Explained: What is Free Trade Agreement? And why it matters to India's economy

Time of India

3 days ago

Free Trade Agreements (FTAs) are a crucial part of international trade policy, offering countries a framework to reduce trade barriers and enhance market access for goods and services.
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For India, FTAs are increasingly becoming an essential tool to boost exports, attract investment, and deepen strategic economic ties.
What is a Free Trade Agreement ?
A Free Trade Agreement is a pact between two or more countries to reduce or eliminate customs duties, quotas, and non-tariff barriers on goods and services traded between them.
FTAs usually also include provisions for investment protection, intellectual property rights, labour standards, dispute resolution, and regulatory cooperation.
These agreements help businesses by:
Lowering the cost of exports and imports
Providing a level playing field in global markets
Allowing access to raw materials and intermediate goods at lower tariffs
Reducing compliance costs through harmonised standards
Globally, over 350 FTAs are active, covering over half of all international trade.
India's FTA strategy
India has signed 16 FTAs, including pacts with Japan, South Korea, ASEAN, Sri Lanka, and Mauritius.
Since 2014, five major agreements have been concluded with the UAE, Australia, Mauritius, the European Free Trade Association (EFTA), and now the United Kingdom.
India is currently negotiating FTAs with the European Union, the United States, Israel, Oman, and Peru.
Talks with Canada have been paused due to political tensions.
These agreements are part of India's broader goal to integrate more deeply with global value chains and to shift from a protectionist to a more open trade posture, particularly in areas where Indian products have export competitiveness.
How FTAs help India
FTAs help Indian exporters by giving them duty-free or preferential access to overseas markets.
Labour-intensive sectors like textiles, agriculture, leather, and engineering goods stand to benefit the most.
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They also encourage foreign companies to set up manufacturing in India to access FTA partner markets.
Additionally, Indian consumers benefit from access to a wider range of products at lower prices, while Indian industries can import high-quality inputs more affordably.
However, India also uses FTAs to safeguard sensitive sectors like dairy, oilseeds, and certain manufactured goods, where sudden exposure to global competition could hurt domestic producers.
India–UK Free Trade Agreement: A major milestone
On Thursday, India signed a landmark Comprehensive Economic and Trade Agreement (CETA) with the United Kingdom, aiming to double bilateral trade (currently around $56 billion) by 2030.
It is India's first FTA with a developed European economy.
Key gains for India:
Agriculture and processed food: Duty-free access for over 95% of products like fruits, spices, pulses, and seafood.
Textiles and apparel: Elimination of tariffs, boosting competitiveness against rivals like Bangladesh.
Pharma and chemicals: Zero tariffs on generics, medical devices, and key chemicals.
Mobility for services: Easier access for yoga instructors, IT professionals, chefs, and artists.
Autos and alcohol: Tariff cuts on Scotch whisky and luxury vehicles, with phased reductions over 10 years.
India has ensured that no concessions were given on sensitive items like dairy, apples, and edible oils. The deal also includes a first-of-its-kind chapter on innovation, focusing on joint technology development.
In short, FTAs are a strategic lever for India to grow its exports, boost investment, and secure long-term economic resilience. The UK agreement is the latest step in this direction — and among the most comprehensive yet.
(With inputs from agencies)