Trade deals that undermine multilateralism may hit growth and exports, govt economists warn
However, the report by the Department of Economic Affairs noted that while India was pursuing a diversified trade strategy, it was doing so within the multilateral trading system and still sought to have the WTO at the core
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Context
The Ministry of Finance's Monthly Economic Review for September 2026, citing the (WTO)'s World Trade Report 2026, warned that replacing the multilateral trading system with a network of bilateral and regional Free Trade Agreements (FTAs) could lead to significant global GDP and export declines by 2050. The report emphasized India's commitment to a rules-based multilateral system with the at its core, even as it pursues a diversified trade strategy.
UPSC Perspectives
Economic
The report highlights the critical difference between multilateralism (trade rules negotiated among many nations, typical of the ) and bilateralism/regionalism (agreements like FTAs between two or a few countries). The projects that a fragmented world, especially one dominated by non-cooperative FTAs, could shrink global GDP by up to 6.9% by 2050 compared to a baseline scenario. This is due to trade diversion (where trade shifts from more efficient to less efficient producers due to preferential tariffs) and higher trade costs. The Ministry of Finance emphasizes that while India pursues FTAs for market access, these should complement, not substitute, the framework to ensure predictable and fair global trade.
International Relations
The warnings reflect growing concerns over the weakening of the and the rise of geopolitical blocs, leading to geo-fragmentation. This scenario threatens the principles of Most-Favored-Nation (MFN) (treating all members equally) and National Treatment (treating foreign and domestic goods equally). India's stance advocates for a "development-oriented multilateral trading system," aligning with its leadership role among the Global South, which relies on a rules-based order to prevent exploitation by stronger economies in bilateral negotiations.
Governance
From a policy perspective, India faces a balancing act: enhancing trade resilience through diversification while upholding global trade rules. The government's strategy aims to reduce dependence on single markets, mitigating risks from geopolitical shocks. However, the report cautions that relying solely on FTAs outside the framework increases uncertainty and makes market access overly dependent on bilateral leverage. UPSC often tests this tension: how developing nations manage domestic economic interests (like protecting local industries) while engaging in global trade agreements.