When India was rich for much of the 17th century, its share in global trade was an astounding 33%, according to Angus Maddison’s historical economic analysis. When India gained independence in 1947, its share in global exports had declined to two per cent.
The significant reduction was largely the result of colonial exploitation, which deindustrialised India by dismantling traditional industries, especially textiles, and converting them into a supplier of raw material for British factories. The subsequent industrialisation of Europe widened the gap between India and the developed world, and today, we are playing catch-up in our pursuit to become Viksit or developed by 2047.
Even before the rhetoric of Viksit Bharat gained public consciousness, India had long recognised that the road to development would involve trading with the outside world. In other words, ‘no man is an island, entire of itself’ was a motto that reflected India’s approach towards international engagement, at least in theory. In practice, however, it has had phases of self-imposed quarantine that are akin to scoring a self-goal.
Nations engage with each other via trade because it is beneficial to do so. No one holds a gun to our head and says you must buy from China. Consumers in the U.S., for example, buy truckloads of Chinese goods because it is significantly easier on their wallets. If everything was made in the U.S., prices would skyrocket along with inflation.
Post-World War II, India became one of the founding members of the General Agreement on Tariffs and Trade (GATT), established in 1948. The GATT aimed to promote international trade by reducing tariffs and other trade barriers. Over time, as global trade became more complex, GATT’s inadequacies in addressing non-tariff barriers (NTB), services, intellectual property, and dispute resolution became palpable.
Impasse at WTO
The World Trade Organization (WTO) was established in 1995, replacing GATT as a permanent, multilateral institution. The WTO expanded the scope of trade rules, included new areas like trade in services and intellectual property, and provided for a dispute settlement mechanism to enhance enforcement and compliance among its members. Without dispute settlement, powerful countries could, and actually did, unilaterally change the rules to their advantage without facing any material consequences.
Even before the rhetoric of Viksit Bharat gained public consciousness, India had long recognised that the road to development would involve trading with the outside world. In other words, ‘no man is an island, entire of itself’ was a motto that reflected India’s approach towards international engagement, at least in theory. In practice, however, it has had phases of self-imposed quarantine that are akin to scoring a self-goal
In its early years, WTO recognised asymmetries in economic power among members and thus emphasised special and differential treatment (S&DT), reflecting the importance of market access for emerging economies to meet their growth and development objectives. India actively engaged in the WTO, advocating for agricultural subsidies, public stockholding for food security, and technology transfer, acting not only for itself but for a number of like-minded developing economies.
From time to time, and on occasion unjustifiably, India was perceived as a deal-breaker in the negotiations due to its stance on certain issues. Along with Brazil, India demanded reductions in subsidies of developed nations, especially the U.S. and the European Union (EU). Developed countries resisted significant cuts. On the other hand, developed nations pushed for greater access to emerging markets, which countries like India opposed, fearing adverse impacts on domestic industries.
Finally, India opposed sector-specific agreements among willing nations outside the Doha Development Agenda (DDA) framework, saying that it undermined the WTO’s multilateral nature. The DDA was launched in 2001 in Doha specifically with the intention of integrating developing nations into global trade to enable them to reap benefits from those linkages and hence the term ‘development’ was added to the agenda.
The failure of the DDA is symptomatic of the deep systemic challenges in reconciling diverse national interests within the WTO framework. Today, there are fundamental disagreements in the WTO- scepticism around globalisation, nationalistic tendencies, and relatedly growing protectionist industrial policies are increasingly visible. Moreover, there is distrust between emerging countries on the one side and industrialised countries on the other side about the opening up of markets for agricultural goods and the opening up of markets for industrial goods and services, respectively.
Besides, another concern is with Chinese state capitalism. The Chinese economic model is based on a relatively successful industrial policy that increasingly leads to competitive distortions in world markets to the benefit of Chinese firms and to the detriment of others. At the heart of the matter is the growing clout of China and India, among others in the WTO, that the U.S. and other nations are finding hard to accommodate now after having had their way easily in the past.
With WTO at a crossroads, other forms of trade agreements have mushroomed. Regional and bilateral trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP) are reshaping global trade. India’s avowed aim to integrate into regional and global value chains stands at odds with its stance on these agreements since membership will facilitate the integration.
Misreading the importance of trade agreements
India remains unconvinced over the utility of trade agreements and is not a member of either of these two mega trade blocs. India’s position on these regional trade agreements is sadly not based on an informed discourse of economic impacts; rather, the narrative has been dominated by entrenched interests.
Perceived damage or destruction to local manufacturing, fears of widening trade deficits and patriotic fervour to ‘Make in India’ govern the discourse. All countries in the early phases of their growth import more than they export, i.e. run trade deficits to feed the need for capital and technology. All trade deficits are, therefore, not a sign of weakness, just as not all trade surpluses are a sign of strength. For the record, for the world as a whole, it is simple enough to understand that all countries cannot run a trade surplus simultaneously!
These assertions, for the most part, are not backed by data, but given their popular appeal, they have resulted in a long-standing reluctance to pursue second- and third-generation trade reforms or, for that matter, to even prompt an informed debate. The question of why India ‘suffers’ trade deficits with its bilateral agreement partners and with the Association of Southeast Asian Nations (ASEAN) is as instructive about the political discourse as it is misleading about the economic impact of trade agreements.
Both RCEP and CPTPP exclude the U.S. CPTPP goes a step further by keeping China out as well, potentially leading to easier negotiations. A close examination of recent trade data reveals interesting insights. First, India’s deficit is dominated by intermediate goods imports such as parts and components of computers and smartphones. To illustrate, the share of such intermediate goods in total imports for India has been around 70-80% under Free Trade Agreements (FTAs) with ASEAN and with partner countries in East- and South-East Asia (except Singapore). It is above 90% with UAE and Australia. This, in fact, is a positive feature since efficient sourcing of essential intermediate goods creates backward linkages for India, thereby improving the competitiveness of domestic manufacturing and exports. India’s intermediate goods exports have also started to rise with East Asian countries, suggesting the possibility of increased forward linkages.
All trade deficits are, therefore, not a sign of weakness, just as not all trade surpluses are a sign of strength. For the record, for the world as a whole, it is simple enough to understand that all countries cannot run a trade surplus simultaneously!
Second, contrary to the widespread narrative that India is being used as a dumping ground for finished goods, India has maintained a surplus in finished goods trade with many FTA partners, including within the regional grouping of ASEAN (See Figure 1). Additionally, evidence shows that India’s exports of finished goods have grown after the signing of trade agreements, mitigating to some extent the political anxiety associated with a trade deficit. For example, total exports with ASEAN members increased from $5 billion in 2003 to above $40 billion in 2022-23, while exports of finished goods increased from $2 billion to more than $20 billion in the same period. In the case of South Korea, India’s exports of finished goods increased from just $0.2 billion in 2003 to over $2 billion now.
Source: Author’s estimates based on data from UN COMTRADE/WITS, ITC’s Trade Map,
Export-Import Data Bank of India, and Department of Commerce, Government of India.
The benefits of CPTTP over RCEP
This writer, along with Neha Gupta, an international trade policy expert, conducted a simulation exercise (forthcoming July 2025 Japan Spotlight) comparing the impacts of joining RCEP and CPTPP on India. The model predicts that CPTPP will have a more balanced trade effect. The exclusion of the two domineering global powers offers a more favourable negotiating environment. In contrast, RCEP, dominated by China, poses potential risks. While RCEP could facilitate trade in intermediate goods, it is likely to aggravate India’s trade deficit. The model predicts that RCEP would lead to a substantial rise in India’s imports, with China being the primary beneficiary with over 75% of the share.
While imports would also increase in the case of CPTPP, primarily from ASEAN, there is also potential for export growth to countries like Mexico, Canada, and Australia. Additionally, CPTPP’s focus on quality standards and intellectual property aligns with India’s long-term economic aspirations. Given India’s growing need to pursue a more liberalised trade policy to fully integrate with global markets, CPTPP appears to be a more practical and strategic pathway, economically and politically. With China excluded, the political economy will be easier to navigate.
India, once a superpower in trade, finds itself increasingly marginalised in world markets. It needs to engage more, or else Viksit India will remain another unrealised ambition. However, trade openness will not deliver by itself unless accompanied by domestic reform to remove structural deficiencies. These are the well-known impediments in India the lack of scale, labour market rigidities, logistics pains and transactional harassment, to name a few. All things considered, a re-evaluation of the pessimism surrounding trade agreements is called for. CPTPP appears preferable on various immediate dimensions. The trade deficit is likely to be lower compared to RCEP, and India enjoys more stable geopolitical and economic ties with most CPTPP members. Additionally, CPTPP is free from the influence of major powers like China, the US, and the EU. The Supply Chain Resilience Initiative (SCRI) launched by Japan, Australia, and India in 2021 could further be strengthened by CPTPP membership. CPTPP can serve as a springboard for India to pursue second and third-generation trade reforms, boost FDI inflows, and enhance supply chain diversification and resilience.
