New Delhi pushes FTAs to diversify exports and offset US tariff shock

The Indian government is intensifying its efforts to fast-track free trade agreements (FTAs) with the European Union, and several Latin American countries as it seeks to counterbalance the fallout of the recent increase in US tariff to 50%.

Following the imposition of a 25% reciprocal tax on Indian imports by the US on August 7, and a 25% penalty tariff set to take effect from August 27, in response to India’s continued purchase of crude oil from Russia, key Indian export sectors such as textiles, gems and jewellery, and seafood are facing severe headwinds. Industry estimates indicate that several of these sectors could become economically unviable in the US market due to tariffs.

India’s trade with the US has been a vital revenue stream for sectors like ready-made garments, home textiles, polished diamonds, shrimps, auto components, and engineering goods. Crisil recently warned that segments including diamond polishing, carpets, and home furnishings are among the worst hit. 

In response, the Indian government is accelerating negotiations on trade agreements that could open new markets to absorb the export volume. 

The recently signed Comprehensive Economic and Trade Agreement (CETA) with the United Kingdom aims to double bilateral trade to $100 billion by 2030. The deal, currently awaiting ratification in the British Parliament, is expected to come into force by April 1, 2026. 

Government officials confirmed that talks with the EU are also progressing steadily, with the 13th round of negotiations scheduled for September in New Delhi. The European Union was India’s second-biggest trading partner in 2024, per the European Commission, accounting for trade in goods worth €120 billion in 2024, or 11.5% of India’s total trade.

Officials say an early agreement on tariff reductions, particularly in engineering goods, pharmaceuticals, and textiles could be reached in the coming rounds.

The FTAs India is negotiating present a timely opportunity to redirect trade in sectors hurt by US protectionism. The UK deal, in particular, could support Indian exports in textiles, pharmaceuticals, information technology, and professional services. With similar tariff preferences under negotiation with the EU, India is positioning itself as a competitive alternative to Chinese suppliers in the European market, especially as the EU seeks to diversify supply chains.

The FTAs are expected to allow near-zero tariffs in areas like home textiles, leather, and engineering goods. The textile ministry has already constituted four sectoral committees to identify alternate markets and streamline compliance for exporters shifting focus to Europe and Latin America.

India’s FTA with the four-nation EFTA bloc (Iceland, Liechtenstein, Norway, and Switzerland), set to be operational from October 1, 2025, includes a commitment of $100 billion in investments over 15 years and grants preferential access to sectors such as machinery, dairy products, watches, and chocolates. Meanwhile, negotiations with Chile and Peru have gained momentum. 

India’s trade with Peru was valued at $3.1 billion in 2019, with exports ranging from iron and steel to garments and drugs. An expanded trade agreement with Chile, which already has a Preferential Trade Agreement with India since 2006, is also being explored to accommodate sectors under pressure from the U.S. tariffs.

The government is framing these FTAs not only as tools of economic diplomacy but as strategic levers to ensure export resilience in the face of geopolitical uncertainty. 

While Prime Minister Narendra Modi is expected to raise the issue of tariffs during his upcoming meeting with US President Donald Trump at the UN General Assembly in late September, trade officials are proceeding on the premise that structural diversification is the more sustainable route. “There’s no hold. Trade talks are not binary,” a senior official stated, underlining that the shift away from dependence on a single market aligns with India’s long-term vision for export-led growth.

The government in a Parliament response yesterday said negotiations for India-Oman FTA has also been concluded, and that India has signed 15 FTAs and six preferential trade agreements to date.