India and the Association of Southeast Asian Nations (ASEAN) have maintained a significant trade partnership since the signing of their Free Trade Agreement (FTA) in 2009. The agreement aimed to boost economic growth by eliminating tariffs on a substantial portion of traded goods between India and the ten ASEAN members, which include Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.

However, while the pact initially promised mutual prosperity, recent years have revealed profound structural imbalances to India’s disadvantage.

The $45 Billion Trade Deficit: Root of The Crisis

Over the past decade, India’s trade deficit with ASEAN has ballooned dramatically. In 2010-11, India faced a manageable deficit of about $5 billion, but by 2024-25, this figure had soared to nearly $45 billion, making it a major concern for policymakers in New Delhi. Several factors contributed to this widening gap:

Indian imports from ASEAN have outpaced exports, with domestic industries, particularly in manufacturing, reeling from a surge of cheaper imports.

The FTA’s poorly negotiated terms enabled ASEAN countries to maintain non-tariff barriers while India opened its markets more broadly. As a result, only a third of Indian companies have been able to effectively utilise FTA benefits, whereas ASEAN exporters reportedly exploit 65-70% of them.

A key complaint is the prevalence of lax “rules of origin,” allowing third-party goods—especially from China—to enter India via ASEAN, effectively making the FTA a backdoor for Chinese exports, undermining India’s “Make in India” initiative.

Indian Grievances And Trade Negotiation Frustrations

Indian authorities, led by Commerce Minister Piyush Goyal, have openly labelled the ASEAN FTA “lopsided,” with serious flaws dating back to its negotiation by the previous administration. While India offered to eliminate tariffs on 74.2% of its tariff lines, major ASEAN economies like Indonesia and Vietnam reciprocated with much lower levels—just over 50% and 69%, respectively. Meanwhile, higher commitments from smaller economies, and Singapore’s already zero-duty regime, offered India negligible added benefit.

Additionally, ASEAN members have been criticized for exploiting regulatory loopholes and imposing non-tariff barriers—such as complex standards and quota restrictions—on Indian exports, especially in agriculture and pharmaceuticals. These measures have restricted India’s access to markets despite nominal tariff cuts.

Perhaps the most stinging frustration for India has been the slow pace and lack of genuine engagement from ASEAN during nine rounds of FTA review negotiations. Indian officials accuse some ASEAN members of deliberately stalling any meaningful review, which would address India’s long-standing demands for a level playing field, stricter rules of origin, and fairer market access for Indian services, technology, and agricultural products.

India’s Hardball Response

In response to these persistent asymmetries and stalled reforms, India has escalated its stance. The government has signalled it is seriously considering invoking the FTA’s termination clause, which requires just a written one-year notice to cancel the agreement completely.

Senior Indian officials and industry voices have made it clear that unless ASEAN makes credible commitments in the ongoing review—particularly regarding non-tariff barriers, rules of origin loopholes, and service sector access—India may be compelled to walk away from the deal.

Commerce Minister Piyush Goyal and other diplomats have also called out the ASEAN bloc as acting in the interests of China, with Indian markets becoming an unwitting gateway for Chinese goods. This, in turn, has resonated with broader national concerns over trade dependencies and economic resilience.

Strategic Implications And India’s Future Approach

India’s assertiveness marks a new chapter in its global trade diplomacy. By confronting both ASEAN and partners like the United States over perceived unfairness, India is displaying greater confidence at the negotiating table. The government is actively reconsidering legacy trade deals, focusing on the core interests of its domestic industries, and is willing to bear short-term friction for long-term self-reliance and balanced trade.

The review process is a turning point: if ASEAN fails to heed India’s concerns, the threat of cancellation is real and immediate. This development carries significant implications not only for India-ASEAN ties but also for the broader Indo-Pacific trade landscape, where economic alliances are being rapidly reconfigured.

Conclusion

India’s $45 billion trade deficit with ASEAN has triggered a decisive recalibration of its free trade strategy. After fifteen years of mounting disadvantages, and with repeated diplomatic overtures going unheeded, India is playing hardball—demanding real reforms or signalling a readiness to exit the agreement altogether.

The coming months will be critical in determining whether the India-ASEAN economic relationship can be reset on fairer terms, or if a major shift toward more protective, interest-driven trade policies is set to unfold.

Based On CNN-News18 Report