Context:
A NITI Aayog analysis reveals a sharp widening of India’s trade deficit with Free Trade Agreement (FTA) partner countries, raising questions about the export competitiveness and strategic design of India’s trade agreements.
Key Highlights:
- Trade Deficit Trends
- India’s trade deficit with FTA partners rose by 59.2% between April–June 2025 compared to the same period last year.
- Imports increased by 10% to $65.3 billion, while exports declined by 9% to $38.7 billion.
- Export and Import Composition
- Electronics exports grew sharply by 47%, now contributing over 11% of total exports.
- The overall export contraction was driven mainly by falling shipments to the ASEAN region.
- Significant export declines recorded with:
- Malaysia (–39.7%)
- Singapore (–13.2%)
- Australia (–10.9%)
- Import Surge Drivers
- Increased imports from:
- UAE – driven by gold compounds and petroleum products.
- China – due to circuit boards and electronic integrated circuits.
- India’s top seven import markets accounted for ~43% of total imports in Q1 FY26, amounting to $76.7 billion.
- Expanding FTA Landscape
- India concluded FTAs with Oman, New Zealand, and the UK in 2025.
- Ongoing negotiations with EU, US, Australia, GCC, and EAEU heighten the importance of reassessing trade strategy.
Relevant Prelims Points:
- Free Trade Agreement (FTA) – meaning and objectives.
- Trade deficit – definition and implications.
- ASEAN – economic significance for India.
- Role of NITI Aayog in policy analysis.
Relevant Mains Points:
- Significance:
- Reflects structural weaknesses in India’s export basket.
- Highlights uneven gains from FTAs.
- Concerns:
- Rising import dependence without commensurate export growth.
- Vulnerability of MSMEs and traditional sectors.
- Way Forward:
- Undertake FTA impact assessments before new agreements.
- Strengthen export competitiveness through logistics, standards, and technology.
- Promote value-added manufacturing and diversify export destinations.
- Align FTAs with Atmanirbhar Bharat and industrial policy goals.
UPSC Relevance:
GS 3 – Economy | GS 2 – International Relations