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Sankalp Gurjar, “The Role of Trade in India's Geoeconomic Strategy,” ORF Occasional Paper No.542, Observer Research Foundation, May 2026.
In the last few years, geoeconomics has attained increasing importance in policy debates. Policymakers across the world are deploying economic instruments to achieve geopolitical objectives.[a],[1]
Geopolitics and economics are increasingly intersecting in world affairs, and it is difficult to separate one from the other. The most notable recent examples include stringent Western economic sanctions on Russia for its invasion of Ukraine, American imposition of tariffs citing national security, and China’s restrictions on exports of rare earths and chips to the United States (US). This is true for many other countries as well. An increasing number of states are practising geoeconomics.[2] They are “waging geopolitics with capital, attempting with sovereign check books and other economic tools to achieve strategic objectives that in the past were often the stuff of military coercion or conquest.”[3]
Blackwill and Harris (2016) call geoeconomics “war by other means.” They define it as “the use of economic instruments to promote and defend national interests and to produce beneficial geopolitical results; and the effects of other nations’ economic actions on a country’s geopolitical goals.”[4] They identify seven key geoeconomic instruments: trade policy, investment policy, economic sanctions, the cybersphere, aid, monetary policy, and energy and commodity policies.[5]
In world politics, trade has long been used as a geoeconomic tool. For example, in the 1930s, the US “deployed trade to pre-empt German encroachment in the Western Hemisphere” and also “attempted to use the Export-Import Bank to blunt the rise of Japan.”[6] Countries that are willing to deploy trade as a geoeconomic tool tend to expand or restrict access to markets based on strategic considerations. For instance, in 2012, China stopped imports of the Philippines’ bananas as the two countries were engaged in a strategic stand-off in the South China Sea.
India has practised geoeconomics by deploying trade as a key instrument to attain geopolitical objectives. The recent purchase of Russian oil is an example of its geoeconomic strategy. By importing Russian oil shunned by the West, India ensured that its energy security upheld its strategic autonomy. Both are interlinked economic and geopolitical objectives. This decision of importing Russian oil required India to make a choice—go with the West or face Western pressure. India continued Russian oil purchases while engaging the West diplomatically, a dual strategy that helped it attain a foreign policy sweet spot in 2023 as it hosted the G-20 summit in Delhi.
A similar logic can be observed in India’s decision regarding the Regional Comprehensive Economic Partnership (RCEP). India did not sign the RCEP in 2019. Yet, since 2021, it has demonstrated considerable enthusiasm for signing and negotiating Free Trade Agreements (FTAs). Why would India say no to entering a regional trade bloc, yet prefer bilateral trade pacts? Is it contradictory? Does India have a strategy that balances trade with geopolitics? How to account for this contradiction? This paper attempts to answer this conundrum in India’s trade strategy through the prism of geoeconomics.
For the first four decades after Independence, India restricted its participation in global trade. Till 1991, the Indian state exercised full control over the economy. State control and public sector monopoly over some sectors, convoluted rules for limiting the growth of businesses, and limited participation in the global economy were key features of India’s economic policy. In the 1960s and ’70s, the world over, policies of import substitution, nationalisation of industries, and wariness regarding foreign trade were prevalent.[7] In this period, successive Indian governments, too, placed controls over foreign trade and economic activity. India’s economic system was described as the licence-quota-permit raj. To support domestic industries and prevent global competition, tariffs were also kept very high. For the year 1990–91, before the launch of economic reforms, India’s top tariff rates were as high as 355 percent.[8] Protectionist policies stunted India’s economic growth and limited Delhi’s ability to deploy economic instruments for foreign policy.[9]
When India faced an economic crisis in 1991, the licence-quota-permit raj was dismantled. The trade, industrial, and investment policies were changed almost overnight.[10] The rupee, which had been kept artificially high, was devalued twice in July 1991 to reflect its true value. The state was rolled back from the economy, and several state-owned industries were privatised. India sought to attract foreign investment as well as participate in international trade. From 1991 to 2007–08, it reduced its tariffs from 355 percent to 10 percent.[11]
This was also reflected in its trade policy. While India remained protective about agriculture and some key domestic industries, it signed FTAs with important strategic partners. In 1998, India signed an FTA with Sri Lanka. In the 2000s, New Delhi engaged in negotiations for the South Asian Free Trade Area (SAFTA) within the South Asian Association for Regional Cooperation (SAARC) framework. India and the Association of Southeast Asian Nations (ASEAN) signed an FTA in goods in 2009 that came into effect a year later.[12] Furthermore, India and South Korea also deepened their economic ties through an FTA, known as the Comprehensive Economic Partnership Agreement (CEPA), in 2009.[13] The agreement was implemented in 2010.[14] Subsequently, India entered an FTA with Japan in 2011.[15] These three FTAs were a noteworthy policy shift for a country that used to be suspicious of foreign trade. The economic links also complemented India’s growing defence and diplomatic presence in the Indo-Pacific region.
Since the 1991 economic reforms, India has been deeply integrated into the global economy and is on course to be the world’s fourth-largest economy in terms of GDP.[16] Trade with key global economies is now a major contributor—in 2024, the trade-to-GDP ratio stood at 45 percent.[17] The increasing international linkages are apparent across sectors, including in energy, agriculture, and services.
India deploys geoeconomics in five key domains: trade, investment, international migration, economic sanctions, and financial lending.[18] Its geoeconomic policies are apparent in its approach towards South Asia and the Indo-Pacific region. During the financial crisis in Sri Lanka in 2022–23, India extended financial support of US$4 billion to ensure that Colombo would stay afloat. The economic objective of this was to help Sri Lanka survive the crisis. The geopolitical goal was to ensure that India gains influence and prevents China from expanding its presence in the immediate neighbourhood. Another example is India’s Act East policy[19] that seeks “to promote economic cooperation, cultural ties and develop strategic relationships with countries in the Indo-Pacific region.”[20]
Similarly, before the second Trump administration (2025–present), strategic ties and economic interconnections between India and the US were increasing. Bilateral trade went up from US$45 billion in 2006 to almost US$200 billion by 2024.[21] In the same period, the Indo–US defence relationship also deepened considerably.[22] However, in the second Trump administration, India has found itself on the receiving end of American geoeconomics.
India’s trade surplus with the US, almost US$45 billion in 2024, and its purchase of Russian oil after February 2022, came under scrutiny.[23] Washington pressured Delhi to open its domestic dairy and agriculture sectors, purchase more American corn and soy, as well as stop the import of Russian oil. In 2025, citing American trade deficit with India and the latter’s continued purchases of Russian oil, Trump imposed 50 percent tariffs on India, making it one of the highest-tariffed countries by the US. Subsequently, India and the US signed an interim deal that lowered tariffs to 18 percent. With the US Supreme Court ruling against President Trump’s tariff policies, the final rate remains to be seen.
Since the financial crisis of 2008, a growing distrust of foreign trade and economic openness has crept in globally. Politicians espousing the reversal of globalisation and economic openness have gained popularity in the West since 2016.[24] The scepticism about globalisation has been accompanied by fears of the rise of China and the decline of the West. India has also been affected by these trends.
In the 2010s, India halted the active pursuit of trade liberalisation and sought to erect barriers to foreign trade.[25] It raised tariffs as well. As economist Arvind Panagariya argues, “the FY 2018/19 budget raised numerous tariffs from 20% or 30% to 50%, from 10% to 20%, and from 7.5% to 15%,8 thus doubling or more than doubling them.” The government, since 2014, “has sought to industrialise through import substitution, a policy India had left behind in 1991 after its failure to achieve its goal during the preceding four decades.” For this, it has deployed instruments such as increasing tariffs, providing subsidies, and imposing anti-dumping duties.[26] The changing approach to foreign trade is best exemplified in India’s approach towards the RCEP.
Since the early 1990s, with the end of the Cold War and the onset of globalisation, a few large trading blocs have come up. The signing of a trade agreement between the US, Mexico, and Canada created one of the largest trading blocs in the world, known as the North American Free Trade Area (NAFTA).[27] In Asia, the Association of Southeast Asian Nations (ASEAN), comprising ten Southeast Asian economies, is a prominent example of a large trading bloc.[b] Over the years, while deepening trade linkages within the bloc, this regional grouping has engaged other proximate economies such as China, Japan, and South Korea. These economies, along with India, Australia, and Taiwan, are considered part of the new centre of gravity for the global economy.
While the regional economic links have been expanding, ASEAN created a web of institutions in politics and security, such as the ASEAN Defence Ministers’ Meeting (ADMM), the ADMM Plus, and the 18-member East Asia Summit (EAS). The EAS includes the 10 ASEAN members, along with India, Japan, China, South Korea, Australia, New Zealand, Russia, and the US. By engaging important global and regional powers, it has attempted to manage China’s rise and ensure that the balance of power in the region remains stable. In this strategic context, negotiations began for the RCEP. The RCEP built on the ASEAN-plus-one FTAs that were already in place. ASEAN has entered such FTAs with six regional economies—India, China, Japan, South Korea, Australia, and New Zealand. These FTAs have been geared to strengthen economic ties.
The idea of the RCEP was first discussed in 2011 at the EAS. Its purpose was to “strengthen economic linkages” as well as to “enhance trade and investment-related activities.” It worked towards achieving “a modern, comprehensive, high-quality, and mutually beneficial economic partnership agreement” among the ASEAN countries and ASEAN’s FTA partners. It sought to create a large trading area that would “account for almost half of the world’s population; contribute about 30 per cent of global GDP and over a quarter of world exports.” The negotiations began in 2013 “to broaden and deepen the engagement” among the sixteen countries.[28] They covered the following areas: trade in goods, trade in services, investment, economic and technical cooperation, intellectual property, competition, dispute settlement, e-commerce, small and medium enterprises (SMEs), and other issues.
The RCEP represents a compromise between the competing economic and political visions of China and Japan. China wanted to pursue an East Asia Free Trade Area (EAFTA). It would have restricted the trading bloc to ASEAN plus three. On the other hand, Japan wanted to include India, Australia, and New Zealand.[29] This seems to have been a geopolitical choice. In the EAFTA, China would have been the dominant player, while in the Japanese approach, it would be balanced by other big economies. But when ASEAN decided to go ahead with RCEP, China “quickly adjusted its policy” and in Beijing’s view, it “has adopted an active, flexible, and pragmatic strategy.”[30] The compromise was to keep membership open as long as the interested countries were willing to abide by the RCEP rules and guidelines.[31] The negotiations were expected to be completed by 2015 but went on till 2019. The RCEP was finally signed in 2020 and came into being in 2022.
Among the 16 negotiating countries, China is the largest economy. It is expected to be the principal beneficiary. For China, the RCEP would “release enormous potential and further promote intra-regional trade and investment flows”, which would “help China further optimise its foreign trade and investment architecture.”[32] China’s optimism about the RCEP is founded on the fact that the regional trading bloc will further open up economies and continue the Chinese dominance of economic activity in the Indo-Pacific.
India has close political, economic, and cultural ties with most ASEAN countries. Of the ten members, Myanmar is a neighbour on land, while Thailand and Indonesia are maritime neighbours. Singapore and Vietnam have been close strategic partners and seek closer relations. In the recent past, the Philippines has also emerged as a key strategic partner. Manila has purchased BrahMos missiles from India and has deepened their overall defence relationship.[33]
Among the non-ASEAN RCEP members, South Korea and Japan have been India’s main economic and defence partners. Indo-Australian ties have been on the upswing as well, with both countries playing an active role in the geopolitical club known as the Quad. Moreover, India and most of these countries agree on keeping the Indo-Pacific region stable and secure in the wake of China’s rise. On the one hand, the RCEP has deepened Southeast Asia’s economic relationship with China while on the other, politically and militarily, Beijing remains a primary security challenge for RCEP-participating countries like Vietnam and the Philippines.
When RCEP negotiations were in full swing in the mid-2010s, India’s political and security relationships with these countries expanded manifold. For example, in 2015, Japan was invited to become a member of the Malabar Naval Exercises. Australia sought ways to strengthen the Indo–Australian defence partnership. However, India’s relationship with China remains a challenge.
Since the 1950s, India–China relations have been through ups and downs. They fought a short border war in 1962, and even now, they have an unsettled border dispute. Since the late 1980s, they evolved a new framework for the relationship—to keep the politico-military dispute separate from trade. Therefore, despite the border dispute and foreign policy divergences, their trade expanded manifold. Even during the tense military stand-off in 2020–24, India continued to trade with China. The bilateral trade was around US$1 billion in 2000. By 2019, it was almost US$100 billion.[34]
However, these numbers also mask a reality: the growing trade deficit in favour of China. By 2019, the trade deficit was almost US$57 billion.[35] As of 2025–26, it had reached almost US$100 billion.[36] Such a large trade deficit has strategic implications. India’s biggest imports from China include goods that are essential for its competitiveness as well as for domestic consumption. China is a top supplier for India in sectors such as electronics, machinery, chemicals, pharmaceuticals, and textiles.[37] India also imports glassware, leather articles and toys, ceramic products, and musical instruments from China.[38] This trade has hurt India’s micro, small, and medium enterprises (MSME) sector.
A large trade deficit and dependence on imported Chinese goods also create challenges for India. They hinder domestic industrial growth as cheap Chinese imports are easily available. At the same time, cheaper Chinese products benefit consumers and traders. Therefore, the central question is: can India trade with China and develop its industrial capability simultaneously?
The national security implications of India’s dependence on China are also grave. What would India do if China turns supply chains into an instrument of pressure? India could be at the receiving end of economic blackmail and/or embargoes. For instance, despite the thawing bilateral ties, in 2025, China pulled out its engineers from a manufacturing facility of a subsidiary of Apple-supplier Foxconn in India.[39] Therefore, India should remain worried about the bilateral trade deficit and the broader economic relationship.
In addition to the trade deficit, Indian companies found it difficult to enter the Chinese market. China had erected non-tariff barriers that would impede the entry of the Indian private sector. A paper published by the Prime Minister’s Economic Advisory Council noted that India faces three main non-tariff barriers from China: need for renewal of registration for exports of agriculture products (like mangoes and grapes), no redressal mechanism for pharmaceutical products, and high translation cost.[40] This meant that China was in a doubly advantageous position: by continuing large trade deficits and being unwilling to open domestic markets for Indian companies.
While the RCEP negotiations were going on, the Indian government tried to assuage the concerns of the private sector. It stated that India “has been engaging with the relevant Chinese Government entities to ensure that Indian companies get market access for its products” and that “such issues are also discussed in the bilateral meetings from time to time to find solutions to any such restrictions in market access.”[41] The government’s efforts did not raise much confidence, though, and private sector opposition to the RCEP hardened.
For India, the RCEP looked like one more entry point for expanding Chinese exports into the country. This would perhaps have adverse consequences, not only for domestic industries but also for the overall trade balance. Therefore, China remained a principal challenge for India to consider while joining the RCEP. This shaped how India approached the RCEP.
India’s position on the RCEP evolved over the decade, perhaps in response to domestic as well as international developments. Till 2016, Delhi seemed fairly satisfied with the RCEP negotiations. An Indian official had noted in 2016 that “if the technical negotiations which are underway are completed swiftly, RCEP may turn into a dynamic reality very soon.” India was interested “in forming regional value chains and production networks.” The changing global economic context due to the unveiling of the Trans-Pacific Partnership (TPP) was considered as well. Therefore, MEA Secretary Anil Wadhwa argued that “with the TPP becoming a reality, expediting RCEP is in our interest.”[42]
However, by 2017, the context for trade changed. The US and the United Kingdom (UK) were two of the biggest champions of globalisation and free trade. Brexit and the victory of Donald Trump in the US elections signalled that challenges were on the horizon. As these nations turned inwards, the global economic environment seemed to turn with them. By 2017, India’s economic growth had slowed down, and the external environment no longer seemed favourable for greater openness on the trade front. This was reflected in the then foreign secretary’s (FS) remarks to the Parliamentary Committee on External Affairs. The FS “called for observance of due restraint and not conclude trade arrangements which are not to our medium-term advantage” and argued that “a lot of our [free trade] agreements have not served as well as they could have.”[43] This demonstrates that there was a rethink going on within the government about FTAs.
A key concern has been about the RCEP’s impact on the domestic manufacturing sector. Therefore, the final decision had to be made based on gains from getting access to a regional market and the consequent integration in the global value chains, or losses incurred by exposing domestic manufacturing to regional and global competition. Entry into the RCEP would mean that India would have to eliminate import duty on almost 80 percent of its products.[44] The RCEP envisioned a 20-year period for reducing tariffs. Was the Indian industry ready to take on this challenge? The primary challenge was from China, which would benefit disproportionately and at the cost of Indian manufacturing.
By July 2019, India had hardened its position on the RCEP. China attempted to address its concerns, saying that if “India went beyond its current offer of eliminating tariffs on about 74 per cent of items for the country, it would not only match it but commit to a higher number.”[45] However, India’s industries, especially steel, automobile, textile, and engineering goods, were apprehensive about the RCEP and further entry of Chinese goods into the country. A few months later, China agreed to work with India on the issue of trade imbalance.[46] It also agreed to consider India’s concerns in the RCEP negotiations.
At the heart of India’s decision-making regarding the RCEP was the challenge of maintaining flexibility and strategic autonomy. It wanted to keep its options open, especially for the manufacturing sector. However, the RCEP’s goal was to lock all members into binding multilateral trade liberalisation. Therefore, it seemed incompatible with India’s aspirations.
Ultimately, India decided not to enter the RCEP. While explaining the decision, External Affairs Minister S. Jaishankar noted that in the RCEP, “we saw that a number of our key concerns were not addressed. We had to then take a call whether you enter a trade agreement if your major concerns are not addressed or do you take a call saying this is not in my interest.” He added that “because you are negotiating does not mean you have to suspend your ability to calculate at the end of the negotiation. I think we made those calculations.” Since this decision would signal a broader shift to the world markets, he was quick to add that “very frankly, what we did with regard to RCEP is not a generic position vis-a-vis trade.”[47]
Key industry stakeholders stood with the government. The president of the Federation of Indian Chambers of Commerce and Industry (FICCI), Sandip Somany, said that “serious apprehensions and reservations on RCEP have been expressed by a large number of sectors including steel, plastics, copper, aluminium, machine tools, paper, automobiles, chemicals, petrochemicals and others.” Engineering Export Promotion Council of India Chairman Ravi Sehgal argued that the concerns expressed by the MSME sector were also an important dimension of the domestic apprehensions about the RCEP: “MSME unit members were concerned about the possible opening up to Chinese imports; and hence it is a wise decision and will provide certainty to the MSME sector.” Sharad Kumar Saraf, president of the Federation of Indian Export Organisations, said that “duty-free imports from China, which has economy of scale, and sitting on huge inventory and capacity could have jolted the manufacturing beyond recovery and thus crippling exports.”[48]
The government and the Opposition in the country were on the same page. From the government’s side, the home minister noted that refusal to enter into the RCEP is an indication of “India’s growing stature as a country that is rock solid in its resolve to not only protect its own interests, but also to boldly ward off any attempts to being arm-twisted.”[49]
India’s RCEP dilemma reflects debates about its geoeconomic strategy. In an interconnected world, trade is one of the key instruments of geoeconomics. Strategic withdrawal from multilateral trade arrangements can be as geoeconomically significant as strategic participation. It may incur immediate economic costs, but in the long run, it may serve the wider interests of the country. For India, the relative gains of joining the RCEP seemed lower compared with the likely losses. While briefing the press, an Indian official noted that “India conveyed its decision at the summit not to join the RCEP agreement. This reflects both assessment of the current global situation as well as of the fairness and balance of the agreement. India had significant issues of core interest that remained unresolved.”[50]
Some analysts disagreed with the government’s decision. As per economist Ajit Ranade, if India stays out of the RCEP, “future investors will think twice about locating a part of their value chain in a country that’s outside the RCEP zone” because “doing so could thwart the seamless movement across multiple borders of the chain’s various constituent elements.”[51] In fact, “a loss of potential investment is a bigger concern than worsening trade deficits, since the latter can be made up by bilateral surpluses with other trading partners”[52] James Crabtree called India’s decision to stay out of RCEP a “historic blunder.”[53] India’s policymakers pointed out that the shift away from the RCEP did not mean that its Act East policy or Indo-Pacific strategy would also change. India was indeed interested in continuing its engagements with the region. It already had FTAs with 12 of the 15 RCEP economies.[54] The RCEP also kept a door open for India.
The onset of the Covid-19 pandemic, the problems faced by global supply chains due to their over-reliance on China, and the global economic slowdown led to a recrafting of India’s economic strategy. It included domestic focus on ‘self-reliance’ (Atmanirbharta) as well as greater willingness to enter bilateral trade deals.
In the wake of Covid-19, India embarked on the strategy of Atmanirbharta or becoming a ‘self-reliant’ country. This strategy had five pillars: economy, infrastructure, system, demography, and demand. It was expected to “prepare the country for tough competition in the global supply chain.” The economic package announced by the government for this initiative was INR 20 lakh crore.[55] However, Atmanirbharta was not just about producing locally for the local market.[56] India would “become self-reliant to contribute more to the world … we need to increase value addition in the country.”[57] While there were challenges in achieving this, he believed India could meet this challenge.
India also seemed to have rethought its international trade strategy after the pandemic. It sought to deepen trade ties with diverse partners, signing several new FTAs with countries such as Mauritius, the United Arab Emirates (UAE), Australia, and the UK. Commerce Minister Piyush Goyal said that the “recent FTAs has [sic] opened new opportunities for Indian exporters by creating access to high-income markets, encouraging investments, and enabling the flow of advanced technologies” and “these partnerships are designed to promote industrial collaboration, enhance supply chain resilience, and support the government’s vision of making India a global manufacturing hub.”[58] Moreover, “these agreements also have strong provisions for cooperation in innovation, research, and skill development, thereby ensuring that Indian businesses remain competitive in a rapidly evolving global landscape.”[59]
This new approach is built on the realisation that trade is a tool to boost economic growth and stands in stark contrast with India’s refusal to enter the RCEP.
From 2021, India has been engaged in negotiating and signing FTAs with a range of partners across the world. So far, it has signed FTAs with six countries (Mauritius, the UAE, Australia, Oman, the UK, and New Zealand) and two economic blocs (European Free Trade Area [EFTA] and EU). It is also in talks with countries such as Canada, Chile, and Israel. These FTAs reveal India’s long-term trade partners as well as the countries with which it shares geopolitical convergences and strategic trust.
The first country to enter an FTA with India after the pandemic was Mauritius. The agreement is known as the Comprehensive Economic Cooperation and Partnership Agreement (CECPA). It is the first trade agreement that India has signed with any African country.[60] It is important for India’s Indian Ocean strategy. In the past, India had gifted naval patrol vessels to Port Louis to enhance Mauritius’s maritime capability. It also extended a US$100 million defence credit line for purchasing necessary equipment.[61] India’s vision for the Indian Ocean, known as Security and Growth for All in the Region (SAGAR), was launched in Mauritius in 2015. Building on this, in 2025, it launched its ‘Mahasagar’ vision in the island-state as well. The special relationship that India enjoys with Mauritius is apparent in the fact that as Mauritius gets control of the Chagos archipelago from the UK, India has extended a US$ 680 million special economic package that would include development and surveillance of the marine-protected area of the island.[62]
At the time of signing the FTA, New Delhi was the third-largest import partner for Port Louis.[63] India–Mauritius trade had gone up by 233 percent between 2005–06 and 2019–20, from US$206.76 million to US$690.02 million.[64] The FTA was the next logical step in the Indo–Mauritian bilateral ties, which were already strong.
Equally important was the FTA with the UAE. The UAE has been a key economic player in the Persian Gulf and is one of the key global financial hubs (how the Iran war affects this remains to be seen). India enjoys deep economic ties with the UAE. In FY 2024–25, its bilateral trade with the UAE crossed US$100 billion. The Gulf monarchy is a key player for India’s energy security, supplying 6.4 percent of India’s oil imports, and is ranked fifth after Russia, Iraq, Saudi Arabia, and the US.[65] The UAE has been a recipient of large-scale Indian outward migration as well. In 2024, there were 4.3 million Indians in the UAE, constituting roughly 35 percent of the total population. Indians work in blue-collar as well as in white-collar jobs there.[66] Therefore, even before entering the FTA, economic links between India and the UAE were deep.
In the last few years, the geopolitical outlook of both countries is also converging. India and the UAE are strategic partners in areas such as counterterrorism, food security, renewable energy, emerging technologies, and maritime security. Just like Mauritius, geopolitical convergence between India and the UAE has provided a new impetus to the strengthening of economic ties. As External Affairs Minister S. Jaishankar noted in 2023, “with like-minded partners, we have actually demonstrated in recent years a fast-track change in our FTA negotiation processes. FTAs—with the UAE and Australia—were actually concluded in record time.”[67]
The FTA with Abu Dhabi was signed in 2022 and sought to enhance trade and investment ties. In the three years since it came into effect, the bilateral trade has doubled from US$43.3 billion to US$83.7 billion.[68] The non-oil trade stood at US$57.8 billion in 2025.[69] In terms of diversification of trade, India’s “non-oil exports reached US$27.4 billion in FY 2023–24 recording an average growth of 25.6% since entering into force of CEPA. At the sectoral level, besides refined crude oil products and gems & jewellery products, electrical machinery and equipment, light & medium high technology goods like boilers, generators and reactors and organic & in-organic chemicals have been major achievers. Besides, at the product level, smartphones have emerged as a major item of export with shipments valued US$2.57 billion bound for the UAE during FY 2023–24.”[70]
India and the UAE have also been involved in the conceptualisation of a trade corridor linking India and Europe via the Middle East, known as the India–Middle East–Europe Economic Corridor (IMEC).[71] The IMEC is envisaged as a response to China’s Belt and Road Initiative (BRI). It is also seen as an effort to open an alternate trade route to Europe without traversing the geopolitically volatile Suez Canal. The growing economic links between India and the UAE have underpinned strategic convergence as well. Both countries are part of a grouping known as I2U2 (India, Israel, the UAE, and the US).[72] The Indian and Emirati armed forces exercise together in the Western Indian Ocean. Therefore, the FTA has contributed to expanding the Indo–Emirati geopolitical and geoeconomic links.
Commerce Minister Goyal hailed the FTA with the UAE as “the most successful trade agreement so far” in the Gulf.[73] Companies in the UAE have shown interest in engaging with India to increase exports to Africa and Central Asia. In such cases, Goyal noted, India could supply labour while the UAE could bring in the required capital. As the UAE seeks to leap ahead in technology, collaborations in this domain are also likely.[74] For instance, in 2022, both countries signed a Memorandum of Understanding (MoU) in for cooperation in the field of industries and advanced technologies.[75] In 2023, they entered an MoU for interlinking payment and messaging systems as well.
The overall success of the Indo–UAE FTA has pushed the Indian government to engage in negotiations with other Gulf countries. India signed an FTA with Oman in December 2025. Negotiations are on cards for an FTA between India and the six-country Gulf Cooperation Council (GCC) that includes Saudi Arabia and Qatar.
Apart from Mauritius and the UAE, India has signed FTAs with Australia, the EFTA, and the UK. The Indo–Australian FTA is as much about economics as it is about geopolitics. Both countries are key players in the Indo-Pacific and are part of the Quad. Both share concerns about the rise of China and the future of Indo-Pacific security. Known as the Economic Cooperation and Trade Agreement (ECTA), the FTA was signed in 2022 and is complementary to both economies. Through it, 96 percent of India’s exports to Australia get duty-free access. In 2026, the same facility is available for 100 percent of exports. Negotiations are underway between both countries to sign the Comprehensive Economic Cooperation Agreement (CECA) to further expand economic ties. In the last four years, bilateral trade has doubled. Agriculture has benefitted the most because of the ECTA.[76] The ECTA is likely to boost India’s economic presence in the Indo-Pacific as access to the Australian market can also be used as an entry point for other economies in the South Pacific.
The FTA discussions with Australia were also linked to the RCEP decision. In 2020, External Affairs Minister Jaishankar stated that “there is a discussion on a free trade agreement, a bilateral free trade agreement as well, because, as you know, we didn’t sign the RCEP.”[77] Subsequently, while explaining India’s FTA strategy, he said that “India’s new approach to trade agreements addresses issues of non-tariff and behind-the-border barriers, quality standards, and related benchmarks.” He added that “with like-minded partners, we have actually demonstrated in recent years a fast-track change in our FTA negotiation processes.” Therefore, the FTA with Australia was concluded in “record time.”[78]
The FTA with the four EFTA countries (Iceland, Liechtenstein, Norway, and Switzerland) was signed in 2024 and came into effect in October 2025. Both sides had been negotiating since 2008 and 21 rounds took place before finally signing the agreement.[79] The trade agreement is expected to contribute US$100 billion in investments in India and generate over a million jobs.[80] This is the first agreement between India and four developed European countries. From India’s point of view, the FTA would “allow our manufacturers to access specialised inputs from the EFTA region, it would create a favourable trade ecosystem, and boost made-in-India goods and services exports.”[81] Moreover, “technology collaboration and access to cutting-edge technologies in precision engineering, health sciences, renewable energy, innovation and R&D would further enhance the potential of the Indian services sector.”[82] The key takeaway in the FTA is the focus on innovation, sustainability, and technology.[83][84]
Subsequently, India signed an FTA with the UK in July 2025. It will bring India’s average tariffs for British goods down from 15 percent to 3 percent.[85] Sectors that would benefit include textiles, marine products, leather, and engineering goods.[86] Other key beneficiaries include footwear, sports goods, toys, gems, jewellery, auto parts, engines, and organic chemicals. British Prime Minister Kier Starmer described the FTA as Britain’s largest post-Brexit achievement. It will be a “launchpad” for further enhancing economic cooperation, and Starmer said he would like the deal to be implemented “as quickly as humanly possible.”[87] US President Donald Trump’s return to the White House and tariffs imposed by him provided momentum for the finalisation of the Indo–British FTA.[88] India and the UK are large economies and close strategic partners of the US. They both faced pressure from the Trump administration. [89] Therefore, engaging with other economies has become a necessity. Its trade diversification efforts are aimed at countries in Europe, West Asia, and East Asia.
After the UK FTA, India entered an FTA with EU, New Zealand, and Oman. With the India–New Zealand FTA, India now has trade pacts with 14 out of the 16 RCEP countries. Only China would be out of India’s FTA network in the Indo-Pacific region. Besides these, India is engaged in negotiations with other countries such as Chile, Israel, and Canada. Of these, Chile is important for critical minerals and Canada for sectors such as artificial intelligence, critical minerals, nuclear energy, oil, and gas. India has also launched trade talks with the Russia-led Eurasian Economic Union (EEU).[90]
The changing American trade policy since the second Trump administration has strained the global economic system. India attempted to keep President Trump on its side by pursuing bilateral engagement and had taken steps to satisfy some American concerns, such as offering tariff concessions.[91] However, the US still imposed high tariffs on India. Domestic industries such as textiles, gems and jewellery, leather, and machine have been the most affected.[92] Manufacturing activity has slowed down to its lowest in nine months.[93] According to news reports, “exports from labour-intensive sectors, such as engineering goods and textiles, slowed sharply in October [2025] as the US tariffs, the highest globally, left Indian goods uncompetitive compared to key competitors—particularly the Association of Southeast Asian Nations (ASEAN) countries and China.”[94] Moreover, “goods exports to the US slipped 8.6 per cent to US$ 6.3 billion in October compared to US$6.9 billion in the same month last year. This had an effect on overall goods exports which plunged 11.8 per cent to US$34.38 billion.”[95] In the longer run, if tariffs continue, India’s GDP growth is likely to come down by 0.3–0.5 percent.[96]
The US has three key demands: first, as the trade deficit is in favour of India, Delhi should take steps to reduce it. In 2024, the US trade deficit with India stood at US$45.8 billion. President Trump insisted that India should import more American goods. Second, India should open its agriculture and dairy sectors for American exports. These sectors contribute to the overall American export basket and are important for its domestic politics. The US also enjoys a cost advantage in these sectors and considers India a lucrative market. Third, India should stop its import of Russian oil.[97] This is linked with the US’s support for Ukraine as well as wanting to export more oil and gas produced by the American companies. However, President Trump did not target China and Turkey for the import of Russian oil.
All three demands are linked with America’s desire to export more and generate more jobs at home. The US is a leading exporter of agricultural products and oil and gas. India has been amenable to importing more oil and gas from the US. Recently, it signed an agreement for import of liquefied petroleum gas (LPG) from the US according to which it will import 2.2. million tons per annum of LPG.[98] However, opening agriculture and dairy exports are politically sensitive. Minister of State for Agriculture and Farmers’ Welfare Ramnath Thakur had said, “the livelihood interests of our farmers and requirements of food security have always been paramount for the government while negotiating trade agreements with our international partners, including the US.”[99] India hopes to sign a bilateral trade agreement (BTA) with the US and double the trade by 2030 to US$500 billion.[100]
India and the US signed an interim trade deal in February 2026. However, within a few days of signing the interim deal, the US Supreme Court ruled against the tariffs imposed by President Trump. The administration still went ahead and imposed 10 percent tariffs on all countries. Subsequently, it was raised to 15 percent. While the world was figuring out a way to deal with this changed economic reality, the US and Israel invaded Iran in March 2026. There has been a two-week pause in the war and the future course remains uncertain. Therefore, the final shape of the Indo–US trade deal remains to be seen.
This paper explained how India has been crafting its geoeconomic strategy in the trade domain. It considered India’s refusal to join the RCEP and its desire to enter FTAs as key dimensions of its geoeconomics. India has been a founding member of the RCEP negotiations that included 15 other members. The RCEP was aimed at creating a mega trading bloc in the Indo-Pacific. Despite the likely benefits in terms of market access and trade flows, India refused to join the RCEP.
The India–China geopolitical rivalry and heavily skewed bilateral trade in favour of China played a key role in this. China has erected non-tariff barriers for Indian companies. India feared that the RCEP would cement the Chinese dominance of India–China trade as well as lead to greater Chinese penetration of Indian markets. By 2019, India already had FTAs with ASEAN, Japan, and South Korea. Therefore, it calculated that it would not lose much ground due to not joining a new trade pact.
India’s geoeconomics since 2019 rests on three pillars: rejection of the RCEP, strategy of Atmanirbharta for promoting domestic industrialisation, and signing new FTAs with strategically important countries. All three are in service of a single goal: managing its China challenge. In 2020, New Delhi launched the strategy of Atmanirbharta and sought to increase and incentivise the domestic manufacturing base. Meanwhile, it also negotiated and finalised FTAs with some key countries. In the five years since Covid-19, India has signed FTAs with Mauritius, the UAE, Australia, the EFTA, the UK, Oman, New Zealand, and the EU. India now has FTAs with 14 countries that are part of the RCEP. Only China is excluded from India’s FTA network.
There is a clear pattern in India’s view of international trade. Like the rest of the world, India is taking a strategic view of trade agreements. Its FTA partners—Mauritius, the UAE, Australia, and the UK—are countries with which it shares deep geopolitical convergences. On the contrary, China is India’s primary strategic challenge. Despite the recent thaw in the bilateral relationship, the China-sized challenge for India’s foreign and economic policies cannot be underestimated. India’s FTAs are expected to boost economic ties and help it grow. An economically resurgent India would be able to better manage the rise of China.
Sankalp Gurjar is Assistant Professor of Geopolitics and Geoeconomics at the Gokhale Institute of Politics and Economics, Pune.
All views expressed in this publication are solely those of the author, and do not represent the Observer Research Foundation, either in its entirety or its officials and personnel.
[a] For example, in 2023, America’s former National Security Advisor Jake Sullivan argued that “a modern American industrial strategy identifies specific sectors that are foundational to economic growth, strategic from a national security perspective, and where private industry on its own isn’t poised to make the investments needed to secure our national ambitions.”
[b] The 10 ASEAN members are: Myanmar, Thailand, Cambodia, Laos, Vietnam, Indonesia, Malaysia, Singapore, Brunei, and the Philippines.
[1] See Jake Sullivan, “Renewing American Economic Leadership,” Washington DC, April 27, 2023, https://bidenwhitehouse.archives.gov/briefing-room/speeches-remarks/2023/04/27/remarks-by-national-security-advisor-jake-sullivan-on-renewing-american-economic-leadership-at-the-brookings-institution/
[2] Robert D. Blackwill and Jennifer M. Harris, War by Other Means: Geoeconomics and Statecraft (Cambridge: Harvard University Press, 2016), pp. 4–5.
[3] Blackwill and Harris, War by Other Means, p. 4.
[4] Blackwill and Harris, War by Other Means, p. 20
[5] Blackwill and Harris, War by Other Means, p. 49
[6] Blackwill and Harris, War by Other Means, p. 2
[7] Reda Cherif and Fuad Hasanov, “The Pitfalls of Protectionism: Import Substitution vs. Export-Oriented Industrial Policy,” International Monetary Fund Working Paper 86 (2024); Daniel Yergin and Joseph Stanislaw, The Commanding Heights (New York: Simon & Schuster, 1998), pp. 88–90.
[8] Arvind Panagariya, “India’s Trade Policy and a Road Map for Its Liberalization,” Mercatus Policy Research, 2024, 6.
[9] Rajeshwari Sengupta, “What India’s GDP Numbers Reveal,” India Forum, August 6, 2025, https://www.theindiaforum.in/economy/what-indias-gdp-numbers-reveal
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[56] For a detailed analysis of Atmanirbhar Bharat, please see: PRS Legislative Research, “Analysis of the Aatma Nirbhar Bharat Abhiyaan,” https://prsindia.org/policy/report-summaries/analysis-aatma-nirbhar-bharat-abhiyaan, 2025.
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[95] Mishra, “Trump Tariffs Drag Down India’s US Exports by 9% in October.”
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[97] PTI, “U.S. Doesn't Need ‘Unfair Trade’ with India: Peter Navarro,” Hindu, September 10, 2025, https://www.thehindu.com/news/international/us-doesnt-need-unfair-trade-with-india-peter-navarro/article70032811.ece.
[98] Ministry of Petroleum and Natural Gas, Government of India, https://www.pib.gov.in/PressReleasePage.aspx?PRID=2190755®=3&lang=2.
[99] Gyanedra Keshri, “Refining Farm Trade Policy Holds the Key to India’s Long-term Export Goals,” Deccan Herald, September 7, 2025, https://www.deccanherald.com/business/refining-farm-trade-policy-holds-the-key-to-indias-long-term-export-goals-3715775.
[100] Shreya Nandi, “India-US Trade Deal: ‘Not Too Many Differences Between Both Sides’,” Business Standard, October 18, 2025, https://www.business-standard.com/economy/news/india-us-trade-deal-not-too-many-differences-between-both-sides-125101800634_1.html ; “‘No Agreement Unless...’: Piyush Goyal Gives Big Update on India-US Trade Deal; Talks Going on in 'Cordial Atmosphere’,” Times of India, October 19, 2025, https://timesofindia.indiatimes.com/business/india-business/india-us-trade-deal-piyush-goyal-says-new-delhi-to-safeguard-farmers-fishermen-msmes-talks-ongoing/articleshow/124662779.cms
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Dr Sankalp Gurjar is an Assistant Professor of Geopolitics and Geoeconomics at the Gokhale Institute of Politics and Economics, Pune. He specializes on Geopolitics and ...
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