Maturing approach: On the India-U.K. Comprehensive Economic and Trade Agreement

The India-U.K. Comprehensive Economic and Trade Agreement (CETA) reflects New Delhi’s more mature approach to free trade negotiations. Unlike its 2009 free trade agreement (FTA) with ASEAN, which tilted the trade balance against India, New Delhi has approached the U.K. pact by attempting to balance liberalisation with domestic sensitivities amid an increasingly fragmented global trading system. A similar shift was evident in the New Zealand FTA, where India succeeded in protecting its sensitive dairy sector despite dairy products being one of New Zealand’s biggest exports. While the India-U.K. CETA is expected to strengthen India’s export competitiveness, its benefits are likely to be uneven across sectors and could place competitive pressure on already cost-disadvantaged MSMEs. The pact, an attempt to secure long-term market access and integrate India further into global value chains, offers zero-duty access on 99% of India’s exports, covering almost the entire value of bilateral trade. However, smaller firms often lack the documentation and compliance capacity needed to claim these benefits. Despite the deal including some agreements on non-tariff aspects, MSMEs may find it difficult to comply with the U.K.’s stringent sanitary, phytosanitary, technical and sustainability standards, which could prove a bigger hurdle than tariffs. Globally, such agreements have accelerated export diversification, attracted investment and facilitated technology transfer, but only when supported by robust industrial ecosystems and competitive firms.

India has historically underutilised several trade agreements because of low awareness, cumbersome administration and high compliance costs. The trade deficit with ASEAN widened from about $10 billion in 2017 to nearly $44 billion in 2023. Similarly, the U.K. agreement’s benefits may remain below expectations unless India strengthens regulatory administration, intellectual property protection and dispute resolution. Although the U.K. accounts for only about 3% of India’s merchandise exports and around 1% of its imports, the U.K. pact expands India’s access to a high-income market where it enjoys a merchandise trade surplus. However, this advantage could narrow if imports of the U.K.’s relatively price-inelastic exports, such as luxury vehicles, grow faster than India’s largely labour-intensive, price-sensitive exports. The Double Contribution Convention benefits Indian IT and professional services firms, but its economy-wide benefits may remain modest. The pact also faced a hurdle over the U.K.’s steel safeguard quotas before implementation, underlining how non-tariff measures can dilute market access. India’s carbon-intensive exports could face challenges as climate-related trade regulations become more stringent. Ultimately, CETA’s success lies in turning market access into market share.