Sixteen years after the ASEAN–India Free Trade Agreement (AIFTA) came into force, the key question is no longer whether trade has grown. It has. The more important question is why India’s imports from ASEAN continue to grow significantly faster than its exports, and what this reveal about India’s export competitiveness in one of the world’s fastest-growing economic regions.

For much of the past decade, India’s engagement with ASEAN has been viewed as one of the success stories of its Act East Policy. Bilateral trade has expanded from approximately US$39 billion in 2009 to over US$120 billion in 2023–24, making ASEAN one of India’s most important regional economic partners. On the surface, these figures suggest that the ASEAN–India Free Trade Agreement (AIFTA) has achieved its primary objective of deepening economic integration and expanding trade flows.

Yet trade expansion alone does not tell the complete story.

While total trade has more than tripled since AIFTA came into force in 2010, India’s trade deficit with ASEAN has widened from around US$12 billion to nearly US$40 billion. Imports have grown considerably faster than exports, particularly in sectors such as electronics, machinery, palm oil, coal and intermediate manufactured goods. This has led to a recurring policy debate: has AIFTA disproportionately benefited ASEAN exporters at the expense of the Indian industry?

The answer is more nuanced than a simple yes or no.

Free trade agreements do not create competitiveness; they amplify existing competitiveness. Countries that possess stronger manufacturing ecosystems, better logistics, greater participation in global value chains and lower production costs typically capture a larger share of benefits from trade liberalisation. In this context, the widening deficit may reveal less about weaknesses in the agreement itself and more about structural challenges within India’s export sector.

The key question therefore is not whether AIFTA has worked, but whether India has been sufficiently competitive to fully benefit from it.

This article analyses sixteen years of ASEAN–India trade, evaluates the gains and limitations of AIFTA, and examines what India must do to strengthen its export competitiveness and secure a more balanced position within one of the world’s fastest-growing economic regions.

Background

India’s economic growth in the 21st century has increasingly depended on building strong trade partnerships with neighbouring regions. As the country seeks to expand its global commerce and strengthen regional connectivity, Southeast Asia has emerged as a critical focus area for economic diplomacy and trade expansion. ASEAN — the Association of Southeast Asian Nations — consists of 10 member countries (Indonesia, Malaysia, Philippines, Singapore, Thailand, Vietnam, Laos, Myanmar, Cambodia, and Brunei), with Timor-Leste recently joining as the 11th member. ASEAN stands as one of India’s most important regional trading partners, accounting for 10% of India’s total trade. Through India’s Act East Policy, ASEAN cooperation has become central to promoting economic cooperation, manufacturing development, and strategic relationships in the Asia-Pacific region.

The ASEAN–India Free Trade Agreement (AIFTA), specifically the Trade in Goods Agreement, became effective on 1 January 2010. This agreement aims to reduce trade barriers by progressively eliminating duties on 76.4% of goods, with the objective of boosting economic integration. This article examines trade trends between India and ASEAN over the last decade, identifies major export and import commodities, analyses the Balance of Trade, highlights the most important trading partners, and evaluates AIFTA’s impact following its implementation.

India–ASEAN Trade under AIFTA: A Decade of Expansion

India–ASEAN bilateral trade grew from approximately $51.6 billion in 2013–14 to $120.87 billion in 2023–24, representing a 134% increase over the decade. The trade relationship has expanded substantially, with ASEAN remaining India’s second-largest trading partner in 2022–23 and 2023–24. Trade expanded sharply between 2021–22 and 2022–23, when bilateral trade reached $131 billion. However, there was a slight decline to $120.87 billion in 2023–24, reflecting global economic uncertainties.

Table 1: India–ASEAN Bilateral Trade (Selected Years)

Export Performance

India’s exports to ASEAN grew from roughly $23 billion in 2013–14 to $41.20 billion in 2023–24, marking a 79% increase. Singapore ($14.41 billion), Indonesia ($5.99 billion), Vietnam ($5.47 billion), and Thailand ($5.04 billion) are the top export destinations. Singapore alone accounts for almost 35% of India’s total exports to the region.

Import Performance

Imports from ASEAN increased from approximately $28–30 billion in 2013–14 to $79.67 billion in 2023–24, a 165–180% increase. Imports grew significantly faster than exports, widening India’s trade deficit with ASEAN from roughly $7–8 billion to $38.47 billion. Indonesia dominates India’s imports, particularly in petroleum products and vegetable oils.

Impact of AIFTA on Trade Expansion

The AIFTA, implemented on 1 January 2010, directly correlates with the trade expansion witnessed over the decade. Academic studies confirm AIFTA significantly benefits both members through increased integration of supply chains and greater movement of goods across borders. ASEAN–India trade grew at over 22% annually during 2005–2011 shortly after FTA implementation.

What Drives Trade Between India and ASEAN?

India’s Export Basket

India mainly exports petroleum products, pharmaceuticals, engineering goods, organic chemicals, rice, and marine products to ASEAN countries. India is one of the world’s largest pharmaceutical producers, offering quality medicines at competitive prices. The country’s efficient petroleum refining sector and robust industrial base underpin its export competitiveness across these categories.

India’s Import Basket

India imports palm oil, electronics, machinery, coal, rubber, and mineral fuels from ASEAN. Indonesia and Malaysia are the world’s largest palm oil producers, while India’s limited oilseed cultivation makes it heavily import-dependent. Electronics and machinery are sourced primarily from Singapore, Thailand, and Vietnam, which have advanced and cost-competitive manufacturing sectors.

Country-Specific Commodity Linkages

Indonesia and Malaysia dominate palm oil and coal exports to India, leveraging their vast natural resources.  Singapore and Thailand lead in electronics and machinery exports. Vietnam has emerged as a key partner for rice and agricultural products, while Myanmar and the Philippines contribute pharmaceuticals and agricultural goods.

India’s Balance of Trade

A trade surplus occurs when exports exceed imports; a trade deficit occurs when imports exceed exports. India’s trade balance with ASEAN has deteriorated significantly after FTA implementation in 2010.

Table 2: India–ASEAN Trade Balance by Country

India faces substantial trade deficits with Indonesia, Malaysia, Singapore, Thailand, and Vietnam. Indonesia and Malaysia alone account for 65.99% of India’s total ASEAN trade deficit.  India records trade surpluses only with Myanmar, Cambodia, the Philippines, and Brunei, where its pharmaceutical expertise and competitive pricing give it an edge.

Fourteen Years of AIFTA

The ASEAN–India Trade in Goods Agreement (AIFTA) was signed on 13 August 2009 in Bangkok after six years of negotiations and entered into force on 1 January 2010, making it 16 years old in 2026. Its main objectives include progressively reducing and eliminating duties on 76.4% of goods, eliminating tariffs for 75% of traded goods, and reducing tariffs below 5% for an additional 10% of product lines. The agreement aims to cover a market of almost 1.8 billion people with a combined GDP of US$2.8 trillion.

Table 3: AIFTA Impact Summary — Before and After

Positive Outcomes

AIFTA has delivered several positive outcomes:

• Total trade grew from $39 billion (2009) to $120.87 billion (2023–24), a 218% increase.
• Tariff elimination on 75% of goods improved market penetration for Indian exporters.
• Studies confirm AIFTA significantly benefits both members through increased supply chain integration.
• ASEAN has become India’s fourth-largest trading partner overall.
• The agreement demonstrated a pronounced trade creation effect among member nations.

Negative Outcomes

AIFTA also produced negative outcomes:

• India’s trade deficit with ASEAN jumped from $7–8 billion (2009) to $45.2 billion in FY25.
• India imports heavily in palm oil, coal, and electronics, creating dependency on ASEAN suppliers.
• India faces concerns about third-country rerouting through ASEAN at preferential tariff rates.
• Imports grew 165% while exports only grew 79%, significantly widening the trade gap.

Beyond Trade Volumes: Have FTAs Changed Prices and Trade Patterns?

Price Changes

While specific data on average export and import prices before and after the FTA is limited, tariff reductions under AIFTA significantly affected prices. The agreement eliminated tariffs for 75% of goods traded between ASEAN and India, directly reducing import costs for businesses and consumers. Lower tariffs translated to more competitive prices on palm oil, coal, and electronics, while Indian exporters gained price competitiveness for pharmaceuticals, engineering goods, and petroleum products in ASEAN markets.

Changes in Trade Composition

AIFTA has transformed trade patterns beyond mere volume growth. The agreement facilitated the emergence of new products in trade baskets, with increased exports of pharmaceuticals and engineering goods from India, while ASEAN strengthened exports of electronics and intermediate goods.  Manufacturing trade has grown significantly, with intermediate goods accounting for a larger share of total trade, reflecting greater integration into regional value chains. This “trade creation effect” is confirmed by studies.

Why India’s Trade Position with ASEAN Remains Structurally Weak

The widening trade deficit is often presented as evidence that AIFTA has failed India. However, trade deficits themselves are not necessarily indicators of failure. The more important question is why imports are growing faster than exports.

Three structural factors explain much of India’s position.

1. ASEAN Is More Deeply Integrated into Global Manufacturing Networks

Countries such as Vietnam, Thailand, Malaysia and Singapore are deeply embedded within global electronics, machinery and intermediate manufacturing supply chains. These economies export components that are subsequently integrated into global production networks.

India, by contrast, continues to export a relatively larger share of:

• petroleum products,
• pharmaceuticals,
• agricultural commodities,
• chemicals,
• and resource-based products.

The value addition and technological sophistication embedded in ASEAN’s exports often exceed that of India’s export basket.

2. India’s Logistics Costs Remain High

According to various estimates, India’s logistics costs remain around 13–14% of GDP compared to 8–10% in several ASEAN economies.

Higher logistics costs:

• reduce export competitiveness,
• increase delivery times,
• and discourage integration into regional production networks.

Even when Indian products are competitively priced at the factory gate, transport and compliance costs often reduce their attractiveness in ASEAN markets.

3. India Has Not Fully Integrated into Regional Value Chains

Perhaps the most important issue is India’s relatively limited participation in regional value chains.

Modern trade increasingly involves:

• components crossing borders multiple times,
• specialised manufacturing stages,
• and production sharing across countries.

ASEAN economies have successfully positioned themselves within these networks.

India largely remains an exporter of final goods rather than an integrated participant in regional manufacturing ecosystems.

This limits the ability of Indian firms to benefit from expanding ASEAN production networks.

Conclusion

India–ASEAN trade expanded dramatically from $39 billion in 2009 to $120.87 billion in 2023–24, representing a 218% increase over 14 years. Key exports include petroleum products, pharmaceuticals, engineering goods, organic chemicals, rice, and marine products. Key imports encompass palm oil, electronics, machinery, coal, rubber, and mineral fuels.

The most important trading partners are Singapore (largest export destination at $14.41 billion) and Indonesia (largest import source). India runs the largest deficits with Indonesia (–$9.2 billion) and Singapore (–$7.8 billion), and holds surpluses with Myanmar, Cambodia, Philippines, and Brunei.

While AIFTA has successfully expanded trade and deepened economic integration between India and ASEAN, the persistence of trade deficits highlights the need for greater export competitiveness and a more balanced distribution of benefits across member countries. The ongoing review of AIFTA presents an opportunity to address these structural imbalances and make the agreement work more equitably for India.

Sixteen years after AIFTA came into force, the evidence suggests that the agreement has succeeded in expanding trade but has been less successful in creating balanced trade outcomes for India.

Total bilateral trade has grown from US$39 billion in 2009 to over US$120 billion in 2023–24. ASEAN has become one of India’s most important economic partners, providing access to critical commodities, manufacturing inputs and fast-growing consumer markets. In that sense, AIFTA has achieved its primary objective of strengthening economic integration.

However, the widening trade deficit reveals a deeper structural reality. The challenge facing India is not primarily tariff-related. Tariff barriers have already been substantially reduced. The more fundamental issue is export competitiveness.

ASEAN’s success has been built on:

• manufacturing productivity,
• supply chain integration,
• logistics efficiency,
• export-oriented industrialisation,
• and participation in global value chains.

India’s future success in ASEAN markets will depend on strengthening precisely these areas.

Rather than approaching the ongoing AIFTA review primarily as a negotiation over tariffs, India may benefit more from focusing on:

• improving manufacturing competitiveness,
• reducing logistics costs,
• accelerating industrial cluster development,
• expanding participation in electronics and intermediate goods exports,
• strengthening trade facilitation measures,
• and increasing integration with ASEAN production networks.

Particular opportunities exist in sectors where India already possesses comparative advantages, including:

• pharmaceuticals,
• specialty chemicals,
• engineering goods,
• digital services,
• healthcare,
• green technologies,
• food processing,
• and emerging manufacturing sectors supported under the Production Linked Incentive (PLI) framework.

The most important lesson from sixteen years of AIFTA is that free trade agreements do not automatically generate export success. They create market access. Whether that access translates into sustainable export growth depends on the competitiveness of domestic industries.

For India, therefore, the next chapter of ASEAN engagement should not be centred on protecting markets from imports. It should be centred on building the capabilities that allow Indian firms to compete more effectively within one of the world’s most dynamic economic regions.

The real question is no longer whether AIFTA has worked. The more important question is whether India can use the next decade to become competitive enough to fully benefit from it. That, more than tariff negotiations, will determine the future of India–ASEAN trade relations.