RBI ESINABARD ESISEBI
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Context:
India’s ongoing negotiations for trade deals with developed economies like the U.S., EU, and UK could further pressure customs duty collections that are expected to grow only 2.1% to ₹2.4 trillion in FY26.
Growing Revenue Loss Due to FTAs
- Customs duty foregone in FY25: ₹94,172 crore.
- Major revenue losses by region
- ASEAN: ₹37,875 crore
- Japan: ₹12,038 crore
- South Korea: ₹10,335 crore
- FTAs with Australia (₹5,234 crore) and UAE (₹4,841 crore) also impacted revenue considerably.
New Trade Agreements on the Rise for India
- India U.S. Trade Deal
- Negotiations for “mutually beneficial” bilateral trade agreement (BTA) to commence within 7 8 months.
- India EU-FTA
- The deadline is set for December 2025.
- India UK FTA
- No fixed deadline; Commerce Minister Piyush Goyal emphasized speed but not haste.
Challenges and Considerations
- Impact on Customs Revenue
- India’s high tariffs require substantial reductions in FTAs, which would lead to greater customs revenue loss.
- Currently, only 25% of India’s imports come under FTAs.
- After FTAs with U.S., UK, and EU, this is expected to be 60-65%, further increasing revenue forgone.
India’s expanding free trade agreements with larger economies will continue to erode customs revenue. While this will help the growth of trade and industry, the policymakers need to find a balance between trade liberalization and the domestic industry protection.
