Economists in the Ministry of Finance have warned that bilateral and regional trade deals that seek to replace the current multilateral trade system could lead to “greater trade diversion, higher trade costs, and greater uncertainty”.
However, they also 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 World Trade Organization (WTO) at the core of such a system.
The Monthly Economic Review for September 2026, prepared by economists in the Department of Economic Affairs, cited the WTO’s recent report that sought to predict what would happen to the world economy by 2050 under three different trade-related scenarios.
“According to the WTO’s World Trade Report 2026, in a ‘geo-fragmented world’ scenario, in which trade is organised around geopolitical blocks, global GDP is projected to decline by 5.1%, and global exports by 18.6% relative to the baseline in 2050,” the report said.
However, it said that the worst of the scenarios would be a ‘Free Trade Agreement (FTA) world’ one in which the multilateral trading system is replaced by a network of FTAs with tariffs on non-FTA partners in a non-cooperative way. If this were to come about, the reductions in global GDP and global exports were estimated by the WTO to be 6.9% and 26.9%, respectively.
“In contrast, in an ‘enhanced cooperation world’ scenario, wherein multilateral cooperation is reinforced and increased global integration, global GDP and global exports are projected to increase by 2.9% and 17.9%, respectively,” the report noted.
Therefore, the report concluded that regional and bilateral trade agreements can provide additional market access and can complement the multilateral system when they operate within the WTO framework and rules. However, it added that the costs of such trade deals become higher when they take place outside the multilateral framework and are used to substitute it.
“In such a situation, market access becomes more dependent on the terms negotiated between individual partners, while trade outside these arrangements faces less favourable conditions,” the report said. “This results in greater trade diversion, higher trade costs, and greater uncertainty.”
It did note that, while the government was focussed on enhancing India’s trade resilience through a diversified trade strategy that aims to expand market access, strengthen economic partnerships, and reduce reliance on any single export destination, India was also “committed to a predictable, rule-based, and development-oriented multilateral trading system with the WTO at its core”.
Published – October 01, 2026 04:49 pm IST
