Fiscal policy meets free trade: evaluating India’s push for export-led economic growth

The Indian government has steered the country towards more open and strategically integrated cross-border trade over the past few years. This is evident from a review of the changes proposed by the government in the Union Budget 2026, coupled with the recently concluded trade deals with the US, EU, and UK.

This push towards increasing market access has created new export opportunities for various sectors in India. This article examines certain key aspects, highlighting how the proposed changes interact and their impact on Indian exporters.

In the early 2000s, countries such as Vietnam, Malaysia, Turkey, and South Korea started strengthening their economic positions by securing trade agreements with at least one of the jurisdictions in the then global north, such as the US and the EU. However, Indian-origin products continued to attract higher import duties.

This disparity placed Indian exporters at a competitive disadvantage, as sourcing commitments shifted to countries with which trade agreements were executed. Indian exporters were thus competing in a race where others had a head start.

To overcome the long-standing tariff disadvantage, India has pursued trade agreements with developed countries. An examination of these agreements demonstrates that India has unlocked new avenues for exporters, signifying a fundamental shift in its trade policy framework.

The agreement with the EU is an embodiment of the above change in strategy. It is expected that Indian exporters will enjoy preferential access to the EU across 97% of tariff lines, accounting for 99.5% of the total trade value. Labour-intensive sectors such as textiles, leather, marine, and agriculture are expected to have market access to premium European countries under the agreement (see Factsheet – EU–India Free Trade Agreement: Main Benefits).

This provides an extraordinary opportunity for Indian exporters. The textiles, apparel, leather, footwear, gems, and jewellery industries that were earlier disadvantaged by high tariffs will now enter the EU market at zero duty.

The interim bilateral trade agreement with the US also carries a strategic value. It focuses on a tariff reduction for high-value sectors such as pharmaceuticals, gems and diamonds, and aircraft parts. Indian generic drugs, which already form a substantial portion of US healthcare consumption, will gain more from the reaffirmation of the nil reciprocal tariffs for pharmaceutical products. The reduction in reciprocal tariffs to 18% will provide a competitive edge for exports from sectors such as textiles, leather, marine, plastics, and chemicals in the US.

The trade deals with Australia and the UAE have already boosted Indian exports by reducing or eliminating tariffs on over 90% of tariff lines, particularly in labour-intensive sectors.

The UAE–India Comprehensive Economic Partnership Agreement (CEPA) has accelerated trade in the engineering and petrochemicals sector. Similarly, the Australia–India Economic Cooperation and Trade Agreement (ECTA) offers preferential market access for pharmaceuticals and agricultural products. Furthermore, the trade agreement with the UK provides for duty-free access for nearly 99% of exports, with a major focus on marine, textiles, leather, and processed foods (see “Ease of Doing Business: India’s Ongoing Regulatory Transformation”).

All the above trade agreements will collectively result in an estimated coverage of 71% of India’s exports, a substantial growth from 22% in 2019 and 11% in 2004.

To further incentivise the benefits of the trade deals, the Union Budget 2026 has proposed measures to enhance export competitiveness by reducing dwell times and improving supply chain efficiencies. Reforms such as the introduction of a Customs Integrated System to streamline customs operations and expedite cargo clearance, an electronic cargo tracking system for customs warehousing system, an extension of the time period and categories of persons under the duty deferment payment system, and a rationalisation of mandatory quality control orders have been proposed to simplify business procedures, enhance transparency, and reduce the compliance burden.

The government has also allowed duty-free imports of specified inputs for the purpose of exporting leather and synthetic footwear, thereby lowering input costs and improving export competitiveness. The period for the exportation of final products has been increased from six months to one year for exporters of leather or textile garments, synthetic footwear, and other leather products. This move could significantly increase production in India and enable exporters to tap into new market opportunities.

The marine sector also stands to gain significantly from these policy shifts. The budget proposes to increase the limit for duty‑free imports of specified inputs used in seafood processing from 1% to 3%. Legislative changes are also proposed to the Customs Act, 1962, including an extension of the jurisdiction of the act beyond the territorial waters of India. This aims to provide fish harvested beyond the territorial waters of India an Indian origin status to reap the benefits of the trade agreements.

The gems and jewellery sector, one of India’s largest foreign exchange earners, also stands to benefit significantly as the concessional customs duty for gold and silver bars inputs has been extended.

Seen holistically, the new trade agreements and the recent budget reforms strengthen the position of Indian exporters in the global marketplace. These collective changes support labour-intensive sectors, enhance export competitiveness, and increase foreign exchange earnings for the country.

The India–EU free trade agreement (FTA) aims to lift bilateral trade from $136.54 billion to over $200 billion by 2030. Similarly, the UK–India FTA is projected to boost bilateral trade by £25.5 billion annually in the long run, the India–UAE CEPA has resulted in a 20.5% jump in non-oil trade between the countries, and the India–Australia ECTA has already helped increase Indian exports by 8% during FY 2024–25.

While the trade deals and the Union Budget have paved the way for exporters, the benefits are subject to conditions. For instance, to utilise the trade deals, exporters must satisfy the criteria laid down under the rules of origin under these agreements. The preferential tariffs would apply only if exporters can prove that their goods have undergone adequate processing in India. For exporters of electronics, automotive components, etc., establishing the required local value addition can be technically and legally challenging. This requires the exporters to understand the product-specific rules in the agreement and establish mechanisms to ensure that sufficient work is undertaken on Indian soil to qualify the goods as ‘Indian originating’.

While trade deals have opened market access, exporters must ensure compliance with quality standards. The EU, for instance, has made it clear that there will be no compromise in safety and quality standards (as affirmed by Christophe Hansen, European commissioner for agriculture and food). Furthermore, environmental regulations, such as the EU’s Carbon Border Adjustment Mechanism, add another layer of responsibility to carbon-intensive sectors such as iron and steel, aluminium, cement, and fertilisers.

The recent trade deals and budget reforms have opened doors for Indian exporters. To reap the benefits of these strategic changes, the exporters must analyse the legal texts of these reforms, understand their impact, and comply with the conditions. A strategic and planned scaling of operations by exporters would enable them to reap the benefits of the reforms.