The 10-year-old experiment with free trade agreements in Asia is facing its most rigorous examination yet in New Delhi and the outcome of the government data, trade economists and industry lobbies is bad news for a nation that had hoped tariff reductions would transform it into a manufacturing and export powerhouse. At the heart of the reckoning are three agreements: the ASEAN goods pact that took effect in 2010, and the comprehensive partnership with Japan and South Korea, both signed in the same year. All three were to be opening Indian markets to the products of the East. Instead, all three have opened up India's home market to Asian goods far more than in the other direction; and the trade imbalance between New Delhi and these partners has continued to increase as trade with the rest of the world has increased more evenly.

The magnitude of the imbalance now is unquestioned. India's trade imbalance with the ASEAN group alone has increased from about 5 billion dollars in 2009, the year before the goods agreement came into effect, to over 50 billion dollars in 2025. Over a period of nearly sixteen years, imports from the ten-nation grouping have increased by almost four times, while Indian exports have hardly doubled in this period. The trade imbalances repeat in the case of Japan: the trade gap has increased almost tenfold in ten years, to 15.4 billion dollars, while Indian shipments to Tokyo have risen just 12 percent, to 6 billion dollars. The situation in South Korea is also very much like that in India: imports into India have been greater than exports from it by a wide margin and successive renegotiations have been done under the existing Comprehensive Economic Partnership Agreement.

What makes this data even more damning is that this is compared to India's trade outside these pacts. Asia's top trading partner, India, saw bilateral trade deficit with ASEAN increase by 201.5 per cent, with South Korea by 142.5 per cent and with Japan by 120.6 per cent during 2007-09 compared to the post-FTA period of 2019-21, while the overall trade deficit with the world increased by only 43.1 per cent during the same period, according to the analysis by the Global Trade Research Initiative. With ASEAN, the gap is 381 per cent, or more, and with Japan and Korea, it is 318 per cent and 268 per cent respectively, respectively, while with countries with which India does not have a free trade agreement, it is a mere 142 per cent. Simply put, India has been making larger deficits with its preferential partners, and smaller ones with all other partners.

It isn't some dark secret. Under these agreements India reduced import duties and gave the exporters from the country an immediate price advantage over the other exporters from non-FTA countries into India market. However, in the Indian market, there was no corresponding increase in market access abroad, partly because of the low level of tariffs in countries like Japan and Korea, before the deals entered into, leaving little room for the Indian goods to penetrate in those markets, and partly because the exporters from the home market faced problems of scale, quality certification and logistics costs that no tariff reduction could solve. It has been mainly steel, petrochemicals, electronics and some agricultural goods that have been hit, as India's own trade remedy authority has initiated a series of anti-dumping and safeguard investigations against low-priced imports, many from China but transshipped through ASEAN manufacturing centres and exploiting lax rules of origin.

That's the acutest problem that has become the focus of New Delhi's grievances. That Chinese-origin steel, chemicals and electronics are coming into India with minimum processing in ASEAN countries like Vietnam, Malaysia and Thailand, and thus using the trade pact as a backdoor to the Indian market, is a point that officials have repeatedly raised against India. The key question being discussed in the current round of negotiations for the ASEAN-India Trade in Goods Agreement (AITGA), which was originally scheduled to be finalized by 2022, yet failed to meet the deadline and a further 2025 target, is set to be resolved at an end sometime in 2026-27 following the 13th joint committee meeting urging the negotiating sub-panels to expedite work on the three areas of customs procedures, market access and rules of origin. In parallel negotiations with Japan and Korea are advancing and Indian officials have become more openly candid that these deals might be more useful for the inflows of investments than the outflows of exports.

Not all economists believe that a widening bilateral gap is a failure. One counter-argument that is gaining in popularity is that bilateral deficits are merely an accounting fiction of specialisation and global value chains, and that a nation, which imports parts at lower prices from ASEAN to produce finished products for the America or Europe market is not being adversely affected by the arrangement, however lop-sided the two-way ledger may appear. India's larger export aspirations, such as its target to become a trillion dollar exporter, will rely on purchasing inputs from the lowest cost possible, not worrying about any parity with any single partner.

Nevertheless, political and industrial pressure in New Delhi is overwhelming, especially in the context of Washington's tariff action against Indian goods this year, which has made diversification and strengthening of Asian trade ties more imperative, while at the same time examining the terms of the ties. India seems to have learned from ASEAN, Japan and Korea in their experience to ensure that new investment commitments to the U.K., the European Union and EFTA countries are not accompanied by the same imbalance between tariff concessions and investment commitments elsewhere.