INDIA UK RELATIONS

INDIA UK RELATIONS

Why in News

• On 8 October 2025, UK Prime Minister Keir Starmer visited India with a large business delegation.
• The visit comes amidst rising economic tensions with the US, including 50% tariffs imposed on Indian exports by US President Donald Trump.
• The visit reinforces the importance of the India–UK Comprehensive Economic and Trade Agreement (CETA) as a tool for trade diversification and economic cooperation.

IMPORTANCE OF INDIA UK CETA

Broad Coverage

• Covers over 99% of tariff lines in industrial and agri-products.
• Demonstrates India’s capability to conclude comprehensive trade deals.
• Prepares ground for future negotiations with the EU and signals to the US not to push India diplomatically or economically.

Trade Targets

• Current bilateral trade (2024–25):
  • Goods: $23 billion
  • Services: $33 billion
  • Total: $56 billion
• Goal: Double to $120 billion by 2030

INDIA UK TRADE

STRATEGIC OPPORTUNITY AMIDST TARIFFS BY USA

• With Trump’s tariffs affecting sectors like gems, jewellery, textiles, and footwear, the UK becomes a potential hedge market.
• CETA can help offset part of the US trade loss by:
  • Opening new markets
  • Reducing dependency on the US
  • Enhancing bargaining power in global trade talks

KEY SECTORAL OPPORTUNITIES FOR INDIA IN UK

WHY IT MATTERS?

• UK’s top import sources: China, US, Germany.
• India’s current share is small — CETA can level the playing field by removing high tariffs.
• Tariff elimination in CETA helps:
  • Indian textiles compete with Bangladesh and Vietnam
  • Leather and footwear gain edge over China and

UK MARKET ACCESS: TARIFF TRENDS

BENEFITS TO THE UK

• Alcoholic beverages: India to cut tariffs on Scotch & Gin to:
  • 75% immediately
  • 40% over 10 years (negotiable to 5 years)
• Machinery, defence equipment, medical devices, and clean energy tech seen as strong UK export prospects.
• India’s openness will boost balanced trade and credibility of CETA.

KEY CHALLENGES FOR INDIA

Structural Barriers

• Customs delays: India (17.3 days) vs China (3.3) & Bangladesh (6.7)
• Regulatory cholesterol (as termed by Manish Sabharwal)
  • Complex rules
  • Compliance burdens
  • Fragmented approvals

Competitive Advantage

• Many peers have existing FTAs or favourable schemes:
  • Canada–UK TCA
  • Bangladesh – Developing Countries Trading Scheme
  • Vietnam, Singapore, Australia – CPTPP

WHAT INDIA MUST DO?

Policy Support

• Targeted export incentives
• Boost competitiveness in high-potential sectors

Structural Reforms

• Improve access to capital
• Accelerate trade facilitation
  • Digitised customs
  • Infrastructure at ports
• Ease of Doing Business reforms
• Integrate industrial clusters
  • Shared testing facilities
  • Quality assurance labs
  • Logistics & warehousing

WHAT IS FREE TRADE AGREEMENT?

• A Free Trade Agreement (FTA) and a Comprehensive Economic and Trade Agreement (CETA) are both types of international trade agreements designed to promote economic cooperation and facilitate trade between countries.
• While the terms are sometimes used interchangeably or with slight variations, a CETA generally implies a deeper, more extensive agreement than a basic FTA.

What is Free Trade Agreement (FTA) ?

• An FTA is a treaty between two or more countries that primarily aims to reduce or eliminate tariffs, duties, and other trade barriers on goods and services exchanged between the member nations.

What is the Comprehensive Economic and Trade Agreement (CETA)?

• CETA is a type of FTA but more extensive in scope and depth. It is a modern trade agreement that goes beyond tariffs and goods trade, covering services, investment, government procurement, intellectual property rights, sustainable development, and regulatory cooperation.
• Why ‘Comprehensive’?

Because it addresses not only tariffs but also non-tariff barriers, facilitates services trade, allows investment protections, and promotes cooperation on regulatory and environmental standards.

• Example:
  • The India-U.K. agreement is called a Comprehensive Economic and Trade Agreement (CETA) because it includes goods, services, investment, labour mobility, and government procurement. The EU-Canada trade deal is another well-known CETA.

HISTORICAL TRADE CONTEXT: TRADE GROWTH (2015-2024)

• Bilateral trade increased from £16.4 billion (2015) to £42.6 billion (2024).
• India’s exports to the U.K. have grown steadily, especially in services (IT, pharmaceuticals).
• 2015 figures:
  • Imports from U.K.: Goods £3.9 bn, Services £3.2 bn
  • Exports to U.K.: Goods £6.0 bn, Services £3.3 bn
  • Trade surplus: £2.2 bn
• Pandemic impact (2020): Dip to £20.2 billion trade volume; rapid recovery post-pandemic with £39.4 billion in 2023.
• Services exports to U.K. jumped from £3.3 bn (2015) to £14.7 bn (2024), showing India’s competitive advantage.

WHAT DOES THE DEAL ENTAIL?

1. Trade in Goods

• K. Tariff Concessions:
  • Removed tariffs on 99% of product lines from India.
  • Duty-free access on goods worth approximately $6.5 billion, which is 45% of India’s current exports to the U.K. These include:
    • Textiles
    • Footwear
    • Carpets
    • Automobiles
    • Seafood
    • Fresh fruits (grapes, mangoes)
  • Remaining exports worth about $8 billion (petroleum, pharmaceuticals, diamonds, aircraft parts) already enjoy zero tariffs.

INDIA’S TARIFF CONCESSIONS

• Agreed to eliminate or reduce tariffs on 90% of its tariff lines covering around 92% of U.K. exports to India.
• Key sectors benefiting from tariff reduction include:
  • Alcoholic beverages (especially U.K. whiskey)
  • British cars
  • Engineering products
• Trade Volume Context (2024-25):
  • K. accounted for only 3.3% of India’s exports and 1.2% of India’s imports.
  • Hence, the U.K. is a relatively small trade partner for India.

TRADE IN SERVICES

• Services are a critical sector for India’s exports; the deal includes a strong services component.
• India opens sectors to U.K. firms:
  • Accounting, auditing, financial services, telecom, environmental services.
  • K. firms can offer services without needing a local office and will be treated equally with Indian companies.
  • Mutual recognition of professional qualifications in law and accounting, except legal services.
• K. opens sectors to Indian firms:
  • Indian companies get commercial presence rights in computer services, consultancy, and environmental services.
  • This means Indian firms can set up subsidiaries, branches, or representative offices in the U.K.

LABOUR MOBILITY & SOCIAL SECURITY

• A Double Contribution Convention (DCC) runs parallel to CETA:
  • Enables 75,000 Indian workers on short-term U.K. assignments to pay social security contributions only in India, exempting them from U.K. contributions.
  • This avoids the burden of “double social security payments” for workers on short assignments who do not benefit from U.K. social security.

UNIQUE FEATURES

a. Auto Tariffs

• For the first time, India agreed to reduce import duties on cars from the U.K.:
  • Luxury petrol cars: Tariff cut from 110% to 10% over 15 years, with quotas starting at 10,000 units increasing to 19,000 by year 5.
  • Mid-sized cars: Tariffs cut to 50%, falling to 10% by year 5, subject to quotas.
  • Small cars: Similar phased tariff reductions and quota system.
• Electric, hybrid, and hydrogen vehicles enjoy no tariff reductions for 5 years to protect India’s emerging electric vehicle industry.
• Quotas are designed to allow India’s domestic auto industry time to adjust and compete

b. Government Procurement

• K. companies will be allowed to bid for Indian central government contracts for the first time.
• Approximately 40,000 high-value contracts across sectors such as transport, green energy, and infrastructure will be opened.
• This liberalisation enhances foreign participation and transparency in India’s public procurement system.

STRATEGIC IMPORTANCE

• The U.K.-India CETA strengthens post-Brexit economic ties and diversifies India’s trade partnerships.
• Though the U.K. is a smaller trade partner, the agreement lays groundwork for India’s FTAs with larger economies like the EU and U.S.
• Balances India’s economic interests by protecting nascent industries (EVs) and providing market access in key services sectors.
• Enables enhanced mobility and social security benefits for Indian professionals working in the U.K.

NEXT STEPS

• The agreement requires ratification by the parliaments of India and the U.K.
• Ratification may take 6 months to 1 year before the deal becomes operational.
• Once in force, the deal will guide India’s future trade negotiations and bilateral economic relations with Western economies.

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