Page 79 - CII-ARTHA

MARCH 2026

utilisation rates . Even other emerging economies such as
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Vietnam, South Korea, Mexico and Chile operate at higher Quality and Standards Compliance
rates of 40-50 per cent . Lower utilisation of FTA
6
translates into multi-billion-dollar annual opportunity cost, Indian exporters also struggle to meet the quality,
which is also reflected in India’s widening trade deficit with packaging, and labelling standards imposed by many of
its FTA partners. In H1 FY26, India’s trade deficits with the nation’s trade partners – a problem that is expected to
import partners increased to USD 58 bn, a 20 per cent become even more obvious as the FTA with the EU
plus year-on-year (Y-o-Y) increase . These deficits are becomes operational. While there has been significant
7,8
reflected over a longer period as well. India’s trade deficit improvement in India’s quality infrastructure over the last
with the ASEAN increased from USD 21.8 bn in FY19 to decade, a gap persists vis-à-vis the requirements of
USD 45.2 bn in FY25 . This means that India is European and US markets, which is often reflected in
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disproportionately bearing the adjustment cost of trade reports of Indian exports, especially agri exports, being
liberalisation rejected due to sanitary and phytosanitary measures.
Time-bound market readiness programmes which
provide product-specific compliance gap assessments,
Indian Manufacturing faces expansion of accredited testing laboratory infrastructure
Structural Constraints at key production hubs, and pre-shipment quality
certification protocols aligned to the standards required
by the trade partners can help.
Import dependence and lack of
GVC Integration

Compared to the global peers, India’s manufacturing
sector has a strong dependence on imports for Information Gaps
competitively priced, high-quality raw materials due to an
underdeveloped manufacturing ecosystem – which Awareness and information asymmetry pose a challenge
impacts price competitiveness and leads to challenges in to companies, especially MSMEs. Limited information
meeting Rules of Origin (RoO) requirements. about available benefits, access mechanisms and
Furthermore, with the exception of electronics, which processes, and compliance requirements for exports
have seen a significant boost from the export of mobile result in companies not leveraging the increased market
phones, and automobiles, a significant portion of India’s access available to them through India’s trade
exports is accounted for by low value addition products . agreements. Structured knowledge sharing sessions,
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India's weak integration into Global Value Chains (GVCs) sector level awareness campaigns, and publicly available
results in firms importing inputs from other nations foreign market research documents in regional languages
reducing the share of domestic value addition and thus can help companies develop dedicated export product
RoO requirements, which contributes to higher costs lines and strategies. This dynamic information
impacting competitiveness and export volumes. This infrastructure, which may be provided through a
creates a vicious cycle which hampers saleability and single-window digital platform, can help exporters make
thus, the ability to invest in efficiency improvement and informed decisions. This platform’s capabilities may
innovation. Breaking this cycle requires multiple include Natural Language Processing (NLP) driven HS
concurrent steps - deepening domestic input ecosystems code identifier and evaluator, allowing exporters to input
through carefully designed PLI schemes which also their product and destination country to receive
factor in MSMEs, enabling international collaboration to applicable FTA clauses, documentation checklist,
develop domestic capabilities and negotiating lower value compliance cost estimate and links to relevant support
addition thresholds (which may ramp up gradually in a and testing infrastructure. Given the role played by
phased manner) with trade partners. customs brokers and freight forwarders in the Indian

5 https://economictimes.indiatimes.com/news/economy/foreign-trade/major-ftas-done-focus-now-on-their-effective-utilisation/articleshow/128551749.cms
?from=mdr
6 https://economictimes.indiatimes.com/news/economy/foreign-trade/major-ftas-done-focus-now-on-their-effective-utilisation/articleshow/128551749.cm
s?from=mdr
7 https://niti.gov.in/sites/default/files/2026-01/Trade_Watch_Quarterly_April_June_Q1_FY26.pdf
8 https://niti.gov.in/sites/default/files/2026-02/Trade-Watch-Quarterly-July-September-Q2-FY-2025-26.pdf
9 https://timesofindia.indiatimes.com/business/india-business/indias-fta-gap-new-delhi-has-trade-deficit-with-5-partners-asean-deal-under-review/article
show/122501066.cms
10 https://trade-analytics.commerce.gov.in/public/indiaTrade?KPI_ID=4
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