The country’s customs revenue forgone for the FTAs was ₹98,569 crore in FY26, higher than the budget estimate of ₹94,172 crore for the same year.
Among partner countries and blocs, the revenue impact is estimated to be the highest in the case of the Association of Southeast Asian Nations (Asean), at ₹40,833 crore in FY27. India has flagged the need for an urgent review of the trade agreement with Asean, since imports from Asean nations have grown at a much faster pace than exports from India. In August 2023, both sides agreed to complete the review of the existing agreement on goods by 2025. However, they have missed the deadline and India has expressed its unhappiness over the tardy pace of the review process.
Among other countries, FTAs with Japan (₹11,365 crore) and South Korea (₹10,872 crore) and Australia (₹5,107 crore) have budgeted to contribute significantly to India’s customs duty forgone. The India-UAE trade deal, which came into force in May 2022, is set to contribute ₹9,267 crore to customs revenue forgone in FY27.
India’s applied most-favoured-nation (MFN) tariffs remain higher than those of many major economies, particularly in sectors such as agriculture, automobiles and certain consumer goods. As a result, FTA negotiations typically require New Delhi to undertake substantial tariff cuts to offer commercially meaningful market access. Over time, as more tariff lines become eligible for preferential treatment and import volumes expand, the notional revenue impact increases.
The issue has long generated internal debate. Revenue department officials, in the past, have argued that deep tariff reductions constrain customs collections, which account for roughly 6-7 per cent of the Centre’s gross tax revenue in recent years. Trade policymakers, however, maintain that customs duties are not designed primarily as a revenue-raising instrument but as a trade policy tool. They argue that lower input tariffs can improve competitiveness, integrate India into global value chains and potentially expand the tax base through higher economic activity.
The government has estimated customs duty collections to increase 5 per cent in FY27 to ₹2.7 trillion against a 10 per cent rise registered in FY26. However, experts believed the 2.9 per cent increase in customs revenue forgone for FY27 assumed in the Budget may be an underestimation as India has concluded nine trade agreements involving 38 countries in the last five years and many of them are likely to come into force during the current financial year.
“The actual fiscal impact depends on utilisation rates by importers, trade diversion effects and changes in sourcing patterns,” a trade economist said, requesting anonymity.
Commerce and Industry Minister Piyush Goyal recently said India has now preferential market access to almost 70 per cent of global trade through FTAs.
The recently concluded trade deals included European Free Trade Association (EFTA), United Kingdom, Oman, New Zealand, European Union and an interim trade deal with the US. While the trade deal with EFTA came into force in October 2025, others involving significant customs-duty reduction are expected to come into force in FY27.
 "The recently concluded trade deals included European Free Trade Association (EFTA), United Kingdom, Oman, New Zealand, European Union and an interim trade deal with the US")