Whalesbook
The Utilization Crisis
India has been actively pursuing new Free Trade Agreements (FTAs), but the actual benefits are not reaching domestic exporters. Despite celebrating new pacts, such as those with the EFTA and ongoing talks with the UK and EU, the practical use of these deals is very low. This gap between potential market access and actual claims suggests that India is missing out on billions of dollars in trade advantages each year. The main reasons are complex rules of origin and a lack of support for exporters trying to meet compliance requirements.
Structural Barriers to Market Entry
The core problem isn't a lack of trade opportunities, but the high cost of meeting compliance rules, which keeps many small and medium-sized businesses from participating. Unlike large corporations with specialized legal and logistics departments, most Indian MSMEs lack the internal systems to handle the detailed certification needed to get duty-free status. This effectively blocks smaller companies, leaving the benefits of trade deals to larger firms. Many exporters end up paying standard import duties because navigating the administrative process to claim FTA concessions is too difficult. The situation is worsened by the absence of modern carbon accounting systems, which are increasingly required for European markets.
The Competitive Disadvantage
Compared to nearby countries like Vietnam and Thailand, India faces a significant disadvantage in supply chain integration. Those nations have successfully used trade agreements to become part of global value chains. In contrast, India's exports are held back by a structural dependence on costly imported parts, especially in the electronics and engineering sectors. This creates a form of 'inverted protectionism' where domestic producers find it hard to meet the rules of origin needed for FTAs. Without lower tariffs on necessary capital goods and raw materials, even the best trade concessions are useless for companies struggling to meet local content requirements.
The Risk of Policy Overextension
Pushing for more trade liberalization without fixing the current problem of low utilization carries serious risks. Expanding trade agreements without strong domestic certification systems and mutual recognition in place will create a weak framework. There's a real danger that India could see its trade deficit grow, as it opens its markets to foreign competition while its own exporters remain unable to access reciprocal benefits. The necessary strategic change involves more than just talk; it requires investing in infrastructure that supports quality standards, technological certification, and reduces the cost of intermediate inputs, similar to existing PLI schemes. If this gap isn't closed, these high-profile agreements will remain mere symbolic achievements instead of driving export-led growth.