<h2><strong>Executive Summary</strong></h2><ul><li><p>Global trade has entered<strong> a new era of fragmentation</strong>, with weakening WTO influence and the growing use of tariffs and trade restrictions as geopolitical tools.</p></li><li><p>India's future export growth will depend more on<strong> domestic competitiveness </strong>than on signing FTAs, as market access alone does not guarantee success.</p></li><li><p>The <strong>China+1 shift</strong> presents a significant opportunity for India, but capturing it requires reforms in logistics, manufacturing, labour and supply-chain capabilities.</p></li><li><p>India's major FTAs<strong> present both opportunities and challenges</strong>, particularly around compliance, regulation and competitiveness.</p></li><li><p><strong>India's services sector is a key strength</strong>, but firms must increasingly create value from within India rather than through overseas deployment.</p></li><li><p>Businesses can no longer rely on<strong> open markets and predictable globalisation</strong>; resilience, compliance readiness and supply-chain strength will be critical competitive advantages.</p></li></ul>.<p>The world is not passing through a temporary trade disturbance. Instead, the old multilateral order, anchored after WWII by the US and mediated through institutions such as the WTO, has weakened measurably. The WTO's dispute settlement mechanism has lost force and the US is increasingly willing to use tariffs and market access as instruments of power. Companies can no longer simply assume that global trade will return to its previous rhythm once today’s political cycle changes. Deepanshu Mohan examined the forces that are shaping India's trade environment, the risks embedded in its new FTA architecture and what Indian businesses need to do differently to remain competitive.</p> <h2><strong>The Vanishing of the Old Order</strong></h2><p>Three forces have combined to produce the current situation. The US tariff shock, beginning with 25% tariffs on Indian merchandise goods, is less a negotiating tactic than a signal that the US has abandoned the Most Favoured Nation (MFN) principles that underpinned its trading relationships for decades. Unilateral tariff action has been normalised and businesses must plan as if this will endure, regardless of who holds office.</p><p>The WTO Appellate Body has been effectively defunct since December 2019. No new appellate judges have been confirmed and all disputes now go into a legal void. The backstop that kept trading partners from engaging in arbitrary protectionism is gone. India's textile sector, with anti-dumping complaints pending for years without resolution, illustrates the cost. Meanwhile, US imports from China fell from 21% of total US imports in 2017 to 13.4% in 2024, the largest peacetime supply-chain reorientation in modern history. This creates both opportunities and risks for India. Specifically, capturing displaced supply-chain share requires domestic reforms that India has historically resisted, particularly in terms of land and labour.</p> <h2><strong>India's Trade Journey and its FTA Choices</strong></h2><p>India's export basket has transformed over the last two decades. From $63 bn, and dominated by textiles and primary commodities in 2004, India exported merchandise goods worth $437 bn in FY25, led by petroleum products, electronics and pharmaceuticals. IT and BPM services exports, which were then barely tracked, now stand at $320 bn. Yet, despite these changes, the rupee faces strong downward pressures, this time arising from a simultaneous capital-account and current-account problem.</p><p>India's decision not to join the RCEP in 2019 was a defining political choice, and that window has now closed. The country has consciously chosen the bilateral FTA route and recent Commerce Ministry discussions reflect a clear policy focus in that direction. The concern is that this choice is not yet being evaluated through sufficient evidence on what past FTAs have or have not delivered, particularly in manufacturing and agriculture, where most of the political resistance to opening up is concentrated.</p> <h2><strong>The FTA Architecture: What Is Actually Being Negotiated</strong></h2><p>Three bilateral agreements dominate the current landscape. The India-UK FTA, signed last year, was the first major deal with a Western economy in over a decade and covers approximately 99% of tariff lines. The EU FTA, which is currently being ratified, is the largest market-access agreement India has ever negotiated, though the Carbon Border Adjustment Mechanism (CBAM) poses specific challenges for Indian steel and aluminium exporters. However, it is the high-stakes negotiations with the US that have attracted the most attention, given that the US accounts for $86 bn of India's merchandise exports. Key sticking points around agriculture, data sovereignty, pharmaceutical IP and digital trade norms remain unresolved.</p><p>At a broad level, tariff reductions are necessary but insufficient. Whether India can capture FTA gains depends on operational readiness. In textiles, a duty reduction from 12% to 0% means little when 60-70% of exporters cannot meet the EU rules of origin. In marine exports, a tariff cut of up to 26% into a EUR 50 bn market is constrained by cold-chain gaps and pending FSSAI-EU equivalence. In pharmaceuticals, over 140 Indian plants still await EU GMP re-inspection, effectively blocking access despite tariff gains. In steel, CBAM will impose a levy of EUR 40-60 per ton from 2026 onwards, offsetting much of the FTA benefits.</p><p>Three provisions embedded in the new agreements deserve specific attention. The UK FTA's government procurement chapter allows British firms to qualify as Class 2 local suppliers with only 20% domestic content, opening Indian government tenders to foreign competition and constraining the use of procurement policy to develop MSMEs. In the pharmaceuticals space, the deal’s voluntary licensing provisions risk diluting India's compulsory licensing capability. Finally, the EU FTA’s digital trade chapter prevents India from accessing the source code of EU firms' AI systems, significantly limiting the ability of Indian regulators to oversee AI deployed in Indian markets.</p> <h2><strong>Services Exports: An Important Hedge, For Now</strong></h2><p>India's $320 bn of IT and BPM services exports to the US functions as a hedge. Unlike petroleum, it is not exposed to commodity price volatility. Unlike remittances, it is not geographically concentrated. However, there is today consensus across the US political spectrum, and increasingly across European political systems as well, against issuing work visas to foreign workers. Short-term work visas for high-value-added roles may survive in some European markets, but this will not be sufficient to sustain the current model.</p><p>India's large IT and services companies must stop treating visa lobbying as their primary response to this shift. The focus needs to move to redesigning delivery models so that more value is generated from within India rather than through the placement of workers overseas. There is also a credible risk that the US may eventually impose restrictions on services imports themselves, a development that would have significant implications for India's current account position. Japan, by contrast, is rethinking long-standing immigration restrictions and is actively seeking skilled human capital. This represents an underdiscussed opportunity for India's services sector.</p> <h2><strong>The China Question: Real Opportunity, Contingent Gains</strong></h2><p>India is widely discussed as a China-plus-one manufacturing alternative, but being courted as an alternative does not automatically confer China's supply-chain depth. India's logistics costs, at 14% of GDP against China's 10%, makes goods more expensive to move and diverts investors toward Vietnam, South Korea and other markets. While real opportunities exist, they are contingent on further reforms. Electronics assembly is already delivering results, with investment in Tamil Nadu driving a 127-fold growth in mobile exports since 2014. Pharmaceuticals and FDI inflows are also positive. However, the gaps, in terms of infrastructure, skills, regulatory coherence and MSME compliance capacity, remain material.</p><p>Tamil Nadu's cluster-based model offers a viable template. One in six industrial jobs in the state is in manufacturing, supported by over 40,000 operational factories that generate over a quarter of its GDP. By collaborating with a major electronics manufacturer and setting up a dedicated investment promotion desk, Tamil Nadu was able to create a pathway for supplier development to form around one anchor investment. India needs several more such manufacturing ecosystems. A single, large investment is useful; the real dividend comes when a supplier base begins to form around it.</p> <h2><strong>Political Economy and Business Imperatives</strong></h2><p>India's trade policy is best understood as a constant negotiation between three forces: the export ambitions of the Commerce and Finance Ministries; the defensive instincts of the agricultural and MSME lobbies; and the electoral calendar. RCEP collapsed along these fault lines. India’s protectionist pull is deep-rooted: 700 mn agricultural livelihoods insulate dairy and farm concessions from any negotiation, and the MSME sector fears premature import competition.</p><p>For businesses, there are several time-sensitive action points to consider. Most companies are not claiming the FTA benefits for which they are eligible. (Those that pre-mapped eligibility before the India-UAE CEPA in 2022, for instance, saw 40-60% faster customs clearances and 5-8% margin improvements on eligible product lines.) Additionally, the $86 bn US exposure warrants scenario planning across at least three tariff trajectories.</p><p>The comfortable assumptions of the last three decades are fading. Indian businesses cannot assume open markets, easy visas, stable rules or predictable dispute settlement. Nor can they assume that FTAs will automatically create export success. The next phase will reward companies that are operationally ready and those who understand rules of origin, build resilient supplier networks, invest in domestic capacity and carefully manage compliance. India's trade strategy will only work if trade policy and domestic capability move together. FTAs may open doors, but Indian firms will still need the capacity, standards, scale and resilience to walk through them.</p>
<h2><strong>Executive Summary</strong></h2><ul><li><p>Global trade has entered<strong> a new era of fragmentation</strong>, with weakening WTO influence and the growing use of tariffs and trade restrictions as geopolitical tools.</p></li><li><p>India's future export growth will depend more on<strong> domestic competitiveness </strong>than on signing FTAs, as market access alone does not guarantee success.</p></li><li><p>The <strong>China+1 shift</strong> presents a significant opportunity for India, but capturing it requires reforms in logistics, manufacturing, labour and supply-chain capabilities.</p></li><li><p>India's major FTAs<strong> present both opportunities and challenges</strong>, particularly around compliance, regulation and competitiveness.</p></li><li><p><strong>India's services sector is a key strength</strong>, but firms must increasingly create value from within India rather than through overseas deployment.</p></li><li><p>Businesses can no longer rely on<strong> open markets and predictable globalisation</strong>; resilience, compliance readiness and supply-chain strength will be critical competitive advantages.</p></li></ul>.<p>The world is not passing through a temporary trade disturbance. Instead, the old multilateral order, anchored after WWII by the US and mediated through institutions such as the WTO, has weakened measurably. The WTO's dispute settlement mechanism has lost force and the US is increasingly willing to use tariffs and market access as instruments of power. Companies can no longer simply assume that global trade will return to its previous rhythm once today’s political cycle changes. Deepanshu Mohan examined the forces that are shaping India's trade environment, the risks embedded in its new FTA architecture and what Indian businesses need to do differently to remain competitive.</p> <h2><strong>The Vanishing of the Old Order</strong></h2><p>Three forces have combined to produce the current situation. The US tariff shock, beginning with 25% tariffs on Indian merchandise goods, is less a negotiating tactic than a signal that the US has abandoned the Most Favoured Nation (MFN) principles that underpinned its trading relationships for decades. Unilateral tariff action has been normalised and businesses must plan as if this will endure, regardless of who holds office.</p><p>The WTO Appellate Body has been effectively defunct since December 2019. No new appellate judges have been confirmed and all disputes now go into a legal void. The backstop that kept trading partners from engaging in arbitrary protectionism is gone. India's textile sector, with anti-dumping complaints pending for years without resolution, illustrates the cost. Meanwhile, US imports from China fell from 21% of total US imports in 2017 to 13.4% in 2024, the largest peacetime supply-chain reorientation in modern history. This creates both opportunities and risks for India. Specifically, capturing displaced supply-chain share requires domestic reforms that India has historically resisted, particularly in terms of land and labour.</p> <h2><strong>India's Trade Journey and its FTA Choices</strong></h2><p>India's export basket has transformed over the last two decades. From $63 bn, and dominated by textiles and primary commodities in 2004, India exported merchandise goods worth $437 bn in FY25, led by petroleum products, electronics and pharmaceuticals. IT and BPM services exports, which were then barely tracked, now stand at $320 bn. Yet, despite these changes, the rupee faces strong downward pressures, this time arising from a simultaneous capital-account and current-account problem.</p><p>India's decision not to join the RCEP in 2019 was a defining political choice, and that window has now closed. The country has consciously chosen the bilateral FTA route and recent Commerce Ministry discussions reflect a clear policy focus in that direction. The concern is that this choice is not yet being evaluated through sufficient evidence on what past FTAs have or have not delivered, particularly in manufacturing and agriculture, where most of the political resistance to opening up is concentrated.</p> <h2><strong>The FTA Architecture: What Is Actually Being Negotiated</strong></h2><p>Three bilateral agreements dominate the current landscape. The India-UK FTA, signed last year, was the first major deal with a Western economy in over a decade and covers approximately 99% of tariff lines. The EU FTA, which is currently being ratified, is the largest market-access agreement India has ever negotiated, though the Carbon Border Adjustment Mechanism (CBAM) poses specific challenges for Indian steel and aluminium exporters. However, it is the high-stakes negotiations with the US that have attracted the most attention, given that the US accounts for $86 bn of India's merchandise exports. Key sticking points around agriculture, data sovereignty, pharmaceutical IP and digital trade norms remain unresolved.</p><p>At a broad level, tariff reductions are necessary but insufficient. Whether India can capture FTA gains depends on operational readiness. In textiles, a duty reduction from 12% to 0% means little when 60-70% of exporters cannot meet the EU rules of origin. In marine exports, a tariff cut of up to 26% into a EUR 50 bn market is constrained by cold-chain gaps and pending FSSAI-EU equivalence. In pharmaceuticals, over 140 Indian plants still await EU GMP re-inspection, effectively blocking access despite tariff gains. In steel, CBAM will impose a levy of EUR 40-60 per ton from 2026 onwards, offsetting much of the FTA benefits.</p><p>Three provisions embedded in the new agreements deserve specific attention. The UK FTA's government procurement chapter allows British firms to qualify as Class 2 local suppliers with only 20% domestic content, opening Indian government tenders to foreign competition and constraining the use of procurement policy to develop MSMEs. In the pharmaceuticals space, the deal’s voluntary licensing provisions risk diluting India's compulsory licensing capability. Finally, the EU FTA’s digital trade chapter prevents India from accessing the source code of EU firms' AI systems, significantly limiting the ability of Indian regulators to oversee AI deployed in Indian markets.</p> <h2><strong>Services Exports: An Important Hedge, For Now</strong></h2><p>India's $320 bn of IT and BPM services exports to the US functions as a hedge. Unlike petroleum, it is not exposed to commodity price volatility. Unlike remittances, it is not geographically concentrated. However, there is today consensus across the US political spectrum, and increasingly across European political systems as well, against issuing work visas to foreign workers. Short-term work visas for high-value-added roles may survive in some European markets, but this will not be sufficient to sustain the current model.</p><p>India's large IT and services companies must stop treating visa lobbying as their primary response to this shift. The focus needs to move to redesigning delivery models so that more value is generated from within India rather than through the placement of workers overseas. There is also a credible risk that the US may eventually impose restrictions on services imports themselves, a development that would have significant implications for India's current account position. Japan, by contrast, is rethinking long-standing immigration restrictions and is actively seeking skilled human capital. This represents an underdiscussed opportunity for India's services sector.</p> <h2><strong>The China Question: Real Opportunity, Contingent Gains</strong></h2><p>India is widely discussed as a China-plus-one manufacturing alternative, but being courted as an alternative does not automatically confer China's supply-chain depth. India's logistics costs, at 14% of GDP against China's 10%, makes goods more expensive to move and diverts investors toward Vietnam, South Korea and other markets. While real opportunities exist, they are contingent on further reforms. Electronics assembly is already delivering results, with investment in Tamil Nadu driving a 127-fold growth in mobile exports since 2014. Pharmaceuticals and FDI inflows are also positive. However, the gaps, in terms of infrastructure, skills, regulatory coherence and MSME compliance capacity, remain material.</p><p>Tamil Nadu's cluster-based model offers a viable template. One in six industrial jobs in the state is in manufacturing, supported by over 40,000 operational factories that generate over a quarter of its GDP. By collaborating with a major electronics manufacturer and setting up a dedicated investment promotion desk, Tamil Nadu was able to create a pathway for supplier development to form around one anchor investment. India needs several more such manufacturing ecosystems. A single, large investment is useful; the real dividend comes when a supplier base begins to form around it.</p> <h2><strong>Political Economy and Business Imperatives</strong></h2><p>India's trade policy is best understood as a constant negotiation between three forces: the export ambitions of the Commerce and Finance Ministries; the defensive instincts of the agricultural and MSME lobbies; and the electoral calendar. RCEP collapsed along these fault lines. India’s protectionist pull is deep-rooted: 700 mn agricultural livelihoods insulate dairy and farm concessions from any negotiation, and the MSME sector fears premature import competition.</p><p>For businesses, there are several time-sensitive action points to consider. Most companies are not claiming the FTA benefits for which they are eligible. (Those that pre-mapped eligibility before the India-UAE CEPA in 2022, for instance, saw 40-60% faster customs clearances and 5-8% margin improvements on eligible product lines.) Additionally, the $86 bn US exposure warrants scenario planning across at least three tariff trajectories.</p><p>The comfortable assumptions of the last three decades are fading. Indian businesses cannot assume open markets, easy visas, stable rules or predictable dispute settlement. Nor can they assume that FTAs will automatically create export success. The next phase will reward companies that are operationally ready and those who understand rules of origin, build resilient supplier networks, invest in domestic capacity and carefully manage compliance. India's trade strategy will only work if trade policy and domestic capability move together. FTAs may open doors, but Indian firms will still need the capacity, standards, scale and resilience to walk through them.</p>
