What is a Free Trade Agreement (FTA)? How does it work?

What is a Free Trade Agreement (FTA)?

An agreement that reduces import and export taxes between two or more nations is known as a free trade agreement. Under free trade policies, government exchange constraints in the form of tariffs, quotas, subsidies, or prohibitions are minimal or nonexistent, allowing the free flow of goods and services across international borders.

The purpose of these agreements is to lower trade barriers and enhance bilateral or multilateral trade relations by determining the tariffs and charges that each country imposes on imports.

Trade across international borders can occur via free trade agreements (FTAs) with little or no restrictions on government tariffs, quotas, or subsidies.

Trade protectionism and economic isolationism are concepts that are opposed by free trade agreements (FTAs).

Formal agreements between participating states are often employed in the modern world to create a free trade policy. 

India has signed thirteen free trade agreements (FTAs) with its trading partners in the recent five years. These include the India-Australia Economic Cooperation and Trade Agreement (IndAus ECTA), the India-Mauritius Comprehensive Economic Corporation and Partnership Agreement (CECPA), and the India-UAE Comprehensive Partnership Agreement (CEPA).

Classification of Free Trade Agreements:

Free trade policies can be divided into the following categories according to the degree of trade openness between the nations:

 Preferential trade agreement (PTA) 

It is an agreement between two or more nations to grant preferential entry rights to specific goods in exchange for lower tariffs.

Positive inventory, or the list of products to whom priority access is granted, is kept up to date.

Examples include the Preferential Trade Agreement (SAPTA) between India and SAARC and the MERCOSUR PTA.

Free Trade Agreement (FTA):

 A number of nations have decided to do away with tariffs on goods that are the subject of significant bilateral commerce.

The negotiating countries keep a negative list of goods and services for which the terms of the free trade agreement do not apply. For this reason, FTAs are more extensive than PTAs.

India and the South Asia Free Trade Area (SAFTA) are two such examples.

Comprehensive Economic Cooperation Agreement (CECA):

A complete set of agreements covering goods and services, investment, mutual recognition, e-commerce, intellectual property, and other topics is known as a complete Economic Cooperation Agreement (CECA).

Example:  India – Singapore CECA  and India – Malaysia CECA 

Customs Union (CU): 

Members of the Union can choose to trade duty-free amongst themselves and to keep common tariffs against the rest of the world.

Examples are the European Union and the Southern African Customs Union

Common Market:

 In a common market, participating nations provide unrestricted commerce as well as unrestricted capital and labor mobility.

Example-European Common Market

Economic Union:

Economic union is the extension of the common market through unified legislative, judicial, and fiscal policies as well as increased policy harmonization.

European Union (EU) as an example

How does a Free Trade Agreement work?

Formal agreements between participating states are often employed in the modern world to create a free trade policy. Still, a free-trade policy can just mean the lack of trade barriers.

The government does not have to take direct action to promote free trade. This laissez-faire mindset is referred to as “laissez-faire trade” or trade liberalization. Governments that enact free-trade agreements or policies don’t necessarily remove all protectionist restrictions or cede full control over imports and exports.

Governments that implement free-trade agreements or policies do not always give up all authority over imports and exports or do away with all protectionist measures. Few free trade agreements (FTAs) produce totally unfettered trade in the context of contemporary international commerce.

For instance, a country may permit free trade with another country, subject to restrictions that prohibit the entry of particular medications not authorized by its authorities, unvaccinated animals, or processed foods that don’t adhere to its regulations.

Alternatively, it might have regulations that exclude specific goods from tariff-free status, protecting home producers from foreign competition in a given field.

Economics of  Free Trade:

Free trade between states, municipalities, and neighbors is, in theory, no different from free trade on a global scale. The ability to import commodities that are uncommon or unavailable domestically, however, frees up firms in each country to focus on producing and selling things that maximize their resources.

By combining domestic manufacturing with international trade, economies are able to grow more quickly and better serve their customers’ requirements.

David Ricardo, an economist, first made this point of view prominent in 1817 with his book “On the Principles of Political Economy and Taxation.” He maintained that free trade allows a country to better utilize its own resources, expertise, and specialized skills while increasing the variety and bringing down the cost of the commodities produced there.

Free Trade Agreement and India:

The most recent free trade agreement (FTA) that India has is the India-UAE CEPA.

  • In 2020, India chose not to participate in the massive Asia-Pacific Regional Comprehensive Economic Partnership.
  • Due to the inconsistent past performance of free trade agreements, the Confederation of Indian Industry has called for an evaluation of the current trade accords.
  • Limited growth in bilateral trade and limited diversification of exports have come from India’s free trade agreement with Sri Lanka.
  • India has not benefited significantly from the trade agreement with ASEAN as, according to the country’s free trade agreement, imports of capital goods, petroleum, and transportation equipment have decreased while imports of food and drink, consumer products, and industrial supplies have increased.
  • There aren’t many advantages to India’s Free Trade Agreement with South Korea.
  • India’s productivity has increased due to the increased imports of capital goods, transportation equipment, and industrial supplies as a result of the free trade agreement with Japan.

Significance of Free Trade Agreement (FTA):

  • FTAs encourage companies in member nations to concentrate on manufacturing and marketing products that make the best use of their resources, while other companies import commodities that are hard to find or unavailable domestically.
  • FTAs lead to an increase in the production and consumption of goods traded globally since they enable each country to create a certain set of items at a reduced cost.
  • FTAs make it easier to combine domestic manufacturing with foreign trade, which promotes economic growth.
  • FTAs contribute to supply chain diversification by lowering the cost and simplifying cross-border business transactions for more companies.
  • From the perspective of the customer, free trade agreements (FTAs) would benefit both nations’ consumers by increasing product variety and affordability.
  • Free trade agreements (FTAs) are crucial in cementing the relationship between nations.
  • FTAs promote foreign direct investments (FDI), which promotes the flow of capital and the development of jobs.
  • FTAs aid in the elimination of monopolies.

Concerns about the Free Trade Agreement (FTA):

  • The ultimate effectiveness of trade agreements will depend on how much more commerce is created by comparative advantage, which will boost trade and economic growth.However, the overall effect of the FTA will be unfavorable if it leads to significant trade diversion from more competitive countries to the FTA members.
  • Risk to intellectual property rights: large businesses can readily copy the works of local creators.
  • Loss of income that was collected through tariffs and import levies.
  • The misuse of domestic labor and resources as a result of foreign company growth.
  • It makes trade in products and services more reliant on other nations.
  • The unrestricted flow of imported commodities influences domestic goods, resulting in losses for the home industries.

Way Forward:

  • To enable a less difficult compliance process, terms and conditions pertaining to non-tariff barriers should be negotiated into free trade agreements.
  • Increased market access for India might benefit countries like Africa, Central and Southeast Asia, and others. India should investigate more regions that are prepared for a trade deal with India.
  • To increase the scope of the free trade policy, the geopolitical problems should be settled and the trade partner selection procedure should be changed.
  • Reviewing and renegotiating current trade agreements that are not yielding the desired benefits is crucial.
  • India should take action to increase its export potential and competitiveness since it is believed that its low export competitiveness has prevented it from fully utilizing the FTAs.

India’s merchandise exports are expected to reach USD 450 billion in the current fiscal, despite geo-political challenges in recent times, said Ashwani Kumar, the new president of the Federation of Indian Export Organisations (FIEO)

India’s exports increased to USD 437 billion in FY 2022–23 from USD 331 billion in FY 2018–19, the pre-pandemic level. Despite its commendable trade achievements, India still has a lot of untapped potential.

The estimations provided by India’s Trade Portal show a significant discrepancy between India’s potential exports and actual exports in a number of industries, particularly chemicals, pharmaceuticals, gems, and jewelry. Therefore, in order to effectively profit from exports across sectors, it is important to solve market- and sector-specific issues.

These free trade agreements (FTAs) address a broad range of subjects, including reduced tariffs that affect the entire manufacturing and agricultural sectors, regulations governing the trade of services, digital concerns like data localization, intellectual property rights that could affect the availability of pharmaceuticals and the facilitation, promotion, and protection of investment.

India is concentrating on negotiating free trade agreements with several partners, both bilateral and regional, to boost export-oriented domestic manufacturing.


Top agricultural products exported from India


In India, the majority of income comes from the agricultural sector. The nation ranks among the top producers of food items and agricultural goods worldwide. The growth rate of India’s agriculture sector  predicted to be 3.5% in 2022–2023 and 3.0% in 2021–2022.

In agriculture and related industries, the gross value added (GVA) increased by the projected 4% in 2022–2023. In the agriculture industry, the first advance estimate of GVA for 2023–2024 is projected to be 5.5%.

 Numerous crops and food grains, including rice, wheat, pulses, oilseeds, coffee, jute, sugarcane, tea, tobacco, groundnuts, dairy products, fruits, and so on, are produced in the nation.

India’s Export Trend:

India is a global leader in the export of agricultural products. The total value of agricultural product exports from April to January of 2024 was US$ 38.65 billion. India’s agricultural exports were valued at US$52.50 billion in 2022–2023. The nation’s overall agricultural exports in 2021–2022 were US$ 50.2 billion, a 20% increase from US$ 41.3 billion in 2020–2020.

The government’s dedication to increasing farmer’s income is seen in the significant rise in agri-exports, which is a result of its emphasis on export promotion. The government has increased exports through several APEDA-related efforts, such as setting up B2B exhibitions in other nations and investigating new prospective markets through general and product-specific marketing campaigns. 

The Indian government has created a product matrix for 50 agricultural items with substantial export potential and has designated 220 labs to provide services for evaluating a wide range of products in order to support exporters throughout India.

 In the fiscal year 2022, India’s top agricultural exports were spices, both non-basmati and basmati rice. 

Interestingly, the earnings from rice exports alone were $9.65 billion, although wheat exports increased significantly from $567 million to $2.2 billion between FY 2021 and FY 2022. Dairy product exports also increased significantly during that time, going from $323 million to $634 million.

In FY 2022, India’s agricultural exports increased significantly by 19.92%, indicating strong overall growth. This emphasizes how important India is to the global agriculture trade environment.

In this, We look at 10 of the best agricultural exports from India that are known for their distinctive tastes and superior quality:

Non-Basmati Rice:

Non-Basmati rice, well-known for its affordability and nutritious content, satisfies the gastronomic demands of many cultures across the globe. India continues to hold its position as a dependable supplier of high-quality non-Basmati rice on the international market because to its sustainable production methods and strict quality control measures.

Over a thousand varieties of rice exist worldwide. India produces plenty of those! India exported non-Basmati rice worth 456.5 billion Indian rupees in 2021–2022

Basmati Rice:

One of India’s most well-known agricultural exports is basmati rice, which is distinguished by its unique scent and long grains. Basmati rice is highly valued for its excellent flavor and delicate texture, and it is predominantly grown in the rich plains of the Punjab region. 

In the Middle East, Europe, and North America, in particular, it is highly sought after and used in a variety of cuisines, including as pilafs and biryanis.

The globe imports almost two-thirds of India’s Basmati rice crop. A selection of the Basmati rice varieties that are exported include Karnal local, Basmati 370, and Basmati 385. The income from Indian rice exports in 2022-23 was 4787.50 million rupees.


India has a long history of trading in spices, and it is now one of the world’s largest exporters of a broad range of spices. 

Indian spices, from the spicy fire of chiles to the comforting embrace of cardamom, give each meal an explosion of flavor. Cardamom, cloves, turmeric, coriander, and chili peppers are among the popular exports. The income from Indian rice exports in 2022-23 was 3783.6  million rupees.


With a wide range of black, green, and white teas, India is a significant producer and exporter of tea. Indian teas, from the robust Assam black tea to the delicate Darjeeling green tea, are ideal for any palate. The various growth environments found in India’s various areas contribute to the distinctive flavors found in each kind.

Approximately 10% of all tea exports come from India, which is among the top 5 exporters worldwide. India’s overall tea export revenue from April to February of 2024 was US$ 752.85 million.

 Indian tea from the Nilgiri, Darjeeling, and Assam regions is regarded as some of the best in the world. About 96% of all tea exported from India is black tea, which accounts for the majority of the country’s tea exports.


India is home to a large crop of pulses, which are highly nutritious and are becoming more and more popular around the world. Indian pulses are becoming more and more popular around the world thanks to their highly nutritious content.

 India’s pulse exports are growing as the global protein market shifts to plant-based foods. This section examines the various varieties of pulses that are available on international marketplaces and emphasizes their significance in supplying the world’s nutritional needs. 

Selling pulses is not the only goal; the goal is to mainstream them into diets all across the world and spearhead the transition to more nutrient-dense eating practices.

During the 2023 fiscal year, India exported pulses worth approximately 672 million US dollars. Comparing that year to the fiscal year 2022, there was a 17% increase in demand for pulse exports.

Fruits and Vegetables:

The tropical climate of India makes it possible to grow a large range of fruits and vegetables. Indian produce gives an abundance of freshness and brilliant hues, from the sweetness of mangoes and bananas to the tanginess of oranges and pineapples. Onions, chiles, mangoes, and grapes are among the popular exports.

In 2022–2023 India exported 1635.95 million USD worth of fresh fruits and vegetables, with fresh fruits accounting for 770.70 million USD and vegetables for 865.24 million USD.


One of the main commodities in world trade is sugar, which is derived from sugarcane or sugar beets. It gives taste to a plethora of items and is used as the main sweetener in the globe. While sugar beets thrive in colder areas, sugarcane grows best in warmer settings. 

In addition to satisfying sweet tooths, sugar is utilized in many different industries, including beverages, confections, and biofuels. Even with obstacles like price swings and environmental issues, sugar is still a vital export that boosts businesses all around the world.

India exported $6.03 billion in raw sugar in 2022. Sudan ($783M), Indonesia ($737M), Bangladesh ($512M), Somalia ($378M), and Saudi Arabia ($322M) were the top recipients of India’s raw sugar exports.


 In the previous fiscal year, 6 lakh MT of groundnuts were exported. This is worth Rs. 5381 crores. Groundnut types such as Kadiri-2, Kadiri-3, BG-1, BG-2, Kuber, T-28, T-64, Chandra, Chitra, and others have a significant potential for export.

India exported ground nuts worth $732 million in 2022. Indonesia ($290M), Vietnam ($136M), Philippines ($62.5M), Malaysia ($61.6M), and Thailand ($40.1M) were the top destinations for India’s groundnut exports.

Other Cereals:

The world’s largest producer of cereals, India offers ideal conditions for the export of its cereals due to the strong demand for them worldwide. Cereals like wheat, barley, sorghum, paddy, and millet are among the most significant ones. Rs 5116 crores were made in revenue from the export of cereals. 

India exported $14.7 billion worth of cereals in 2022. India’s top cereal export markets were Bangladesh ($1.57B), Saudi Arabia ($1B), China ($679M), Iran ($1.16B), and the United Arab Emirates ($633M).


Agriculture Exports: Prospects and Opportunities:

India has a vast amount of arable land and a variety of agroecological conditions, which offer enormous potential for the production of agricultural goods.

India is the world’s top producer of milk, pulses, and jute; it is ranked second for rice, wheat, sugarcane, groundnuts, vegetables, fruit, and cotton, according to the FAO. In addition, India is a major producer of fish, poultry, livestock, spices, and plantation crops.

India is the world’s second-largest agricultural producer, with US$ 367 billion in total output, although its portion of the export market is minimal. This suggests that there is a great chance to increase exports.

India can achieve the US$ 100 billion milestone in agri-food exports by taking effective action at several levels, including farm inputs, quality assurance, traceability, and certification, as well as connecting to global value chains (GVCs).

Investor confidence has improved as a result of the government’s renewed attention on agriculture, which is demonstrated by measures like the doubling of farmers’ income program, agriculture export policy, and ease of FDI in the industry.

An increase in foreign investments is encouraging agribusiness. Horticulture, floriculture, apiculture, animal husbandry, and aquaculture are all eligible for 100% FDI in the agricultural sector.


Benefits of Agriculture Exports:

  • Largest source of income: 

As of March 2022, 152 million Indians were employed in agriculture. Agriculture still provides the majority of the income for 70% of rural households.

  • Boost Farm Income: 

Increasing the export of agricultural products at prices that are competitive worldwide would aid in boosting farmer income

  • Rural development:

Enhancing farm incomes will increase demand in the rural areas and support the expansion of the rural economy and development

  • Trade Balance: 

Historically, agricultural exports have exceeded agricultural imports. The agricultural industry has consistently kept a trade surplus. This contributes to improving foreign exchange reserves and reducing the current account deficit (CAD).


Challenges in Agriculture export:


  • To combat inflation in the domestic market, India’s agriculture policy is primarily concerned with price stabilization and food security. Farmers lose out on higher pricing on the global market as a result of the policy.


  • India’s agricultural exports are becoming less competitive due to a lack of branding and promotion.


  • The potential for exporting horticulture produce has been hampered by the absence of consistent quality standards, the standardization of commodities, and significant value chain losses


  • India’s agricultural products’ Maximum Residue Limit (MRL) violates sanitary and phytosanitary regulations on the international market.


  • The bulk of crops in India continue to yield significantly less than the world average.


  • In India, a farm typically occupies 1.15 hectares. The majority of Indian farmers are classified as small and marginal producers.


Agriculture exports: Way ahead


  • Farmers should receive training on export compliances and standards. To introduce farmers to export-oriented technology and raise their awareness of export prospects, Krishi Vigyan Kendras can be enlisted.


  • Giving agricultural value chains, including cold storage, ripening chambers, warehouses, and pack houses, infrastructure status.


  • Export hubs, such as Orange’s Nagpur, lack structured branding and marketing assistance for their goods. Building a brand will make it easier for them to join global retail chains.


  • Indian versions of fruits, grains, oilseeds, and millets, as well as their traditional knowledge and nutritional worth, make them great export options.


  • Farmer Producer Organizations (FPOs) must be linked to importers from other markets and global value networks. They can have a better understanding of quality requirements, and importers can be reassured about quality standards.


  • Trade agreements, both bilateral and sectoral, aim to guarantee advantageous tariffs for India’s agricultural exports while tackling non-tariff obstacles such as fair trade certificates, quality and testing processes, and so on.


  • Research and development (R&D) efforts aimed at creating new products for future markets, such as food product fortification, should be encouraged.




India’s exports of agricultural products are evidence of its long history and dedication to quality. Every product, from the tasty spices and wholesome pulses to the fragrant Basmati rice, embodies a special fusion of quality, innovation, and tradition.

 India is a major exporter that feeds millions of people worldwide and makes a substantial contribution to the global agricultural commerce landscape despite global challenges.

A key component of this quest for agricultural excellence is effective logistics. Transporting perishable goods in a secure and timely manner while maintaining their quality and freshness during the journey is ensured by ocean freight and reefer container booking services.