Flags of India and the UK.
Credit: iStock Photo
The free trade agreement between India and the United Kingdom signed in the presence of Prime Minister Narendra Modi and his counterpart Keir Starmer in London has wide-ranging implications. Known as the Comprehensive Economic and Trade Agreement (CETA), this comes four years after the relationship was raised to a comprehensive strategic partnership, in 2021. The deal was negotiated over three years; and could take a year for implementation as it has to be voted on by Britain’s parliament. The agreement aims to double bilateral trade from the present $56 billion in five years. Although CETA was the focus of Modi’s mission to the UK, no less important is the India-UK Vision 2035 document – a map for stepped-up cooperation in defence, technology, education, green energy, innovation, and digital governance.
Under CETA, tariffs have been cut on both sides. While the UK has agreed to eliminate tariffs on 99% of imports from India, tariffs on 90% of British goods will be slashed at the Indian end. Tariffs on nearly two-thirds of the UK goods such as aircraft parts, electronics, machinery, lamb, and salmon will be scrapped immediately; and on 26% of imports, including auto parts, chocolates, soft drinks, and cosmetics, tariffs will be phased out over 10 years. Duty on scotch whisky will be halved from 150% to 75% immediately and another 40% in 10 years. The double contribution convention – exempting Indian workers and their employers from social security contributions in the UK for up to three years – can raise take-home pay and reduce costs for Indian companies. This could mean more Indian investment, talent, and workers heading to the UK.
India could gain in a big way from the deal with a wide range of products from agricultural, marine and leather to pharmaceutical, textile and engineering goods gaining duty-free access to Britain. CETA also holds out hope of easier movement of professionals and service providers from India to the UK. This being the first such agreement with a major developed country, it could be read as a sign of India’s commitment to free trade and lowering tariffs. It can hasten the long-pending FTA with the European Union and set the tone for a trade agreement with the US. In fact, it could strengthen India’s chances of clinching a more favourable trade deal with the US, which has unleashed fierce tariff wars worldwide. The 2035 vision document suggests that India may seek to go beyond trade and chart a roadmap for deeper long-term strategic partnerships with the EU as well. For all the optimism over the deal, its success would depend on timely execution of commitments.