India's rush to sign a web of bilateral trade agreements: Driven by good economics or smart geopolitics?

Such pacts are also planned or under negotiation with Chile, Israel, Canada and others. As one observer joked, India seems to have a trade arrangement with every country except the Vatican. Why this sudden flurry? The reasons are not purely economic; they are deeply embedded in geopolitics.

Experience with India’s earlier deals suggests that without deep integration, such agreements may not significantly enhance trade. Free-trade agreements such as the one with Asean have shown low utilization rates and only modest trade gains.

This is unsurprising. Over successive World Trade Organization (WTO) rounds, tariffs have already been reduced sharply, leaving little room for preferential liberalization to generate large benefits. Free-trade accords have thus become less important as instruments of tariff reduction.

This also explains why many modern deals deliver limited trade outcomes. Countries often sign them not because trade will suddenly expand, but because trade or investment links already exist, or because geopolitical calculations make them desirable.

Such agreements are, therefore, endogenous outcomes, formalizing existing relationships rather than creating new ones.

India’s recent deal-forging activity reinforces this point. Negotiating trade agreements consumes political and administrative resources, while multiple bilateral arrangements create overlapping rules of origin that raise compliance costs.

From a purely economic perspective, this is not always efficient. Regional agreements are generally superior, but only when the region functions as a coherent economic bloc—something South Asia clearly does not.

The limits of India’s bilateral approach become evident when one examines export destinations. Our CEPA with the UAE covers only about two-thirds of exports to the Gulf and roughly half of all imports. The Oman agreement covers just 7% of exports to Gulf Cooperation Council (GCC) nations and about 5% of imports.

A GCC-wide deal would have been far more meaningful economically, but this could well be preparation for a future pact with the grouping. The preference for country-specific deals, however, points to political logic.

The contrast with East Asia is even starker. India’s bilateral arrangements with Japan, Korea and Australia account for barely a quarter of our exports to members of the Regional Comprehensive Economic Partnership (RCEP).

More than three-quarters of our trade with RCEP takes place without any preferential agreement. Staying outside RCEP while signing scattered bilateral deals leaves most of this regional market untouched.

If trade creation is not the primary objective, what explains India’s recent push for deals? Several non-economic considerations stand out.

First, trade pacts serve as instruments of political signalling, allowing India to deepen strategic partnerships while preserving strategic autonomy.

Second, they function as tools for hedging risks in an uncertain global trade environment, helping diversify economic relationships and reduce over-dependence on China.

Third, deeper engagements provide greater protection for investors by clarifying rules on investment, dispute settlement and regulation.

Finally, bilateral agreements help pre-empt exclusion amid the formation of trade blocs that increasingly mirror geopolitical alignments.

Our agreements with Oman and New Zealand illustrate this shift. Neither is a major merchandise trade partner. Oman’s importance lies more in labour migration, energy linkages and its strategic location near the Strait of Hormuz.

New Zealand, accounting for just $0.6 billion of Indian exports, has a small economy; the rationale lies instead in strengthening Indo-Pacific ties.

Both agreements emphasize services, labour mobility, recognition of qualifications and investment protection more than tariff liberalization.

While tariff concessions are extensive on paper, their economic impact is limited by small market sizes and already low applied tariffs. India’s comparative advantages and strategic interests are thus their focus.

Seen this way, India’s recent deals are best understood not as conventional trade agreements aimed at boosting exports, but as geopolitical insurance policies in a fragmenting global order. At the same time, a good beginning has been made with services trade getting attention.

Trade in services tends to need greater alignment of regulatory policies and hence much higher levels of diplomacy. Such agreements could take time and this seems as good a moment as any to make a start.

US President Donald Trump has thrown both global trade and politics into a new world of uncertainty while jettisoning the multilateralism of the WTO. In this scenario, a series of deals might well be the best response.

The authors are, respectively, visiting professor, Shiv Nadar University and assistant professor, Institute of Economic Growth.