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India’s push for Free Trade Agreements (FTAs) has sparked significant debate among policymakers, economists, and business leaders. While FTAs promise greater market access and integration into global supply chains, experts argue that such external partnerships, in isolation, cannot transform India’s export performance—especially for its Micro, Small and Medium Enterprises (MSMEs). Anil Bhardwaj, Secretary General of FISME (Federation of Indian Micro and Small & Medium Enterprises), recently highlighted that without internal reforms and competitive domestic factor markets, FTAs may even backfire for MSMEs.

Understanding the Landscape

India’s MSME sector accounts for a staggering 70% of services and 30% of manufacturing output. It employs millions and forms the backbone of India’s industrial growth. However, despite the sector’s potential, it remains hamstrung by structural inefficiencies and regulatory hurdles that stifle competitiveness.

While digitalization and compliance platforms have made inroads—especially in easing digital payments and documentation—the sector continues to be hampered by the misuse of Quality Control Orders (QCOs) and rising input costs, particularly in steel. Over 700 QCOs have been imposed, often without robust domestic production capacity to meet standards. The result? Heightened compliance burdens and import restrictions that disproportionately affect MSMEs.

QCOs: A Double-Edged Sword

Originally designed to safeguard consumer safety and ensure product quality, QCOs have increasingly become tools of trade restriction. For instance, an MSME producing fans or garment accessories may now need to meet specific quality standards enforced by the Bureau of Indian Standards (BIS). But many such enterprises lack the financial or technical capacity to comply, pushing them out of domestic and export markets.

Moreover, when FTAs reduce import tariffs, it creates the risk of MSMEs being priced out of their own market—particularly if the cost of production remains high due to internal inefficiencies. Without reforms in input markets (e.g., steel, chemicals, and electronics) and simplification of compliance norms, MSMEs are left exposed to a flood of cheaper imports they cannot compete with.

Factor Market Rigidity and the Cost Burden

A significant contributor to this crisis is the lack of competitiveness in India’s factor markets—namely, land, labor, and capital. For example:

Land acquisition remains expensive and litigious.

Labor reforms are fragmented across states, leading to inconsistent compliance burdens.

Access to credit, especially for informal and micro units, remains elusive despite government schemes.


Infrastructure improvements have made some difference, but these gains are offset by costlier raw materials and non-transparent QCO enforcement. The cumulative impact is erosion of MSME profit margins and global competitiveness.

Reciprocal Tariffs and the FTA Trap

Another overlooked risk is the reciprocal nature of FTAs. While they grant Indian exporters access to foreign markets, they also allow cheaper foreign goods into Indian markets. Large corporations with economies of scale can adapt. MSMEs, with limited bandwidth, struggle.

Take electronics and pharma, for instance. These sectors, benefiting from global supply chains and cost efficiencies, may see gains from FTAs. But most traditional MSMEs—producing fans, pipes, textile accessories, etc.—risk losing market share without internal reforms to reduce their cost disadvantages.

The Real Fix: Reform Before FTA

For FTAs to be beneficial across the board, India must:

Rationalize QCOs and ensure that standards are phased in with industry capacity-building, especially for MSMEs.

Reform input markets, particularly in steel and chemicals, to stabilize prices.

Modernize logistics and infrastructure, ensuring last-mile efficiency.

Enable access to affordable finance through targeted fintech and public credit enhancements.

Simplify and unify compliance regimes, especially under BIS and environment standards, to avoid redundant approvals.


India’s ambition to become a global manufacturing hub cannot be realized through trade deals alone. Unless internal bottlenecks are addressed and MSMEs are equipped with fair access to competitive factor markets, FTAs may become double-edged swords—offering entry to global markets while simultaneously opening the floodgates for cheaper imports.

As Anil Bhardwaj rightly underscores, the real challenge lies in enabling a supportive domestic ecosystem. Reforms at home must precede trade liberalization abroad. Only then can India’s MSMEs truly compete and thrive in global markets.

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