India-South Korea CEPA Review Highlights Structural Trade Imbalances in FTAs

Livemint - Economy · 28 Apr 2026 · 2 min read
Prelims · Economy Mains · GS3 Economy High relevance

India's trade deficit with South Korea has tripled under the 2010 CEPA, exposing structural weaknesses in India's FTA strategy as it negotiates new agreements with the EU, UK, and GCC countries.

Key points

CEPA (2010): The India-South Korea Comprehensive Economic Partnership Agreement led to bilateral trade doubling to $27.4 billion by 2024, but with a lopsided 5.8% annual import growth versus 2.6% export growth, tripling India's trade deficit.

Structural Imbalance: India's exports remain commodity-dependent (27% metals) while losing ground in textiles (-5.7%) and fuels (-10%), whereas Korean machinery/electronics (35.3%) and metals (21.8%) dominate imports, reflecting supply-chain asymmetry.

[GS3-Economy] The rise of intermediate goods (44% of imports) indicates deeper integration into Korean manufacturing supply chains, exposing India's industrial dependency despite capital goods exports growing from 4.4% to 14.6%.

FTA Expansion Risks: With FTAs now covering 29% of India's trade (up from 4.6% in 2006), NITI Aayog data shows a 7% quarterly export decline and 7% import rise among FTA partners, mirroring the Korea imbalance.

Strategic Shift: India's export basket shows moderate upgrading with machinery/electronics growth, but limited penetration in high-complexity Korean manufacturing sectors highlights persistent value-addition challenges.

Comparative Advantage Erosion: Labour-intensive sectors like textiles and food products lost share, indicating weakening competitiveness despite CEPA's theoretical benefits for such industries.

Way Forward: India should renegotiate CEPA with sector-specific safeguards, invest in domestic manufacturing capabilities for import substitution, and establish an FTA monitoring cell to assess trade balance impacts before signing new agreements.

Key terms

Comprehensive Economic Partnership Agreement (CEPA)

A type of free trade agreement that covers goods, services, investments, and economic cooperation. India's 2010 CEPA with South Korea exemplifies how asymmetric trade dependencies can emerge when partner economies have divergent industrial capabilities, relevant for GS2 (International Relations) and GS3 (Economy).

Trade Deficit

When a country's imports exceed exports, measured as exports minus imports. India's tripling deficit with South Korea ($21.5B imports vs $5.9B exports in 2024) under CEPA demonstrates how FTAs can exacerbate imbalances when not strategically designed, crucial for GS3 balance of payments analysis.

Intermediate Goods

Products used as inputs in the production of other goods, comprising 44% of India's Korean imports. Their growing share reflects supply-chain integration but also vulnerability to external shocks, a key concept in GS3's 'Make in India' and industrial policy discussions.

Gulf Cooperation Council (GCC)

A political and economic alliance of six West Asian states (Saudi Arabia, UAE, Qatar, Kuwait, Oman, Bahrain). India's ongoing FTA negotiations with GCC highlight the strategic importance of energy security and diaspora remittances, connecting GS2 (International Relations) and GS3 (Energy Security).