By Gulzar Didwania and Arshia Gupta
Supply chains are becoming more dispersed and complex, triggering a shift in the global trade pattern. India’s Free Trade Agreements (FTAs) are beginning to shape a strategic direction, and help in the long run, with a dual approach to exports and imports.
These trade agreements do more than simply slash tariffs: they help Indian producers compete effectively in global and domestic markets, lower input and compliance costs and bring in greater predictability, making it easier for businesses to plan, invest and access new markets.
The impact of recent FTAs
The India-UK Free Trade Agreement is one of the biggest trade pacts between a developed economy and India. UK is a high income, import–dependent market, which has high interest in consumer products.
Tariffs on nearly all Indian exports are being dropped under the deal and most Indian exports will receive instant duty-free access. UK imported products and services worth £857 billion in 2024, which includes £25.5 billion in imports from India.
In the same year up until the present date, Indian textiles and clothing were slapped with tariffs of up to 16%, which made them less competitive vis a vis supplier of these items from other countries.
This FTA allows Indian exporters to play to the highest price levels and gain a larger market for themselves in the UK.
Not only tariff reduction, but they also agree to a commitment from the parties in terms of regulatory transparency, standardisation and customs procedure.
The India-UAE Comprehensive Economic Partnership Agreement (CEPA) is built on a strong bilateral trade relationship.
The UAE represents a huge consumer market but has also emerged as a major global exchange link, linking it with the Middle East and Africa.
Under CEPA, India will have near-complete tariff removal applicable to most of its consumer products.
Trade facilitation is one aspect of the CEPA that stands out. Simplifications of Customs, faster clearances and cross-border cooperation between customs authorities make it easier to reduce transaction costs.
Bilateral trade rose from about US$ 72.9 billion in FY2021–22 to about US$ 84.5 billion in FY2022–23—a year-on-year increase of 16% and a powerful early performance benefit of CEPA.
This India-Australia Economic Cooperation and Trade Agreement (ECTA) reflects India’s further strategic partnership with the high-level nations of the Indo-Pacific.
Australia has extremely high incomes, with imports of goods, clothing, footwear, furniture and lifestyle are the common things. The ECTA has removed tariffs that Australia had imposed on most Indian exports, immediately lifting wages in labour intensive industries.
The agreement also provides Indian businesses more regulatory certainty, with specific provisions on customs cooperation and disputes, so they are more confident going to the Australian market.
As a result, total merchandise trade between the two countries more than doubled to $26 billion in 2022–23 from $12.2 billion in 2020–21.
Key sectors benefiting from FTAs: Apparel, manufacturing and others
These FTAs build on India’s manufacturing strengths while opening new pathways for scale. Large volume imports of apparel and footwear from Australia, for instance, can help Indian firms integrate deeply with global supply chains and expand production.
These FTAs can further open avenues for Indian firms to scale further.
Elimination of tariffs on footwear and leather goods under India’s agreements with the United Kingdom and the United Arab Emirates underscores the need to strengthen the competitiveness of Indian manufacturing clusters.
Access to the UAE, a regional trading hub, also enables Indian products to reach neighbouring markets more efficiently. Export of gemstones and other jewellery stand to benefit from zero or reduced duties in key markets, increasing India’s contribution to the value chain worldwide.
Selective cuts to tariffs in some regions also assist in exports of autos and auto parts. The real value of FTAs lies in smoother trade flows – through faster Customs clearances, digital documentation, consistent rules of origin and improved logistics.
Conclusion
India’s FTAs with the UK, UAE and Australia provide a strong platform to access large consumer markets.
This could assist India in converting preferential access into sustained export growth and a greater global consumer reach, if these pacts are aligned with harmonious export capabilities and strengthened with enhanced trade facilitation.
Gulzar Didwania is a partner at Deloitte India & Arshia Gupta is a senior executive at Deloitte India.