18 Jul A trade deal that tests India’s competitive confidence

Why in the News?

The India–United Kingdom Comprehensive Economic and Trade Agreement (CETA) came into force in July 2026, marking one of India’s most significant free trade agreements. The pact is expected to boost exports, improve market access, reduce trade barriers, and enhance the competitiveness of Indian industries, while also raising important debates on trade liberalisation and domestic industrial preparedness.

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Background

India and the United Kingdom concluded negotiations on the Comprehensive Economic and Trade Agreement (CETA) after several rounds of discussions. The agreement aims to deepen bilateral economic ties by reducing tariffs, facilitating investment, promoting services trade, and improving mobility for professionals.

Unlike conventional trade agreements that are viewed merely as export promotion tools, the editorial argues that FTAs also compel domestic industries to become globally competitive by exposing them to international competition.

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Key Highlights of the India–UK CETA

1. Duty-Free Access for Indian Exports

Nearly 99% of India’s exports (by value) will now enjoy duty-free access to the UK market.

Major beneficiary sectors include:

• Textiles and garments
• Leather and footwear
• Marine products
• Processed food
• Engineering goods
• Auto components

The removal of tariffs is expected to significantly improve India’s export competitiveness, particularly against countries like Bangladesh, Pakistan, and Cambodia, which already enjoyed preferential access to the UK market.

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2. Boost to Employment

The agreement is expected to generate employment by strengthening labour-intensive manufacturing sectors.

These sectors:

• Employ a large number of semi-skilled workers.
• Promote formal employment.
• Enhance India’s manufacturing exports under the “Make in India” initiative.

The editorial notes that even small tariff reductions can determine whether Indian firms win or lose export orders in global markets.

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3. Opportunities for the Pharmaceutical Sector

India is the world’s third-largest supplier of generic medicines.

The agreement:

• Reduces tariffs on Indian pharmaceutical exports.
• Makes Indian medicines more price competitive.
• Strengthens India’s role as a reliable supplier of affordable healthcare products.

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4. Relief for Indian Professionals

A major achievement of the agreement is the implementation of the Double Contribution Convention (DCC).

Under the DCC:

• Indian professionals temporarily working in the UK will be exempt from paying social security contributions for up to three years.
• Employers also benefit from the exemption.
• Over 75,000 Indian workers and nearly 900 companies are expected to benefit.
• Estimated annual savings are around US$600 million.

The provision removes a long-standing grievance of Indian professionals posted abroad.

Market Access for UK Goods

India has agreed to gradually reduce tariffs on selected British products.

Major commitments include:

British Cars

• Customs duty reduced from around 110% to nearly 10% over a phased period.
• Tariff reductions are subject to quotas and safeguards.

Scotch Whisky

• Import duty reduced from 150% to around 40% over ten years.

The gradual implementation is intended to provide adequate time for Indian industries to improve competitiveness.

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Significance for India’s Economy

The agreement is expected to:

• Increase merchandise exports.
• Improve India’s participation in global value chains.
• Enhance manufacturing competitiveness.
• Encourage technology transfer and investment.
• Diversify export destinations.
• Strengthen India–UK economic partnership.

The editorial argues that the greatest long-term benefit of free trade agreements lies not merely in exports but in forcing domestic industries to innovate, improve quality, and compete internationally.

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Challenges and Concerns

Despite the opportunities, several concerns remain:

Pressure on Domestic Industry

Lower import duties may increase competition for Indian automobile manufacturers and alcoholic beverage producers.

Need for Greater Competitiveness

Indian industries must improve:

• Productivity
• Quality standards
• Innovation
• Cost efficiency

Implementation Challenges

Real gains depend on:

• Simplified customs procedures.
• Awareness among exporters.
• Better utilisation of FTA provisions.
• Capacity building for MSMEs.

Way Forward

To maximise benefits from the India–UK CETA, India should:

• Improve ease of doing business.
• Strengthen manufacturing competitiveness.
• Support MSMEs in utilising FTA benefits.
• Upgrade logistics and export infrastructure.
• Promote awareness regarding rules of origin and customs procedures.
• Encourage innovation and skill development.
• Expand similar high-quality trade agreements with other major economies.

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Significance for UPSC

Prelims

• India–UK Comprehensive Economic and Trade Agreement (CETA)
• Free Trade Agreements (FTAs)
• Double Contribution Convention (DCC)
• Rules of Origin
• Tariff vs Non-Tariff Barriers

Mains (GS Paper III)

• Role of FTAs in promoting economic growth and exports.
• Impact of trade liberalisation on domestic manufacturing.
• Balancing protectionism with global competitiveness.
• India’s strategy for integrating into global value chains.