Free Trade Agreements Open New Pathways for Indian MSMEs in Global Supply Chains

A Free Trade Agreement (FTA) is a treaty between two or more countries that reduces or eliminates tariffs, quotas, and other trade barriers on goods and services exchanged between the signatory countries. FTAs may also cover investment, intellectual property, labour standards, and competition policy depending on their scope. India has pursued an active FTA strategy since 2021, following a period of relative caution, as it seeks to diversify export markets and embed itself in global value chains ahead of the Viksit Bharat 2047 vision.

India's Micro, Small and Medium Enterprises sector is the backbone of the economy, contributing 30.1% of GDP, 35.4% of manufacturing output, and 45.73% of total merchandise exports. The sector employs over 28–31 crore people across approximately 7.16 crore registered units (as of November 2025, Udyam Registration Portal). The MSME Development and Regulation Act, 2006 (amended in 2020) provides the legislative framework, with the 2020 revision revising the classification criteria to include turnover thresholds alongside investment limits, and expanding the definition to include medium enterprises with turnover up to ₹250 crore.

Global Value Chains describe the cross-border production networks through which goods and services are designed, manufactured, assembled, and distributed before reaching the final consumer. Integration into GVCs is associated with productivity gains, technology transfer, skill development, and export diversification. India's GVC participation is lower than peer economies such as Vietnam, Bangladesh, and Mexico — reflecting gaps in infrastructure, logistics efficiency, product quality certification, and scale.