’s export growth story is likely to be written more by improving our price competitiveness through domestic reforms to address transaction costs, infrastructural deficiencies, cost of finance etc. Expecting FTAs to drive our export growth to any substantial extent may be a bit misplaced.”
So, can India fix the old trade deals?
Trade experts are not arguing that India should abandon the agreements, but that it should review them with a clearer idea of what needs correcting.
For Srivastava, the first requirement is to establish what worked and what did not.
“So far, we have done FTAs with Asia, Japan, South Korea, Switzerland, and the UK. We are on the verge of doing an FTA with Europe (negotiations concluded in January 2026) and are in advanced-level discussions with America. But there has been no study from any quarter on what we have gained or lost through these FTAs. The basic purpose of such studies is course correction.”
Such a review, he argued, should look beyond the headline deficit to identify where imports surged, where Indian exporters gained market share and where they failed.
“If some products or services are suffering because of these agreements, we will come to know and can do course correction,” he said.
“Fifteen years have passed, but there is no study,” Srivastava added.
‘Renegotiating tariffs will not be enough’
Sahai argues that fixing first-generation FTAs will require India to address what happens even after tariffs reach zero.
“The way forward is therefore not less engagement but better-balanced FTAs. The ongoing reviews should focus on reciprocity, removal of non-tariff barriers, stronger Rules of Origin, mutual recognition of standards and greater access for services and professionals. The first generation of FTAs expanded trade; FTA 2.0 must ensure that Indian exports, investment and participation in global value chains expand equally strongly.”
India could use reviews to push for easier recognition of testing and certification, tackle sanitary and phytosanitary and technical barriers, strengthen rules of origin and seek better access for services and professionals.
Then there is India’s own tariff problem
Some of the repair work sits inside India.
Indian manufacturers can face duties on raw materials such as steel and aluminium even when finished products made from those inputs enter India at low or zero tariffs under an FTA, creating an inverted duty structure.
“If someone is manufacturing the same product in Indonesia, China, or South Korea, they get inputs at $100 because their tariffs are zero,” Srivastava said.
“This creates an inverted tariff structure, and it becomes a major disincentive for manufacturing value-added products,” he added.
The comparison is about manufacturing costs across competing production bases rather than suggesting India has an FTA with every country cited. India, for instance, does not have an FTA with China.
Sahai said: “India must also address inverted duty structures, where raw materials attract higher duties than finished products, as these distort domestic manufacturing and weaken export competitiveness.”
If Indian manufacturers continue to face higher input, financing, logistics or compliance costs than competitors, zero tariffs abroad will solve only part of the problem.
ET OnlineFrom signing FTAs to managing them
FIEO President S C Ralhan said India needs to shift its focus from market access to market utilisation.
“The signing of a FTA is not the destination—it is the starting point of a much larger economic opportunity. The real measure of success will be how effectively Indian businesses, particularly MSMEs, leverage these agreements to expand exports, attract investment, upgrade technology and integrate more deeply into global value chains.”
Sahai has proposed country- and sector-specific roadmaps and an annual performance dashboard tracking FTA utilisation, India’s share of partner-country imports, new exporters, MSME participation, domestic value addition, investment and employment.
The India reviewing these agreements today is not the same economy that signed them 15 years ago. Its export base and capabilities have changed, but so have the demands of global trade. The task now is less about tearing up old agreements than making them work better for the economy India is trying to build.