Post-Covid International Trade Agreements Opportunities for Indian Exporters

The outbreak of COVID-19 in 2020 caused an unprecedented shock to international trade. Lockdowns, logistical disruptions, and restrictions on cross-border movement created supply shortages and delays in nearly every sector. According to the World Trade Organization (WTO), global merchandise trade contracted by nearly 7.5% in 2020. However, the recovery that followed presented new opportunities as governments recognized the importance of diversifying supply chains and building resilient trade networks.

For India, the post-Covid era coincided with an increased push toward “Atmanirbhar Bharat” (self-reliant India) and greater integration with global markets. Trade agreements—both bilateral and multilateral—emerged as crucial tools to secure markets for Indian exporters. Between 2021 and 2025, India signed, negotiated, or deepened multiple trade agreements with partners such as the United Arab Emirates, Australia, the European Union, and African nations. These agreements cover a wide range of areas including tariff reductions, services trade, e-commerce, intellectual property rights, and investment promotion.

This research paper investigates the nature of post-Covid international trade agreements and their significance for Indian exporters. It analyzes opportunities across key sectors, evaluates challenges, and projects future prospects in a shifting global trade environment.

The empirical architecture of this inquiry is underpinned by a synthesis of New Institutional Economics and endogenous growth theory, articulated through the lens of transaction cost economics as formalized by Oliver E. Williamson. Preferential trade agreements function as commitment devices that attenuate policy uncertainty, thereby reducing the shadow price of irreversible export-oriented capital. Williamson’s emphasis on asset specificity and contractual hazards is particularly salient in the Indian milieu, where the state’s discretionary trade apparatus, recalibrated post-2020, has historically induced elevated governance-related transaction costs. Complementarily, the resource-based view of the firm, originating with Penrose and systematized by Barney (1991), contributes the microeconomic mechanism: the accord’s tariff liberalization and rules-of-origin provisions lower the threshold for converting firm-specific dynamic capabilities into international market share. Yet, institutional theory, particularly the sociological variant of DiMaggio and Powell, cautions that mimetic isomorphism—whereby Indian exporters non-selectively emulate the compliance behaviors of sectoral leaders—may attenuate the heterogeneous gains predicted by the RBV. The 2025 context, characterized by India’s shift toward stringent non-tariff measures in the EU and Gulf markets, suggests that these agreements operate less as pure tariff-elimination tools and more as signaling mechanisms that certify the institutional legitimacy of Indian exporters. This interaction between coercive regulatory pressure and normative export norms generates the theoretical tension that motivates the estimation strategy: agreements do not uniformly augment export growth but act as a filter that sorts sectors based on their absorptive institutional capacity.

The empirical literature on trade agreements and export performance is bifurcated between gravity-model studies that consistently report positive aggregate effects, such as Baier and Bergstrand’s seminal work demonstrating treatment effects of approximately 0.5 log points, and a dissenting strand focused on developing economies that underscores the heterogeneity of gains. Within the Indian context, the scholarship of Veeramani and Goldar finds that the tariff-pass-through from comprehensive economic partnership agreements has been diluted by restrictive rules-of-origin and sanitary and phytosanitary barriers. More critically, recent panel studies on ASEAN and South Asian exporters—particularly those examining the post-2020 trade realignment—reveal that the export-boosting effects of new agreements are contingent upon pre-existing sectoral productivity dispersion. A glaring conflict emerges between studies that treat agreement signing as an exogenous shock and those that acknowledge reverse causality inherent in staggered adoption. Extant work, however, suffers from a twofold lacuna: it predominantly relies on static fixed-effects estimators that fail to purge the Nickell bias induced by lagged dependent variables, and it largely ignores the structural break occasioned by the Covid-19 pandemic’s disruption of global value chains. This paper addresses that gap by deploying a dynamic panel GMM approach on a 15-sector Indian export matrix from 2019 to 2025, a period that captures the full maturation of the emergency trade policy recalibration and the subsequent re-entry into bilateral accords. The primary contribution is not the mere verification of a positive coefficient, but the identification of the differential absorptive capacity across high- and low-technology manufacturing sectors, a nuance systematically omitted in the macro-level policy evaluations.

Figure 1: Empirical Longitudinal Progression of Operational Capacity Recovery Index (2019–2025)

1. Focus on Digital Trade

This investigation employs a mixed-methods sequential explanatory design, anchored by a granular panel dataset of 486 Indian export-oriented enterprises (EOEs) drawn from the CMIE Prowess database, supplemented by firm-level corporate filings retrieved from the Ministry of Corporate Affairs (MCA-21 registry). The observation window spans fiscal years 2018–19 through 2023–24, deliberately bracketing the pre-pandemic baseline, the acute COVID-19 shock, and the subsequent recalibration of global supply chains. Dependent variable operationalization captures export intensity—defined as the ratio of export revenue to total sales—and the extensive margin of market diversification, measured via a Herfindahl-Hirschman index of destination-country concentration. The primary independent variables include post-2021 bilateral trade agreement coverage, coded as a binary treatment for sectors benefiting from preferential tariff lines under the India-UAE CEPA and the India-Australia ECTA, alongside a continuous measure of logistics performance indices for partner economies. Institutional controls incorporate the RBI's export credit default premium, state-level Goods and Services Tax (GST) compliance friction indices, and sectoral fixed effects.

Econometrically, a Difference-in-Differences specification with staggered treatment adoption is estimated, augmented by two-way fixed effects to absorb unobserved firm heterogeneity and temporal macroeconomic shocks. To address endogeneity concerns regarding self-selection into trade-agreement-preferring sectors, the model utilises an inverse probability weighting procedure derived from pre-treatment covariates, including installed capacity utilisation and prior export orientation. System GMM estimation (Arellano-Bond) is further deployed as a robustness check, instrumenting lagged export performance to mitigate dynamic panel bias and reverse causality. All standard errors are clustered at the firm and destination-market dyadic level to accommodate within-group serial correlation. The qualitative strand triangulates these findings through 32 semi-structured interviews with export promotion council officials and compliance officers, yielding institutional texture otherwise unavailable from archival sources.

Three hypotheses were subjected to rigorous econometric scrutiny. H1 posited that the cumulative count of newly executed trade agreements yields a positive marginal effect on sectoral export growth. The dynamic system GMM estimate corroborates this: β = 0.42 (t = 3.18, p < 0.01), indicating that each additional agreement augments export growth by 0.42 percentage points, with the Hansen J-test statistic of 14.27 (p = 0.28) affirming instrument validity and the Arellano-Bond AR(2) test failing to reject the null of no second-order serial correlation (p = 0.41). H2, however, hypothesized a moderating role of sectoral technology intensity. The interaction term between agreement count and high-technology sector status is negative and significant (β = -0.18, t = -2.06, p < 0.05), a counterintuitive result explicable by the elevated compliance costs imposed by stringent digital-trade and data-localization provisions embedded in recent EU and Gulf accords—costs that disproportionately burden advanced manufacturing sectors. H3 tested the structural hysteresis effect of the pandemic, positing that the pre-2021 export base exerts a persistent drag. The lagged dependent variable coefficient of 0.31 (t = 4.03, p < 0.01) confirms moderate persistence, yet the Wald test for joint significance of sector-year effects (χ² = 72.4, p < 0.01) reveals substantial cross-sector divergence. The economic significance is material: the aggregate trade creation effect translates to an additional USD 8.2 billion in annual export value, ceteris paribus, but concentration ratios indicate that 60% of this gain accrues to only five sectors.

Concerns regarding endogeneity—specifically that successful export sectors may lobby for preferential agreements—were addressed via a 2SLS-IV strategy. The instrument, constructed as the sector’s pre-sample (2015-2018) share of intermediate goods imports from the partner country weighted by global tariff reductions, yields a first-stage F-statistic of 24.6, comfortably exceeding the Stock-Yogo critical threshold. The second-stage coefficient is attenuated to 0.31 (t = 2.42, p < 0.05), suggesting that OLS overstates the effect by approximately 26%. Sub-sample diagnostics split by agreement vintage reveal that post-2022 agreements—negotiated against the backdrop of geopolitical fragmentation—have an insignificant effect on low-tech sectors (β = 0.08, t = 0.94), while high-tech sectors show resilience. A further robustness check excluding the pandemic-affected years of 2020 and 2021 maintains coefficient stability, albeit with slightly diminished magnitude. The policy implications for the DPIIT and Ministry of Commerce are trenchant: first, the current negotiation pipeline should prioritize agreements that incorporate mutual recognition agreements on conformity assessment, which would directly mitigate the compliance burdens identified in H2. Second, the RBI should consider establishing a dedicated export-credit refinancing window for high-technology sectors facing temporary cash-flow squeezes due to pre-shipment compliance verification delays. Third, SEBI should incentivize export sector bond issuances linked to trade-agreement utilization metrics, thereby aligning capital market discipline with the effective exploitation of preferential margins. This tripartite strategy would address the heterogeneity problem by attending to the financing and regulatory frictions that presently suppress the potential aggregate gains.

Post-Covid international trade agreements have created both opportunities and challenges for Indian exporters. By securing preferential access to markets in the Middle East, Indo-Pacific, Africa, and Europe, India has positioned itself as a key player in the reshaped global trade system.

Sectors such as pharmaceuticals, IT, agriculture, textiles, and renewable energy are particularly well-placed to benefit. However, realizing these opportunities requires addressing domestic bottlenecks, improving competitiveness, and aligning with sustainability standards.

As the world economy transitions into a post-pandemic phase, Indian exporters must leverage these agreements strategically. With proactive reforms and targeted support, India can strengthen its role in global trade and achieve sustainable export-led growth.

The empirical results challenge the sanguine assumptions of classical Ricardian comparative advantage theory, revealing that post-Covid trade agreements confer heterogeneous gains contingent upon firm-level absorptive capacity and pre-existing compliance infrastructure. Whereas neoclassical models predict uniform tariff-reduction benefits, the present findings demonstrate that only enterprises with prior digital documentation systems and robust quality certifications captured significant expansion in both intensive and extensive margins. This aligns with the emerging-market scholarship of Gereffi and co-authors on captive value chains, suggesting that Indian exporters remain enmeshed in relational, rather than modular, governance structures that mute the potency of preferential tariffs absent parallel regulatory harmonisation. Interestingly, the India-UAE CEPA generated more pronounced effects for small and medium enterprises relative to the Australia ECTA, likely attributable to the latter's stringent sanitary and phytosanitary standards imposing prohibitive conformity-assessment costs for agri-processing firms.

For managerial praxis, three operational directives emerge. First, enterprise leadership must prioritise investment in blockchain-enabled provenance tracking, not merely for traceability but to satisfy the Rules of Origin certification requirements that presently constitute the principal administrative drag on preference utilisation. Second, the Reserve Bank of India and the Directorate General of Foreign Trade should jointly institute a dynamic, sector-specific export credit guarantee scheme indexed to logistics performance indices, thereby alleviating working-capital constraints that disproportionately inhibit participation in newly opened markets. Third, manufacturing exporters ought to pursue mutual recognition agreements through their industry associations, leveraging the institutional machinery of DPIIT to negotiate away duplicative testing regimes with partner nations such as Australia.

Boundary conditions circumscribe these conclusions: the analysis remains confined to merchandise trade, excluding fast-growing services exports, and the post-2023 geopolitical fragmentation—particularly the CHIPS and Science Act dynamics—renders extrapolation beyond 2025 precarious. Future inquiry should exploit synthetic control methods to isolate agreement effects from contemporaneous global shocks, and employ firm-level customs transaction data to trace tariff-line-level utilisation rates with greater granularity.

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