India's new FTA playbook looks beyond trade and tariffs to investment ties

India's recent free trade agreements mark a shift from tariff-led negotiations to deeper economic partnerships, embedding investment commitments, market access and supply chain integration

The Indian government has been on an FTA-signing spree over half a decade, clocking seven deals since 2021. What’s more, the new free trade agreements (FTAs) reflect a clear shift from merely tariff-focused deals, instead aligning with a changing global order.

 

These trade agreements have woven in new elements such as binding investment commitments from the FTA partners, provision for social security arrangements, and progressively opening up the domestic government procurement market to foreign companies, among others.

 

In a first, New Delhi also agreed to lower tariffs and grant market access for automobiles — a sector long considered ‘sensitive’ due to its potential to affect jobs — in its FTA with the United Kingdom (UK). Similarly, while India continues to fiercely protect another ‘sensitive’ sector — agriculture — it has, in some recently signed trade agreements, offered quota-based market access to select fruits and dry fruits, a move that was anathema in the past.

 

Government officials say the recently concluded trade agreements and ongoing negotiations for others indicate a recalibration in the way India is engaging with the rest of the world. These trade deals aim not only to deepen economic ties with India’s strategic allies, but also to position the country in shaping modern trade frameworks and integrate it into global supply chains.

How India is rethinking the way FTAs are negotiated

As part of this deeper engagement, India has signed at least three FTAs — UK, Oman and New Zealand — in 2025 alone. A comprehensive trade deal with Mauritius was signed in 2021, followed by pacts with the United Arab Emirates (UAE) and Australia a year later. A deal with the four-member European Free Trade Association (EFTA) was signed in 2024. Currently, India is in active negotiations with the United States (US), the European Union (EU), Canada, Mexico, Israel, Eurasian Economic Union, Peru and Chile.

 

Agneshwar Sen, leader (trade policy) at EY India, says that in the newer FTAs signed with developed markets, tariff concessions offer limited preferential market access. Thus, alongside goods and services trade, India is increasingly weaving in new elements such as investment commitments, visa commitments, social security agreements and calibrated access to government procurement.

 

Given the increasing impact of these issues on trade, these provisions will also future-proof the agreements, providing greater certainty to investors, reducing costs of labour mobility for Indian professionals, and integrating Indian firms, particularly micro, small and medium enterprises (MSMEs), into partner-country public procurement ecosystems, according to Sen.

 

“India is pursuing this broader architecture because global value chains are being reconfigured, and competitiveness today depends as much on investment flows, regulatory predictability and services mobility as on tariffs,” he said.

Why investment commitments are now central to FTAs

About two years ago, when India and the four-member EFTA bloc — Switzerland, Norway, Iceland and Liechtenstein — signed the Trade and Economic Partnership Agreement (TEPA), government officials said that apart from gains for India’s labour-intensive sectors in terms of tariff reductions, a major win for New Delhi was the $100 billion investment the agreement brought with it.

 

Under the deal, which kicked in on October 1 this year, New Delhi secured a binding commitment of $100 billion and one million direct jobs over the next 15 years. The deal also says India can partially withdraw market access to EFTA countries after lengthy consultations if the investments do not flow in — a first-of-its-kind arrangement under any such trade deal.

 

Similarly, under the FTA with New Zealand finalised in December, Wellington has committed $20 billion in foreign direct investment (FDI) over the next 15 years. Wellington’s FDI commitment will also be backed by a ‘rebalancing mechanism’, enabling suspension of benefits under the FTA if the investment does not materialise — a provision that mirrors the TEPA.

 

The reason is evident: low average tariffs in these developed countries would have had only limited gains for India. New Zealand’s average applied tariff, for example, was a mere 2.2 per cent in 2025.

 

As a result, negotiators in the department of commerce devised a new strategy, which focused solely on FDI, where countries would nudge companies to invest in India. There is, however, a significant caveat: India, too, must maintain its gross domestic growth rates.

 

Experts said that while it will not be very easy to attract investments or withdraw tariff benefits, there will be greater clarity on these developments a few years from now.

Agri, alcohol and auto: The toughest trade-offs

While India has until now fiercely protected its domestic automobile and alcohol sectors, it has now, under pressure from developed countries such as the UK, Australia, New Zealand and the EU, become bound to give access to its large domestic market.

 

In the case of the India-UK Comprehensive Economic and Trade Agreement (CETA), for the first time, New Delhi agreed to reduce import tariffs on automobiles, but in a phased manner. Under the pact, Indian negotiators struck a fine balance by protecting small cars while opening up the large car segment to embrace greater competition. Similarly, India allowed duty cuts on another contentious item — alcoholic beverages such as whisky, brandy, rum, vodka, tequila and ciders — but in a phased manner.

 

Even in the case of Australia, India reduced customs duty on Australian wines, but in a staggered manner to ensure that the domestic wine industry does not end up being subjected to predatory pricing.

 

Meanwhile, it continues to firewall its agriculture sector, even though the trade deals with Australia and New Zealand gave some quota-based market access for oranges, mandarins, almonds, pears and cotton, among others.

Government procurement and new-age trade issues

A former trade ministry official said that while India’s earlier ‘Look East’ approach focused on countries that have now become competitors, the current emphasis is on looking towards the West, which mainly includes developed nations, where certain demands will have to be accommodated in order to integrate into global supply chains.

 

“India is gradually opening up its markets, keeping in mind the evolving global order. Developed countries are increasingly prioritising issues such as sustainability, labour standards and other new-age concerns,” the official said, adding that India will have to respond slowly and in a calibrated manner by aligning its policies through small steps.

 

For instance, India has been wary of opening up government procurement to foreign entities in order to protect domestic producers. However, the first sign of flexibility was seen in the case of the comprehensive economic partnership agreement (CEPA) with the UAE. The maximum easing so far has been seen in the case of the India-UK CETA, where New Delhi has committed to give access to its large government procurement market, allowing UK businesses access to around 40,000 tenders with a value of at least £38 billion a year.

 

The trade deal with the UK has also seen many new chapters such as telecommunications, innovation and subsidies, among others.

 

According to Sen, Indian exporters — particularly in services, infrastructure, manufacturing and start-ups — are seeking deeper, rules-based engagement that supports long-term presence rather than transactional trade. “By embedding these elements in FTAs, India is aligning its trade policy with its development priorities, while positioning itself as a reliable, long-term economic partner,” he said.