India's FTAs Explained: Oman CEPA, Trade Deficit, Inverted Duty Structure & FTA Utilisation

• The immediate event: The India-Oman CEPA, signed during the Prime Minister's visit to Muscat in December 2025, became operational on June 1, 2026. Oman has offered zero-duty access on 98.08% of its tariff lines, covering 99.38% of India's exports. In return, India has reduced or eliminated duties on a range of Omani products while keeping 2,789 tariff lines on an exclusion list to shield sensitive domestic sectors. Notably, the deal also expands mobility for Indian professionals.

• The bigger picture: With Oman added, India now has 15 FTAs covering 27 countries, and is negotiating several more. This rapid expansion — including recent or concluded deals with the UAE, Australia, the EFTA bloc, the UK and others — marks a sharp reversal from the previous decade, when India was sceptical of FTAs and even walked out of the Regional Comprehensive Economic Partnership (RCEP) in 2019. The expansion has revived a long-running debate on whether FTAs help or hurt the Indian economy.

• The basic idea: A trade agreement is a pact between two or more countries to reduce or eliminate tariffs (and sometimes other barriers) on goods, and increasingly on services and investment, traded between them. The goal is to boost trade by making each other's products cheaper in the partner market.

• The four main types:

• Preferential Trade Agreement (PTA): The partners agree to reduce tariffs on a limited, agreed list of products (a "positive list"). It is the narrowest form and does not cover most trade — for example, the India-MERCOSUR PTA.

• Free Trade Agreement (FTA): The partners reduce or eliminate tariffs on most goods, using a "negative list" of items that are excluded. It is broader than a PTA, but each country keeps its own external tariff for non-members — for example, the India-Sri Lanka FTA.

• Comprehensive Economic Cooperation/Partnership Agreement (CECA/CEPA): These are the most comprehensive, covering goods, services, investment and often areas such as intellectual property, mobility of professionals and dispute settlement. India's pacts with Japan, South Korea, the UAE and Oman are CEPAs. (ECTA, used for Australia, and TEPA, used for EFTA, are similar variants.)

• MFN tariff: The Most-Favoured-Nation (MFN) tariff is the standard rate of duty that a WTO member applies to imports from all other WTO members without discrimination. It is the "normal" applied tariff a country charges everyone.

• Preferential tariff: Under an FTA, partner countries charge each other a lower, "preferential" rate — below the MFN rate, often zero. This preferential margin is what makes an FTA valuable: a product from an FTA partner becomes cheaper than the same product from a non-FTA country.

• Tariff asymmetry: The benefit each side gets depends on how high its tariffs were to begin with. If a country already has very low MFN tariffs, cutting them further under an FTA gives its partner little extra advantage. But if a country has high MFN tariffs, cutting them opens its market significantly. Analysts argue that this asymmetry matters for India, whose average applied tariffs have been higher than those of many of its FTA partners (several of which are already open, low-tariff economies). When tariffs are cut, the partner's exporters may gain more access to the Indian market than Indian exporters gain abroad, where tariffs were already low.

• Rules of Origin (RoO): These are criteria used to determine the country in which a product genuinely "originates," so that only goods actually made in the FTA partner country get the preferential tariff. RoO prevent "trade deflection" — where a third country (a non-member) routes its goods through an FTA partner just to claim the lower duty. To qualify, a product must meet conditions such as a minimum level of local value addition or a change in tariff classification. In India, the CAROTAR (Customs Administration of Rules of Origin under Trade Agreements) Rules, 2020, govern how importers must prove origin.

• FTA utilisation: This refers to the share of eligible trade that actually claims the preferential FTA tariff. Utilisation can be low if the tariff saving is small, or if the paperwork and compliance burden (origin certificates, documentation) outweighs the benefit. Low utilisation means an FTA's potential gains are not fully realised — a particular concern for small exporters who may avoid the compliance costs.

• The concept: An inverted duty structure (IDS) arises when the import duty on raw materials and intermediate inputs is higher than the duty on the finished product made from them. This is the reverse of what is normally desirable.

• Why it hurts manufacturing: When inputs are taxed more heavily than finished goods, a domestic manufacturer faces higher costs than an importer of the finished product. It becomes cheaper to import the final good than to make it locally. This discourages domestic value addition and undermines goals like "Make in India." FTAs can worsen this distortion, because finished goods may now enter India duty-free from partner countries, while a manufacturer's imported inputs (especially from non-FTA countries) still attract duty. The result is a squeeze on domestic producers competing against tariff-free finished imports.

• An attributed analysis: Trade economist Ajay Srivastava, founder of the Global Trade Research Initiative (GTRI), in an opinion piece in The Indian Express (June 2026), has argued that four challenges now demand attention as India expands its FTA network. The points below summarise his analysis; the figures cited are his estimates and assessments.

• The four challenges (as argued by GTRI):

• Rising trade deficits: He notes that India's trade deficits with FTA partners such as ASEAN, Japan and South Korea have grown much faster than with the rest of the world, and that newer FTAs (with the UAE, Australia, Mauritius and EFTA) are also associated with large deficits, even as South Asia remains a surplus exception.

• Low utilisation by Indian exporters: Because partner countries' tariffs were already low, and compliance costs are high, he estimates that only about 20-30% of India's eligible exporters use FTA preferences, while import-side utilisation (foreign exporters selling to India) is much higher at 60-70%.

• Worsening inverted duty structures: He argues that duty-free finished goods entering under FTAs, combined with duties on inputs, disadvantage downstream Indian manufacturing in sectors such as engineering, chemicals, plastics and textiles.

• "Make in ASEAN, Sell in India": He cautions that when it becomes cheaper to manufacture in a partner country and export duty-free to India, investment and jobs may move abroad, weakening domestic manufacturing — a phenomenon he frames as "Make in ASEAN, Sell in India" rather than "Make in India."

It should be noted that these are one expert's analytical conclusions, intended to flag policy risks; other economists and the government offer a different reading, set out below.

• Market access and export growth: Proponents and the government argue that FTAs open new markets, diversify India's trade away from a few partners, and boost exports. For instance, the India-UAE CEPA is credited with helping push bilateral trade sharply higher within a few years of implementation.

• Lower input costs and integration into value chains: FTAs can lower the cost of imported components and machinery, helping assembly and manufacturing (for example, electronics components under the India-ASEAN FTA), and integrate Indian firms into global and regional value chains.

• Services and mobility gains: Comprehensive agreements increasingly cover services and the movement of professionals (Mode 4). The Oman CEPA's enhanced mobility provisions for Indian professionals illustrate gains that go beyond goods trade.

• Strategic diversification: In a world of rising protectionism and supply-chain realignment, FTAs help India secure markets, attract investment and reduce dependence on any single source — an increasingly important strategic objective.

• A shift toward active engagement: After years of caution, India has actively pursued trade deals since the early 2020s. Beyond Oman, it has operationalised pacts with the UAE, Australia and the EFTA bloc, signed a comprehensive agreement with the UK, and is advancing major negotiations — including with the European Union, the wider GCC bloc, the United States and others. The aim is to expand market access while protecting sensitive sectors through exclusion lists and calibrated tariff phasing.

• The balancing act: The central policy challenge, recognised across viewpoints, is to ensure that FTAs strengthen India's export competitiveness and manufacturing base rather than simply widening import dependence. This requires complementary domestic reforms — correcting inverted duty structures, simplifying rules-of-origin compliance to raise utilisation, and improving the competitiveness of Indian industry so it can take advantage of the market access these agreements provide.

• India's expanding FTA network reflects a deliberate strategy to integrate more deeply into global trade and diversify its partnerships in a turbulent global economy. The agreements bring real gains — market access, cheaper inputs, services and mobility opportunities, and strategic depth. At the same time, the concerns raised by analysts deserve serious policy attention: deficits with partners, low utilisation by Indian exporters, inverted duty structures, and incentives to manufacture abroad. The constructive path forward lies not in retreating from FTAs but in aligning domestic policy with trade commitments — rationalising tariffs on industrial inputs, easing compliance so more exporters actually use FTA benefits, building competitive domestic supply chains, and negotiating future agreements with strong, enforceable provisions. Done well, FTAs can reinforce rather than undermine "Make in India"; done poorly, they risk doing the opposite. The outcome will depend on the quality of negotiation and the depth of accompanying domestic reform.