India-UK FTA: Big trade, some trade-offs, and a whole new order

India Today

7 days ago

Even as US president Donald Trump announced fresh 'reciprocal tariffs' on Indian goods and a long-pending trade deal with Washington remains elusive, India has pulled off a landmark agreement with another G7 heavyweight, the UK.On July 24, New Delhi and London signed the Comprehensive Economic and Trade Agreement (CETA), India's first such pact with a G7 nation. Touted as 'historic', the agreement aims to double bilateral trade by 2030. It offers unprecedented market access—from duty-free exports of Indian textiles, leather and gems to sharply-reduced tariffs on iconic British products such as Scotch whisky and luxury cars.advertisementOnce the deal is ratified by both houses of the British Parliament, India will get to export its textiles, leather, vegetable oils and gems and jewellery, among other goods, duty-free to the UK. Nearly all agricultural and processed food exports from India, with limited exemptions, will become duty-free.In turn, discerning Indian consumers can look forward to iconic British products—from Scotch whiskies such as Johnnie Walker and single malts such as Lagavulin and Glenlivet to luxury cars such as Jaguar, Land Rover, Bentley and Rolls-Royce—turning a lot cheaper. Duties on Scotch whisky and gin—currently at 150 per cent—will fall to 75 per cent immediately and then to 30-40 per cent over a decade.
India-UK bilateral trade was valued at $56 billion (Rs 4.9 lakh crore) in FY25, of which merchandise trade comprised $23 billion (Rs 2 lakh crore), while services formed the lion's share, at $33 billion (Rs 2.9 lakh crore). Of the total merchandise trade, India's exports to the UK were to the tune of $14.5 billion (Rs 1.2 lakh crore), with electrical and electronic items, engineering goods and petroleum products topping the list.Imports from the UK stood at around $8.5 billion (Rs 73,778 crore), and comprised machinery, chemicals and precious metals, among others. In services, too, India enjoys a trade surplus with the UK. While services imports from the UK were $13.2 billion (Rs 1.1 lakh crore), services exports were valued at $19.8 billion (Rs 1.7 lakh crore).At the heart of it, CETA is a manifestation of both nations' evolving imperatives. India, for instance, has moved from a defensive to a strategic trade posture, seeking to integrate with global value chains on its own terms. The UK, on the other hand, needed a major bilateral win outside Europe following the post-Brexit economic recalibration. India, with its fast-growing economy and vast market, was a perfect choice.Analysts are of the view that India extracted meaningful gains, safeguarded its vulnerable sectors and framed the deal as a new template for future engagements with the European Union (EU), European Free Trade Association (EFTA) and even the US. 'Our effort is that the Indian industry gets preferential access over our competition, and I think this (CETA) can become a gold standard to ensure that India protects its sensitive sectors and opens the doors, particularly in highly labour-intensive sectors, and allows high-quality goods, technology and other products to come to India,' said Piyush Goyal, Union commerce and industry minister.advertisementThe export edgeThe UK has done away with 99 per cent of tariff lines for Indian goods, accounting for roughly 95 per cent of India's exports by value, paving the way for zero-duty access, while India has removed or reduced tariffs on 90 per cent of its lines, covering 92 per cent of its imports from the UK.For Indian exporters in sectors such as textiles, garments, marine products, gems and jewellery, pharmaceuticals and light engineering goods, who have often found themselves edged out by preferential trade access enjoyed by competitors such as Vietnam, Bangladesh or sub-Saharan African countries, this is a long-awaited breakthrough. For sectors such as apparel, carpets and marine produce, the removal of customs duties will translate into immediate competitiveness and a sharp boost in margins, especially for micro, small and medium enterprises (MSMEs).Services, the major component in bilateral trade, get a generous slice too. For Indian professionals in IT, architecture, legal services, financial consulting and education, the pact promises smoother visa pathways, clearer eligibility criteria and, crucially, recognition of qualifications in key fields such as accountancy and engineering. The provisions are hedged, with reviews built in, but they reflect a quiet shift: India is no longer just bargaining for goods. It wants its human capital to move, work and earn globally on fairer terms.advertisement'From the Indian side, we are looking at exports of apparels and textiles in a big way, since we will now have a level-playing field with countries like Bangladesh, Pakistan, Cambodia, which are getting zero-duty benefit in the UK, and with Vietnam, which has an FTA (free trade agreement) with it,' says Ajay Sahai, director general and CEO of the Federation of Indian Export Organisations.'So, we will be much better off than Pakistan and China or Indonesia, who are our competitors in those markets. Those countries will have to pay duties as high as 12 per cent. The same will be the case with footwear and even in sectors such as leather,' adds Sahai.What makes the pact striking is that it avoided as much as what it secured. On pharmaceuticals, India held firm. While copyright terms have been extended to 'life plus 60 years' in line with UK standards, the deal protects India's ability to manufacture generics and avoids any clause that could threaten its public health safeguards. There is also no Investor-State Dispute Settlement (ISDS) mechanism—a controversial provision in earlier free trade agreements that India now flatly rejects. In the age of regulatory litigation and billion-dollar arbitration awards, this is not just a legal footnote—it is a line drawn in the sand.advertisementTariff trade-offsOn its part, the UK secured the elimination of tariffs on 64 per cent of its exports to India immediately, with that number rising to 85 per cent over a decade. While many of these exports are non-sensitive goods, such as machinery, chemicals and processed foods, there are three particularly contentious areas: automobiles, alcoholic beverages and public procurement.The fall in duties on whisky alone was a red line issue for both the Scotch Whisky Association and Indian state governments. Alcohol excise duties form a major chunk of state revenues, especially in Maharashtra, Karnataka and Punjab. With cheaper Scotch entering the market, there is palpable concern of tax erosion and growing import dependency, not to mention the long-term pressure on local liquor brands. The central government has promised a compensatory formula and phased transition, but state finance ministers are far from convinced.advertisementThe automobile sector presents a similar paradox. While duties on UK cars, including electric vehicles, will be cut over time, imports are capped through tariff-rate quotas (TRQs), ensuring that the volume remains contained. But even these limited concessions have rattled domestic players. Indian manufacturers of luxury and electric vehicle (EV) models, such as Tata Motors, Mahindra and Maruti's premium segment, worry that British imports could disrupt the top-end of the market. Their fears are not about today but about a future where British cars begin entering at scale under preferential tariffs.Then there is public procurement—a largely overlooked but critical dimension. For the first time in any of its FTAs, India has agreed to open its federal-level procurement tenders to a foreign partner. UK firms will now have access to Rs 3.3 lakh crore worth of Indian government contracts, particularly in infrastructure, renewables and public health. The 20 per cent local content clause is meant to protect Indian suppliers. However, MSMEs are worried. Many see this as a beachhead for large British firms to underbid local competitors in areas traditionally used for nurturing domestic industrial capacity.Making it workCETA provides a great opportunity for Indian companies to export into one of the world's most developed markets with greater gusto, since they now have an edge over competing countries, but that's easier said than done. There are several issues that India will have to set right. The fact that manufacturing has lagged in general, and stagnated at around 15-17 per cent of the GDP, does not help.'We need to improve manufacturing in a big way to be competitive,' says Sahai. 'Reduced tariffs alone are not going to help turn competitive. We need to reduce our logistics and shipping costs, and vastly improve our shipping time.'While CETA has provided India with an enabling environment, turning this opportunity into a thriving trade would require a clear policy direction for bettering our manufacturing and making transport infrastructure much more efficient to help our companies move up the global value chain.—With M.G. ArunSubscribe to India Today Magazine- EndsTune InMust Watch