INDIA UK FTA SIGNED from Vajirao & Reddy Institute

INDIA UK FTA SIGNED

Why in News?

• Recently in July 2025, India and the U.K. signed a landmark Comprehensive Economic and Trade Agreement (CETA) after over 3 years of negotiations (started Jan 2022).
• The signing took place during PM Narendra Modi’s visit to the U.K. in July 2025, marking a major diplomatic and economic milestone.

• This is India’s first major trade agreement with the U.K. after Brexit, setting a precedent for future deals with other economies like the EU and the U.S.
• The FTA symbolizes economic trust and partnership amid global trade tensions and tariff wars, especially those initiated by the U.S. under former President Donald Trump.
• It also reflects India’s strategic autonomy, evidenced by its independent policy decisions like increasing oil imports from Russia during Western sanctions in 2022.
• Bilateral Trade: USD 56 billion
• Trade Target: Double by 2030

TRADE BREAKDOWN

Sector	Trade Value (USD)
Merchandise Trade	23 billion
Services Trade	33 billion

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.
• U.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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