Our rush for trade deals: Good economics or smart geopolitics?

India's pacts may not boost trade much but act as an insurance policy against trade fragmentation

- MANOJ PANT & M. RAHUL

The year 2025 closed with a spurt of trade deals. On 22 December, India concluded one with New Zealand, negotiated in just nine months.

Four days earlier, on 18 December, New Delhi signed a Comprehensive Economic Partnership Agreement (CEPA) with Oman. Such pacts are also planned or under negotiation with Chile, Israel, Canada and others. As one observer joked, India seems to have a trade arrangement with every country except the Vatican. Why this sudden flurry? The reasons are not purely economic; they are deeply embedded in geopolitics.

Experience with India’s earlier deals suggests that without deep integration, such agreements may not significantly enhance trade. Free-trade agreements such as the one with Asean have shown low utilization rates and only modest trade gains. This is unsurprising. Over successive World Trade Organization (WTO) rounds, tariffs have already been reduced sharply, leaving little room for preferential liberalization to generate large benefits. Free-trade accords have thus become less important as instruments of tariff reduction.

This also explains why many modern deals deliver limited trade outcomes. Countries often sign them not because trade will suddenly expand, but because trade or investment links already exist, or because geopolitical calculations make them desirable. Such agreements are, therefore, endogenous outcomes, formalizing existing relationships rather than creating new ones.