In a significant evolution of its economic diplomacy, India is redefining trade policy as a core instrument of statecraft, moving away from traditional bloc-wide compacts toward a more nuanced, corridor-based approach. This strategic pivot allows New Delhi to preserve optionality and tailor agreements to domestic priorities, especially as geopolitical tensions increasingly spill over into commercial realms. The shift underscores a broader global trend where trade outcomes are no longer dominated by headline tariffs but are increasingly shaped by behind-the-border frictions and regulatory complexities.
The Retreat from RCEP and the Rise of Incremental Agreements
When India withdrew from the Regional Comprehensive Economic Partnership (RCEP) in 2019, many interpreted it as a retreat from the Indo-Pacific's central economic architecture. However, this move was not a disengagement but a deliberate recalibration. Policymakers judged that a single, comprehensive arrangement was misaligned with India's domestic political constraints and sectoral vulnerabilities, particularly in sensitive areas like agriculture and manufacturing. Instead, India has embraced a strategy of incremental agreements, allowing for greater flexibility and control over trade terms.
Key Concerns Driving India's Trade Strategy
India's trade policy remains guided by several persistent concerns:
- Risk of Import Surges: Sensitive sectors, such as textiles and electronics, face potential disruptions from sudden influxes of cheaper imports.
- Rules of Origin Exploitation: There is a fear that lax rules could dilute regional preferences, undermining the benefits of trade agreements.
- Structural Asymmetries: Large manufacturing economies, notably China, pose challenges due to imbalances in trade volumes and competitiveness.
By assembling a network of trade corridors rather than accepting a monolithic bloc-wide compact, India aims to mitigate these risks while enhancing its geoeconomic leverage.
Case Studies: India's Corridor Strategy in Action
India's newer geoeconomic approach breaks market access into smaller, negotiable bargains, tailored to Indian strengths and protective of domestic interests. Several agreements illustrate this template:
India-EU FTA: A Set-Piece for Market Access
The tentative India-EU Free Trade Agreement is positioned as a cornerstone deal that locks in market access and facilitates supply-chain upgrading. This agreement is crucial for India's Indo-Pacific play, offering a pathway to deeper economic integration with Europe while balancing regional dynamics. The focus here is on reducing behind-the-border frictions, such as professional mobility and regulatory harmonization, which are becoming more critical than tariff reductions alone.
India-ASEAN FTA: Addressing Deficits and Operational Challenges
India's trade deficit with ASEAN makes the India-ASEAN FTA not only an economic concern but a domestic imperative. The underlying challenges include tariff anomalies that create inverted duty structures, difficult-to-enforce rules of origin, and non-tariff barriers that hinder market access. By tightening terms, reducing loopholes, and lowering compliance friction, India can transform this pact into a meaningful growth channel, boosting exports and creating jobs.
EFTA Partnership: Advancing Industrial Objectives
India's partnership with the European Free Trade Association (EFTA) includes a $100 billion investment commitment over 15 years, showcasing how trade agreements are being used to advance longer-term industrial goals. This deal emphasizes investment protections and stable regulatory pathways, aligning trade policy with broader economic development strategies.
India-New Zealand FTA: Extending Strategic Footprint
Despite modest bilateral trade of around $2.4 billion in 2024, the FTA concluded with New Zealand in late 2025 carries significant strategic weight. It extends India's preferential trade footprint across almost the entire RCEP geography, reinforcing India's presence in the Indo-Pacific without committing to the broader RCEP framework.
Australia Template: Balancing Openings and Protections
The agreement with Australia serves as a model for India's corridor strategy, offering broad openings for competitive exports while providing careful protection for politically sensitive agricultural lines. This balanced approach allows India to maximize benefits while safeguarding domestic interests.
Structural Trade-Offs and Domestic Imperatives
While India's corridor strategy offers flexibility, it also presents structural trade-offs. Multiple agreements result in various rulebooks, with differing rules of origin, standards regimes, and safeguard provisions. This complexity can raise compliance costs and inadvertently exclude smaller exporters, potentially undermining the goal of translating preferential access into tangible orders and jobs. To succeed, trade diplomacy must be matched by robust domestic trade facilitation, including streamlined customs procedures and enhanced logistical support.
The China Factor: Strategic Exclusion and Dependence Avoidance
A defining feature of India's preferential trade architecture is the structural exclusion of China, driven by persistent trade deficits, vulnerability to import surges, and the unique strategic overlay of the India-China relationship. New Delhi is actively working to avoid a scenario where China becomes the unavoidable centre of India's trade dependence, instead fostering diversified partnerships that reduce reliance on any single economy.
Conclusion: Trade Policy as Statecraft
The larger lesson from India's evolving trade strategy is that trade policy has returned as a powerful instrument of statecraft, transcending its traditional role as a mere route to efficiency. By leveraging corridor-based agreements, India is navigating a complex geopolitical landscape, preserving optionality, and advancing national interests in an era where commerce and geopolitics are inextricably linked. This approach not only addresses immediate economic concerns but also positions India as a key player in shaping the future of global trade dynamics.
Analysis by Soumya Bhowmick, Fellow at the Centre for New Economic Diplomacy, ORF. Originally published on January 26, 2026, at 07:38 AM IST.
