The New Grammar of Trade, India’s Flurry of Pacts as Geopolitical Insurance in a Fragmenting World
In the waning days of 2025, India concluded a swift trade agreement with New Zealand, a feat of diplomatic alacrity wrapped in economic pragmatism. This was swiftly preceded by a Comprehensive Economic Partnership Agreement (CEPA) with Oman. These are not isolated events but markers of a profound and deliberate shift in India’s external economic policy. As noted by economists Manoj Pant and M. Rahul, India now seems to have trade arrangements with “every country except the Vatican.” This sudden flurry begs a critical question: Are these deals driven by the classical economic logic of boosting exports and imports, or do they represent a new, more strategic calculus? The evidence strongly suggests the latter. India’s recent trade agreements are less about conventional market access and more about crafting a sophisticated web of geopolitical insurance in an era of escalating trade fragmentation, great power rivalry, and the erosion of the multilateral, rules-based order.
The Economic Reality Check: The Diminishing Returns of Preferential Trade
To understand the strategic pivot, one must first confront the lukewarm economic rationale of many modern Free Trade Agreements (FTAs). Pant and Rahul correctly point out that the era of massive trade gains from simple tariff reduction is largely over. Successive rounds of World Trade Organization (WTO) negotiations have already driven global tariffs down significantly. The marginal benefit of preferential access through an FTA is often small, especially when “applied tariffs” (what countries actually charge) are already low.
India’s own experience bears this out. The much-touted ASEAN-India FTA has suffered from low utilization rates by businesses, mired in complex rules of origin, and delivered only modest trade expansion. The economic logic is further strained by the bilateral and piecemeal nature of India’s recent engagements. Consider the Gulf:
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The UAE CEPA, while significant, covers only about two-thirds of India’s exports to the Gulf and half of its imports.
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The new Oman CEPA is even more limited in sheer scale, covering a mere 7% of exports to the Gulf Cooperation Council (GCC) and 5% of imports.
From a purely economic standpoint, a single, cohesive agreement with the entire GCC would be vastly more efficient, simplifying rules for businesses and creating a unified market. Similarly, India’s bilateral deals with Japan, South Korea, and Australia account for barely a quarter of its exports to the massive Regional Comprehensive Economic Partnership (RCEP) bloc. Over three-quarters of India’s trade with RCEP nations occurs without any preferential pact at all. By opting for scattered bilateral deals while remaining outside the mega-regional RCEP, India leaves the bulk of this crucial Asian market untouched by deeper integration. This clearly indicates that trade volume creation is not the primary, or at least not the sole, objective.
The Geopolitical Imperative: Four Pillars of Strategic Logic
If the immediate economic bounty is limited, what drives the rush? The answer lies in a quartet of interlocking geopolitical and strategic objectives that redefine these pacts as tools of statecraft.
1. Political Signaling and Strategic Autonomy: In a world increasingly divided into loose spheres of influence, trade agreements have become potent signals of political alignment and intent. For India, they are instruments to deepen strategic partnerships without formally entering into binding alliances that compromise its cherished strategic autonomy. A deal with Oman is not just about goods; it is a signal of commitment to a key regional player at the mouth of the Strait of Hormuz, a critical chokepoint for global energy supplies. It reinforces India’s “West Asia” policy independently of other powers. Similarly, an FTA with New Zealand, whose bilateral trade is minuscule at $0.6 billion in Indian exports, is a clear signal of investing in the “Indo-Pacific” framework, aligning with democracies to reinforce a rules-based maritime order. The pact itself is the message.
2. Hedging and De-risking from China: This is arguably the most powerful driver. The post-COVID global economy is obsessed with “de-risking” and building resilient, diversified supply chains away from over-concentration in China. India’s trade pacts are a core component of this hedging strategy. By weaving a network of agreements with middle powers and resource-rich nations (from Australia to Chile to Oman), India seeks to create alternative production networks, secure critical mineral and energy supplies, and reduce the strategic vulnerability that comes from asymmetric economic dependence. Each new agreement is a thread in a safety net, designed to catch India’s economy should geopolitical tensions with China lead to trade disruptions.
3. Investor Protection and Rules-Based Engagement: Modern trade pacts have evolved far beyond tariffs. The new Oman and New Zealand agreements, like the earlier ones with the UAE and Australia, heavily emphasize services, digital trade, investment protection, intellectual property rights, and dispute settlement mechanisms. For a country seeking to attract global capital as a “China+1” destination, these chapters are crucial. They provide foreign investors with predictability, legal clarity, and a sense of security. By agreeing to modern regulatory standards, India signals to global businesses that it is a reliable, rules-abiding partner for long-term investment. This helps it compete not just on cost, but on the quality of its institutional framework.
4. Pre-empting Exclusion in a Bloc-Based World: The authors aptly describe this as a key motive. As the U.S. pushes “friend-shoring” and the EU tightens its carbon border measures, the world is coalescing into geopolitical trade blocs. Staying outside all such arrangements is a recipe for economic irrelevance. India’s decision to walk out of RCEP in 2019 was based on legitimate concerns over Chinese dumping and the vulnerability of its domestic industry. However, sitting permanently on the sidelines is not an option. The bilateral deal-making spree is a tactical workaround. It allows India to secure preferential footholds within key regions and with key partners, ensuring it is not locked out of emerging blocs. It is a form of agile, selective engagement that preserves policy space while preventing isolation.
Case Studies: Oman and New Zealand as Prototypes
The agreements with Oman and New Zealand perfectly exemplify this new strategic template.
Oman CEPA: Oman is not a major trade partner in goods. Its significance is multidimensional: it is a historical partner, a destination for Indian labor (whose remittances are vital), a stable energy supplier, and a strategic maritime neighbor with vast Indian Ocean influence. The pact’s focus on services, including mobility for Indian professionals in sectors like IT, healthcare, and accounting, is telling. It also aims to leverage Oman’s location as a gateway for Indian companies to access broader GCC and East African markets. This is geopolitics and long-term economic statecraft, not just trade arithmetic.
New Zealand FTA: Negotiated in a record nine months, this deal is a geopolitical compact disguised as an economic one. The trade gains will be modest given the size of New Zealand’s economy. The real value lies in cementing a partnership with a fellow Quad-aligned democracy in the Pacific, cooperating on digital trade, agriculture sustainability, and perhaps most importantly, setting high-standard benchmarks for India’s future agreements with developed economies. It is a stepping stone and a signal to others, like the UK and Canada, with whom India is negotiating.
The Costs and Criticisms: The Perils of a Spaghetti Bowl
This strategy is not without its costs and critics. The “spaghetti bowl” effect—a tangle of overlapping bilateral deals with differing rules of origin, standards, and regulations—increases compliance costs for businesses, especially smaller exporters. It can divert administrative and political capital away from the more arduous but potentially more rewarding task of domestic economic reform. Critics argue that this scattered approach is a second-best alternative to the hard but necessary internal reforms—in logistics, power, land, and labor—that would truly make Indian manufacturing globally competitive.
Furthermore, there is a risk that these deals, focused on geopolitical signalling, may lack the deep, genuine economic integration needed to transform India’s production capabilities. They could become mere diplomatic trophies rather than engines of structural economic change.
The Road Ahead: From Insurance to Investment
Pant and Rahul conclude that these deals are “geopolitical insurance policies.” This is an apt metaphor. Insurance is not about daily profit; it is about resilience against future shocks. In a world where Donald Trump’s potential return has thrown the multilateral trading system into profound uncertainty, such insurance is prudent.
However, insurance alone is not a growth strategy. The true test will be India’s ability to leverage this hard-won geopolitical space and investor confidence into tangible domestic transformation. The focus on services in these agreements is a good start, as services trade requires deeper regulatory alignment and offers higher value. The next step must be to use these external agreements as external anchors to drive internal change—to modernize logistics, streamline regulations, and enhance workforce skills so that Indian businesses can truly harness the opportunities these pacts create.
In conclusion, India’s rush for trade deals is a calculated response to a dangerous and fragmented global landscape. It is smart geopolitics first, and good economics second—at least in the immediate term. By building a diversified network of strategic economic partnerships, India is seeking to secure its strategic autonomy, de-risk its economy, and ensure it has a seat at the table in a world dividing into blocs. The success of this grand hedging strategy will ultimately depend on whether the external security it provides can be matched by an internal economic acceleration it is meant to facilitate. The deals are the scaffolding; the building of a new, resilient Indian economy must now follow.
Q&A Section
Q1: According to the authors, why have traditional Free Trade Agreements (FTAs) lost their potency in significantly boosting trade for India?
A1: The authors argue that the traditional tariff-reduction power of FTAs has diminished for two main reasons. First, successive WTO rounds have already driven global tariffs down significantly, leaving less “water” in the tariff (difference between bound and applied rates) for preferential agreements to tap into. Second, India’s own experience, like with the ASEAN FTA, shows low utilization rates and modest gains, indicating that the mere existence of a pact doesn’t guarantee trade expansion. Modern trade is often driven by global value chains and non-tariff measures, which shallow FTAs do not adequately address.
Q2: The article states that India’s bilateral agreements with Oman and the UAE cover only a fraction of its trade with the Gulf. What does this reveal about the economic logic of these deals?
A2: The limited coverage (UAE CEPA covers ~2/3 of exports, Oman CEPA covers just 7% of exports to the GCC) reveals that immediate trade volume expansion is not the primary economic driver. If it were, a single, comprehensive GCC-wide agreement would be far more efficient and impactful. The choice of smaller, bilateral deals points to other, non-economic objectives taking precedence, such as building strategic ties with specific nations, securing labor and energy channels, and establishing a foothold in the region through manageable, incremental steps.
Q3: What are the four key non-economic or geopolitical reasons identified for India’s recent push for bilateral trade agreements?
A3: The four key geopolitical reasons are:
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Political Signaling: Using trade pacts to deepen strategic partnerships and signal alignment without entering formal alliances, thus preserving strategic autonomy.
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Hedging & De-risking: Diversifying economic relationships and supply chains to reduce over-dependence on China and build resilience against geopolitical shocks.
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Investor Protection: Providing clarity on rules, dispute settlement, and regulations to attract and secure foreign investment by creating a predictable business environment.
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Pre-empting Exclusion: Ensuring India is not left out of emerging geopolitical trade blocs by securing preferential bilateral access to key countries and regions in advance.
Q4: How do the agreements with Oman and New Zealand exemplify the shift from “trade-only” to “geopolitical” pacts?
A4: Both deals exemplify the shift through their focus and partner profiles. Oman is a minor merchandise trade partner but holds immense strategic value due to its location near the Strait of Hormuz, its role in Indian labor migration, and its energy links. The pact emphasizes services and mobility. New Zealand has a very small economy with negligible trade volume with India. The rationale for a swiftly negotiated FTA lies in strengthening Indo-Pacific ties with a like-minded democracy, aligning on digital and sustainability standards, and setting a benchmark for future agreements. In both cases, the strategic, long-term partnership goals far outweigh the immediate prospect of a surge in goods trade.
Q5: What is the “spaghetti bowl” effect, and what is its primary criticism of India’s bilateral FTA strategy?
A5: The “spaghetti bowl” effect refers to the complex tangle of overlapping bilateral trade agreements, each with its own unique rules of origin, product standards, and regulatory clauses. The primary criticism is that this complexity imposes high compliance costs on businesses, particularly small and medium enterprises (SMEs), who must navigate different sets of rules for different export markets. This can act as a barrier to trade, undermining the very benefits the FTAs are supposed to deliver. Critics argue it is an administratively cumbersome and economically inefficient approach compared to broader regional agreements or multilateral liberalization.
