India Fast Facts

NITI Aayog Flags Rising Trade Deficit with FTA Partners in Q1 FY26

NITI Aayog Flags Rising Trade Deficit with FTA Partners in Q1 FY26

by | Dec 31, 2025 | BLOG

New Delhi, 6 February 2026
By Tannaz Ahmed and Tushar Gandhi

NITI Aayog’s Trade Watch Quarterly for Q1 FY26 (April–June 2026)[1] offers a detailed snapshot of India’s trade performance at a time of moderate global recovery. While the report carries a thematic focus on automotive exports, a key insight lies in its assessment of India’s Free Trade Agreements (FTAs) and their evolving impact on trade outcomes.

Rather than revisiting the case for FTAs in principle, the quarterly examines how existing agreements are performing in practice, raising important questions about sequencing, competitiveness, and alignment with domestic production capacity.

Trade Context and FTA Exposure

In Q1 FY26, India’s total merchandise and services trade reached USD 439 billion, registering 3.5% year-on-year growth. Services exports continued to anchor overall trade performance, expanding by 10% and generating a USD 48 billion surplus, which partially offset pressures on the merchandise trade balance.

Within this broader trade context, the report notes a widening trade deficit with FTA partners, drawing attention to the evolving balance between imports and exports under existing preferential trade arrangements.

Rising Trade Deficit with FTA Partners

A key finding of the quarterly is a 59.2% year-on-year increase in India’s trade deficit with FTA partners during April–June. The widening gap reflects import growth outpacing exports, indicating that preferential market access has translated unevenly into export outcomes across sectors.

The report highlights uneven performance across FTA partner regions, including parts of ASEAN, where export growth has lagged relative to import expansion. These patterns underscore the need to examine how sectoral competitiveness and production capabilities interact with preferential trade frameworks, rather than attributing outcomes solely to the presence of FTAs.

FTAs and Structural Competitiveness

Rather than framing the FTA deficit as a short-term imbalance, the Trade Watch Quarterly places it within a broader structural context:

  • Import growth from FTA partners is concentrated in intermediate and capital goods, consistent with India’s participation in global value chains.
  • Export underperformance highlights the need to assess domestic competitiveness and export readiness across sectors.

This framing suggests that FTA trade outcomes draw attention to factors influencing production and export readiness, rather than market access alone.

Sectoral Signals from FTA Trade

The report highlights notable shifts in export composition that interact with FTA outcomes. Electronics exports grew 47% year-on-year, accounting for over 11% of total exports, underscoring India’s expanding role in technology-intensive value chains.

In contrast, traditional export drivers such as petroleum products saw relative decline. This divergence indicates that FTA benefits are more likely to result in sectors where India is integrated into global production networks, rather than in legacy commodity-driven exports.

Automotive Focus as an FTA Case Study

Although the report’s thematic section focuses on automotive exports, its relevance to FTAs is broader. The analysis points to India’s strong performance in auto components and select vehicle categories, alongside underexploited potential in passenger vehicles within the USD 2.2 trillion global automotive market.

From an FTA perspective, the automotive chapter illustrates how preferential access alone is insufficient without parallel improvements in competitiveness, standards alignment, and integration into global value chains. FTAs, in this sense, function as enablers but only where domestic capabilities are aligned with global standards.

Policy Implications for Future FTAs

The Trade Watch Quarterly implicitly calls for a recalibration of India’s FTA strategy, shifting the focus from coverage to performance. Key policy signals include:

  • The need to sequence FTAs alongside industrial and supply-chain policies, rather than treating them as standalone trade instruments.
  • Greater emphasis on tariff rationalisation and two-way trade, ensuring that imports support competitiveness rather than displacing domestic production.
  • Aligning FTA outcomes with broader manufacturing and services competitiveness.

The report also underscores the importance of execution capacity, both at the policy and firm levels, in determining whether FTAs translate into sustainable export gains.

What the Quarterly Does Not Address

While the report provides a granular assessment of FTA-related trade outcomes, it does not delve into renegotiation timelines, safeguard mechanisms, or investment chapters within FTAs. Its focus remains on trade performance rather than treaty design, leaving open questions about how future agreements will incorporate lessons from current deficits.

Overall Assessment

The Q1 FY26 Trade Watch Quarterly presents a nuanced view of India’s FTA experience. The sharp rise in the trade deficit with FTA partners serves as a warning against assuming automatic gains from preferential access, while sectoral successes highlight where FTAs can work when backed by competitiveness and scale.

For policymakers and stakeholders, the message is clear: FTAs must be embedded within a broader strategy of production upgrading, value-chain integration, and execution discipline. As India continues to negotiate and recalibrate its trade agreements, the effectiveness of FTAs will depend less on their number and more on how well they align with domestic capabilities and long-term trade objectives.

[1] Trade Watch Quarterly for Q1 FY26 (April–June 2026)

India’s Winter Session of Parliament: Policy Signals and Structural Shifts

India’s Winter Session of Parliament: Policy Signals and Structural Shifts

by | Dec 19, 2025 | In the news

India’s Parliament concluded its Winter Session on 19 December, after sitting for 15 days between 1 and 19 December. Ten government bills were introduced, of which eight were passed by both Houses across sectors including energy, insurance, rural employment and public finance.

While the overall legislative volume was limited, the session focussed on addressing policy frameworks that needed reworking of institutional structures, to achieve their higher potentials.

Two legislations — the SHANTI Bill and the VB-G RAM-G Bill — were particularly significant, not because they introduce entirely new policy areas, but because they reset the design of existing frameworks that have shaped investment and programme delivery.

SHANTI Bill: Updating India’s Civil Nuclear Framework

The Sustainable Harnessing and Advancement of Nuclear Energy for Transforming India (SHANTI) Bill, 2025 marked a legislative shift in India’s civil nuclear architecture since the sector was opened to international cooperation in the late 2000s.

The Bill provides a basis for private and joint-venture participation across segments such as reactor construction, operations, maintenance and supporting infrastructure. At the same time, it retains government control over regulation, safety and licensing, reflecting the strategic nature of the sector.

Importantly, the legislation recognises the importance of private sector participation to support India’s nuclear expansion ambitions. Provisions related to long-term power offtake arrangements and clearer allocation of operational responsibility are intended to improve project viability and attract non-public capital.

The Bill also aims to increase the role of state governments, particularly in areas such as land acquisition, local clearances and grid integration — reinforcing the importance of centre–state coordination in large energy projects.

VB-G RAM-G Bill: A Redesign of Rural Employment Policy

The VB-G RAM-G Bill, 2025, which replaces the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), represents the first redesign of India’s rural employment guarantee framework since the programme’s inception. The new bill aims to modernise rural employment, whereby it will integrate job allocation with digital governance platforms, improve efficiency, transparency, and alignment with national infrastructure projects, potentially creating a digitally connected rural workforce.

However, the scheme also raises some concerns where marginalized workers without access to smartphones, Aadhaar-linked bank accounts, or digital literacy could be excluded, undermining the scheme’s inclusivity.

While the Bill raises the guaranteed employment ceiling to 125 days, its more consequential change lies in how employment is structured and delivered. States are given greater flexibility to define permissible works, enabling closer alignment with local infrastructure needs, climate adaptation priorities and asset creation goals.

The legislation also places stronger emphasis on digital attendance, work verification and outcome-based monitoring, shifting the programme toward a more execution-driven model. This increases the administrative role of state governments, while also placing greater accountability on implementation capacity at local levels.

Insurance Sector Reform: Improving Capital Availability

Parliament also approved amendments raising the FDI cap in insurance to 100 percent. While incremental, the change aims at improving capital availability, product depth and coverage expansion, particularly in under-served segments such as health and risk insurance.

In addition to the headline reforms, the Parliament also cleared a set of legislations that underpin fiscal management, taxation and regulatory housekeeping. The Appropriation (No. 4) Bill, 2025 authorised withdrawals from the Consolidated Fund of India to meet ongoing government expenditure, ensuring continuity of programmes. The Manipur Goods and Services Tax (Second Amendment) Bill, 2025 aligned the state’s GST framework with decisions of the GST Council, focusing on classification clarity and compliance simplification. Amendments to the Central Excise law sought to rationalise duty structures and reduce interpretational disputes, with the stated objective of improving transparency and easing compliance for industry. The Parliament also passed the Health Security se National Security Cess Bill, 2025, creating a dedicated cess to support public health preparedness and national security expenditure. The Repealing and Amending Bill, 2025 removed obsolete statutes and corrected inconsistencies across existing laws, continuing the process of legislative clean-up.

What the Session Did Not Address

Equally notable were the areas that remained outside the session’s legislative agenda. There were no major reforms in digital regulation, competition law or climate legislation. This selective approach reinforces the view that current policy efforts are focused on execution and restructuring, rather than introducing new laws.

Overall Assessment

The Winter Session reflects a measured policy approach, revisiting legacy frameworks which needed reworking rather than incremental changes.

For stakeholders involved in infrastructure delivery, long-term investment, programme implementation and regulatory compliance, the session provides early signals on where policy attention is likely to remain concentrated. As these laws move into the rule-making and implementation phase, outcomes will depend on centre–state coordination, administrative capacity and regulatory clarity rather than legislative intent alone.