On July 24, India and the UK signed a Free Trade Agreement (FTA), officially referred to as the Comprehensive Economic and Trade Agreement (CETA), wrapping up over three years of negotiations and fourteen rounds that began at the start of 2022. After several British Prime Ministers and missed deadlines, the agreement, which was concluded in May this year, has finally come to see the light of day.
As the UK's 11th largest trading partner, India currently accounts for a little over 2% of the UK's total trade, but holds a trade surplus of approximately 8.4 billion pounds with the UK. The CETA is estimated to double bilateral trade from the current 42 billion pounds.
Signed, Sealed, Delivered
For New Delhi, the deal would particularly benefit labour-intensive exports such as textiles and apparel that traditionally face stiff competition from countries such as Bangladesh and Vietnam. As much as 99% of Indian exports to the UK would receive duty-free treatment. Exports of gems and jewellery, seafood, footwear, toys and engineering products are likely to witness a boost. While sensitive products such as apples, cheese, edible oils and dairy will continue to have tariffs in place, exports of specialised Indian agricultural products such as mangoes, spices, tea and processed food items are expected to rise.
Britain, on the other hand, would see average Indian tariff reductions from 15% to 5%, on 90% tariff lines, which, in turn, would result in cheaper goods for Indian consumers. According to the British government, the deal will provide an annual boost of 4.8 billion pounds to the British economy and bring in 6 billion pounds worth of investment.
For Britain, alcohol and automobiles are two critical sectors that will see gains. British cars will see massive reductions of Indian tariffs from 110% to 10%. Tariffs on whisky and gin have been slashed from 150% to 75% and are expected to further drop to 40% by 2035. Bilateral trade in electric vehicles (EVs) will also see an increase, subject to quota restrictions, in addition to enhanced Indian access to medical devices, aerospace parts, chocolate, biscuits and salmon.
British businesses will gain access to India's public procurement market and be able to bid for non-sensitive government tenders for above Rs 2 billion; the deal may also pave the way for deeper collaboration across the educational sector and academia, with British universities setting up campuses in India.
The deal does not exempt India from the UK's Carbon Border Adjustment Mechanism (CBAM), similar to the EU CBAM, which aims to levy taxes on carbon-intensive products, and would impact India's exports of iron, steel and fertilizers. The UK CBAM is expected to come into effect in early 2027, and both sides are likely to continue talks on this contentious issue.
For the UK, the deal's omission of legal and financial services is concerning. India is hesitant to open up these sectors given that services contribute to over 50% of its GDP. Meanwhile, negotiations on a Bilateral Investment Treaty (BIT), which would protect Indian and British investments on both sides, are ongoing.
In terms of migration, the deal allows for easier mobility for Indian professionals working in certain sectors, yet the final outcome has been a comedown from the more liberalised visa regime that India originally sought for its workers, including in the IT and healthcare sectors. At the same time, this is demonstrative of greater flexibility and willingness on India's part to make concessions to better integrate itself into global value chains and the global economy. However, the Double Contribution Convention, which exempts Indian workers in Britain (and vice versa) from making social security contributions for a period of three years, is perceived as a major win.
The Indo-Pacific Tilt
Beyond its tangible benefits to Indian and British consumers, businesses and manufacturers, the deal serves as an important symbol of championing free trade against a global backdrop of tariff wars and trade tensions. Pooling in the talents and resources of both nations, the deal is expected to open avenues for job creation and employment, and enhance innovation and investment on both sides. Starmer estimates that the deal would create over 2,200 jobs across Britain.
As the UK's largest deal since its exit from the European Union in 2020, it is an important symbol of London's post-Brexit trade policy. For New Delhi, although negotiations with Washington and Brussels will factor in their unique set of challenges and chart their own course, the UK deal sets an important precedent for these larger trade deals. Through trade diversification and more resilient supply chains, the agreement with India, with its position at the heart of the Indo-Pacific, also supports the UK's tilt towards the Indo-Pacific, ideated and reinforced in the British government's Integrated Review strategies.
The India-UK CETA is reflective of a wider ambition to deepen the bilateral partnership. Last year, the two countries unveiled a Technology and Security Initiative (TSI) to catalyse cooperation in the technological and digital realms. Modi's current visit saw the unveiling of a "UK-Vision 2035" aimed at further consolidating relations amidst broader strategic and economic convergences and a backdrop of global turbulence.
As the CETA awaits ratification from the Indian and British parliaments, it is promising that London and New Delhi are finally emerging from the shadows of diaspora and legacy issues that held the relationship hostage for several decades.
(Harsh V Pant is Vice President, Observer Research Foundation, New Delhi. Shairee Malhotra is Deputy Director, Strategic Studies Programme, at ORF.)
Disclaimer: These are the personal opinions of the author
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