India concluded 2025 with a burst of diplomatic activity, signing a series of bilateral trade agreements that signal a strategic shift in its economic foreign policy. While these deals may offer limited immediate trade benefits, analysts suggest they serve a more profound purpose: acting as geopolitical insurance in an increasingly fragmented and unpredictable global order.
The Flurry of Deals: A Strategic Response
The recent spate of agreements is notable for its pace and partners. On December 22, 2025, India concluded a trade pact with New Zealand, finalized in a remarkably short nine-month negotiation period. Just four days earlier, on December 18, New Delhi signed a Comprehensive Economic Partnership Agreement (CEPA) with Oman. This activity is part of a broader pattern, with similar pacts either planned or under active negotiation with countries including Chile, Israel, and Canada.
This sudden acceleration prompts a critical question: why now? The driving force appears to be more geopolitical than purely economic. The authors of the analysis, Manoj Pant and M. Rahul, argue that these agreements are a direct response to the uncertainty unleashed by US President Donald Trump's policies, which have effectively sidelined the multilateral framework of the World Trade Organization (WTO). In this new reality, a web of bilateral deals might be India's most pragmatic defense.
Limited Economic Impact, Clear Political Logic
Historical evidence from India's previous free-trade agreements, such as the one with ASEAN, shows low utilization rates and only modest gains in trade volume. With global tariffs already significantly reduced through successive WTO rounds, the room for preferential liberalization to create major economic windfalls is small.
The limited trade potential of these new pacts is evident in the numbers. The Oman CEPA covers just 7% of India's exports to Gulf Cooperation Council (GCC) nations and about 5% of imports. Similarly, India's bilateral deals with major East Asian economies like Japan, Korea, and Australia account for barely a quarter of its exports to members of the Regional Comprehensive Economic Partnership (RCEP). More than three-quarters of India's trade with RCEP nations occurs without any preferential agreement.
From a strict economic efficiency standpoint, a regional agreement with the entire GCC or participation in RCEP would be more meaningful. However, India's preference for country-specific deals underscores a political calculus. These pacts are often endogenous—they formalize and deepen existing strategic relationships rather than create entirely new trade corridors.
Non-Economic Drivers Take Center Stage
If boosting merchandise trade is not the primary goal, what is? Several strategic objectives stand out:
First, these agreements are powerful tools for political signaling. They allow India to cement strategic partnerships and enhance diplomatic influence while carefully preserving its strategic autonomy.
Second, they act as a crucial hedge against risk. By diversifying its economic relationships across a wider array of partners, India reduces its over-dependence on any single nation, notably China, and insulates itself from sudden geopolitical shocks.
Third, the modern trade pact goes beyond tariffs. Agreements like those with Oman and New Zealand heavily emphasize services trade, labor mobility, mutual recognition of professional qualifications, and robust investment protection clauses. These elements provide greater certainty and security for investors.
Finally, in a world where trade blocs are increasingly aligning with geopolitical camps, bilateral agreements help pre-empt India's exclusion from critical economic networks.
Case Studies: Oman and New Zealand
The choice of partners itself reveals the strategic intent. Oman is not a major merchandise trade partner for India, but its significance lies in energy security, the vast Indian diaspora, and its crucial geographic location near the Strait of Hormuz.
Similarly, New Zealand accounts for a minuscule $0.6 billion in Indian exports. The rationale for a pact lies in strengthening Indo-Pacific ties and building alignment on services and regulations, rather than expecting a surge in goods trade.
In essence, India's latest trade agreements are best understood not as conventional instruments for tariff reduction but as multifaceted tools of statecraft. They represent a form of geopolitical insurance, securing India's interests and providing strategic optionality in a world where the old rules of trade are being rewritten. While the direct economic benefits may be incremental, the diplomatic foundation being laid—particularly in the complex arena of services trade and regulatory alignment—could prove invaluable in the long term.
