India is aggressively pursuing and finalizing key trade agreements, aiming to boost commerce despite global economic challenges. The India-UK trade deal is expected to come into effect within 30-45 days, while the pact with New Zealand is slated for signing by the end of April. Additionally, the European Free Trade Association (EFTA) bloc has committed to investing $100 billion in Foreign Direct Investment (FDI) over 15 years under the Trade and Economic Partnership Agreement (TEPA), which began in October 2025.
However, these advancements are happening as India confronts significant economic headwinds. The country's merchandise trade deficit widened sharply in February 2026 to $27.1 billion, nearly double the figure from the previous year. This increase was driven by robust import growth, with exports showing sluggish performance. Historically, major trade deal announcements have often spurred rallies in Indian equity markets, leading to substantial gains for investors and boosting export-oriented sectors.
Under the India-EFTA TEPA, EFTA states have committed to attract up to $100 billion in FDI over 15 years and create one million direct jobs. However, analyses suggest this pledge is more of a target than a firm commitment. Swiss officials have clarified that these investments depend entirely on private sector initiatives and lack formal enforcement mechanisms. Historically, FDI from EFTA countries to India has been much lower; Switzerland, the main contributor, has invested less than $11 billion in total since 2000. Experts are skeptical about the feasibility of the job creation targets. Swiss-controlled companies currently employ fewer than 100,000 people in India, making a tenfold increase seem unlikely. The agreement's investment chapter also includes clauses that could allow for the dilution of commitments, raising questions about actual capital inflows beyond potential portfolio investments or acquisitions.
The India-UK trade deal is projected to increase bilateral trade to $120 billion by 2030, with nearly 99% of Indian exports gaining duty-free access. Sectors including textiles, garments, and engineering goods are set to benefit, alongside pharmaceuticals, gems, and jewellery. Similarly, the India-New Zealand FTA provides 100% zero-duty access for Indian exports, supporting sectors like agriculture, processed foods, textiles, pharmaceuticals, and engineering goods. This pact also includes pathways for skilled worker mobility. The agreements aim to boost trade in services, but concerns exist regarding the extent of market opening in some areas. The UK deal, for example, offers limited new access in key financial and legal services.
Despite these proactive trade agreements, India's merchandise trade deficit continues to widen. February 2026 data showed a deficit of $27.1 billion, a significant jump from the prior year. This was fueled by substantial imports of gold, silver, and electronics, even as overall merchandise exports declined. Global trade remains volatile, influenced by geopolitical tensions in West Asia and uncertainty from changing US trade policies, which could weaken the predictable benefits of FTAs.
Beyond macroeconomic challenges, questions linger about the practical implementation and impact of these deals. The $100 billion EFTA FDI pledge, though presented positively, lacks firm enforcement mechanisms and relies heavily on private sector initiative, potentially inflating the deal's apparent value. The rapid push for FTAs has not yet reversed India's persistent trade deficit, which widened notably in early 2026. While sectors including textiles, garments, and engineering goods are set to benefit, potential obstacles include the UK's proposed carbon tax, estimated to affect Indian exports by $775 million, and differing regulations. Opening up services trade also remains an area of disagreement, with limited new market access in key sectors. Furthermore, sensitive sectors like dairy, vital for millions of farmers, have been given special protection, showing a cautious approach to full liberalization. Additionally, India's past use of FTAs is reportedly low, around 25%, suggesting businesses may face challenges fully leveraging the new agreements due to complex rules or trade barriers.
India's trade strategy appears to be shifting towards selective, cautious agreements focused on attracting long-term investment and boosting services exports, rather than broad, high-profile deals. The success of these agreements will depend on the government's ability to address trade barriers, simplify customs, and encourage greater use by domestic industries to achieve the promised economic development.