India’s global trade strategy has undergone a fundamental transformation in 2025 and early 2026. The signing of the India-EU Free Trade Agreement on January 27, 2026, described as historic by European Commission President Ursula von der Leyen, and the interim India-U.S. trade framework signed in February 2026, have positioned India as a proactive player in global trade architecture. Simultaneously, U.S. President Donald Trump’s Agreements on Reciprocal Trade (ARTs) with multiple countries, including Bangladesh, El Salvador, Argentina, Malaysia, and Cambodia, have created a new and legally controversial category of trade agreement that is not anchored in the WTO framework, raising serious questions about trade multilateralism and India’s negotiating position.
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Five Important Key Points
- The India-EU FTA, signed after nearly two decades of negotiations, creates a free trade zone covering approximately two billion people, reducing or eliminating tariffs on over 90% of traded goods.
- Trump’s ARTs are distinct from WTO-compatible FTAs because they are not notified to the WTO under Article XXIV of GATT, making them legally suspicious under international trade law.
- India’s FTA network is projected to cover nearly 71% of its total export basket by 2026, up dramatically from approximately 22% in 2019.
- The India-U.S. interim framework prioritises strategic collaboration in rare earths and semiconductors alongside progressive tariff reduction.
- ARTs contain one-sided provisions, including clauses requiring partner countries to adopt complementary trade restrictions if the U.S. adopts protectionist measures, effectively tying partners’ trade policy to U.S. decisions.
Background: India’s Evolving Trade Policy
India’s trade policy for many years was characterised by caution, protectionism, and a preference for engaging primarily with economies at similar levels of development. India opted out of the Regional Comprehensive Economic Partnership (RCEP) in 2019, citing concerns about Chinese import surges, intellectual property provisions, and insufficient market access for Indian services exports. This decision was controversial but reflected India’s determination to protect domestic manufacturing and agriculture.
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Since then, India has pivoted dramatically toward a more proactive trade strategy. The India-UAE Comprehensive Economic Partnership Agreement (CEPA) was signed in 2022, followed by a FTA with Australia in 2022. Negotiations with the UK, which have been ongoing for years, are expected to conclude soon. The 2023 update of India’s Foreign Trade Policy set an ambitious target of reaching $2 trillion in total exports (merchandise plus services) by 2030. In FY 2024-25, India’s total exports reached $825.25 billion, reflecting a 6.05% annual increase.
The India-EU FTA: A Transformative Agreement
The India-EU FTA is arguably the most significant trade agreement in India’s history. The EU is India’s largest trading partner collectively, and the agreement opens the doors to preferential access to a market of approximately 450 million high-income consumers. The reduction or elimination of tariffs on Indian textiles, leather, pharmaceuticals, chemicals, and marine products will significantly enhance India’s export competitiveness against Bangladesh and Vietnam, which already enjoy preferential access to European markets under the Generalised System of Preferences.
For the pharmaceutical sector, the removal of tariffs and strengthened regulatory cooperation is particularly important. Indian pharmaceutical companies, which are already major suppliers to European generic markets, stand to gain substantially from reduced entry barriers.
The FTA is also expected to boost digital trade, attract European investment into Indian manufacturing under the Production Linked Incentive (PLI) scheme framework, and accelerate India’s integration into global value chains in high-technology sectors.
U.S. ARTs: A Legally Controversial Innovation
Trump’s ARTs represent a fundamentally different approach to trade agreements compared to WTO-compatible FTAs. Traditional FTAs, notified to the WTO under Article XXIV of GATT, are subject to specific disciplines. They must cover substantially all trade between the parties, they cannot raise barriers to trade with non-members, and they are subject to scrutiny by the WTO Committee on Regional Trade Agreements. This transparency and conditionality serves as a check against discriminatory trade arrangements that could undermine multilateralism.
ARTs, by contrast, are not notified to the WTO. They are essentially bilateral arrangements where the U.S. leverages its market size and, in several cases, the threat of tariffs to extract concessions from partner countries. The clause in the U.S.-Bangladesh ART requiring Bangladesh to adopt complementary trade restrictions when the U.S. acts on economic or national security grounds effectively turns Bangladesh into an instrument of U.S. trade policy. Similarly, the prohibition on customs duties on electronic transactions in the U.S.-El Salvador ART restricts El Salvador’s data sovereignty.
These provisions reveal the imperial character of ARTs, which are designed not to promote mutual liberalisation but to entrench U.S. strategic and economic interests through trade law.
India’s Position and Implications
The interim India-U.S. trade framework announced in February 2026 has elements of both traditional FTA negotiations and ART-style reciprocity demands. It includes progressive tariff reductions and strategic collaboration on semiconductors and rare earths. The collaboration on critical minerals and semiconductors aligns with India’s efforts to build domestic semiconductor manufacturing capacity through the India Semiconductor Mission.
India must carefully evaluate whether the interim framework’s provisions protect India’s policy space for agricultural support, domestic manufacturing incentives under PLI schemes, and data localisation requirements. A full bilateral trade agreement with the U.S. that includes ART-style provisions restricting India’s policy autonomy would be detrimental to India’s economic sovereignty.
Economic Implications for India
India’s FTA strategy, if implemented effectively, has the potential to transform its export trajectory. The EU FTA alone is expected to generate significant gains in labour-intensive sectors, helping integrate micro, small, and medium enterprises (MSMEs) into global value chains. For services exports, where India has a strong comparative advantage, the agreements provide new opportunities in professional services, IT, and financial services.
However, the risk of tariff liberalisation leading to import surges in sensitive sectors, particularly agriculture and dairy, must be carefully managed through appropriate safeguard mechanisms. India’s experience with RCEP negotiations revealed the political economy constraints on comprehensive FTAs, and these lessons must inform the approach to agreements with the U.S. and the EU.
Way Forward
India should champion the reform of WTO dispute settlement mechanisms, which have been weakened by U.S. blocking of Appellate Body appointments. India should build coalitions with other developing countries to resist ARTs that undermine multilateralism. At the same time, India should leverage its new FTAs to develop competitive supply chains in textiles, pharmaceuticals, electronics, and food processing.
Relevance for UPSC and SSC Examinations
This topic is critical for UPSC Mains GS-III (Economy) covering international trade, WTO, FTAs, and India’s trade policy. GS-II questions on India-EU relations and India-U.S. bilateral ties are also directly relevant. For SSC examinations, questions on India’s export policy, WTO, GATT, and bilateral trade agreements frequently appear. Aspirants should understand Article XXIV of GATT, the difference between FTAs and customs unions, and India’s export targets under the Foreign Trade Policy 2023.