Diplomatic shift conducive to new dynamics
The India-UK Comprehensive Economic and Trade Agreement (CETA), signed on May 6, 2022, marks a significant milestone in enhancing bilateral trade and economic cooperation between the two nations. This historic deal, expected to take effect after ratification by the British parliament, is set to bring about substantial changes in various sectors.
Key Aspects of the India-UK CETA
The agreement aims to eliminate tariffs on 99% of Indian tariff lines and reduce tariffs on about 90% of UK tariff lines. This move provides duty-free access for 99% of India’s exports to the UK across almost the entire trade basket, including labour-intensive sectors and agricultural products.
India is expected to reap major benefits in sectors such as textiles, leather, toys, gems & jewelry, engineering goods, chemicals, marine products, sports goods, and auto parts. The UK, on the other hand, stands to gain enhanced market access for whisky, salmon, chocolate, and advanced manufacturing sectors.
The deal also offers duty-free access for Indian fruits, vegetables, cereals, spices, ready-to-eat foods, mango pulp, pickles, pulses, tea, coffee, and spices. Traditional Indian farming knowledge receives patent protection under the agreement.
Easier visa norms for Indian professionals in IT, finance, engineering, architecture, education, and yoga sectors, facilitating professional mobility, are another key aspect of the CETA. The Double Contribution Convention Agreement (DCCA) in the deal exempts Indian workers and their employers from UK social security contributions for up to three years.
Indian Micro, Small, and Medium Enterprises (MSMEs) gain access to participate in UK government procurement, opening new business opportunities. The agreement also aims to reduce non-tariff barriers and simplify customs procedures to promote smoother trade flows.
Potential Impacts
The CETA is projected to double bilateral trade from the current approximately USD 60 billion to USD 120 billion by 2030, reflecting significant expansion in goods and services trade. Indian exporters, especially in textiles and labour-intensive sectors, gain a level playing field with competitors such as Bangladesh and Pakistan who previously had duty-free access to the UK.
The agreement is expected to boost competitiveness of Indian products like instant coffee against European suppliers. States like Maharashtra, Gujarat, Tamil Nadu, and West Bengal are expected to benefit substantially due to their industrial and export capacities in sectors such as engineering goods, pharmaceuticals, and apparel.
The CETA reinforces India-UK strategic ties as two large democracies and innovation hubs, setting a benchmark for fair and modern trade agreements worldwide. The exemptions from double social security contributions and eased visa norms can lead to enhanced Indian professional presence and service exports in the UK.
Under the DCCA, temporary Indian workers are allowed to pay their social security contribution in India for the first year and exempted from any social security payment for the next two years. The CETA covers a variety of issues including goods and services trade, digital trade, investments, intellectual property rights, government-to-government dispute settlement mechanism, and non-trade issues such as anti-corruption, labour rights, and environment standards.
The CETA is expected to increase investor confidence by way of regulatory stability leading to increased foreign direct investment in critical sectors such as advanced manufacturing, infrastructure, and renewable energy. The deal would significantly increase the availability and reduce prices of imported Scotch whisky and gin in India as import tariffs would be reduced from 150% to 75% immediately and then to 40% in a phased manner over 10 years.
In conclusion, the India-UK CETA is a transformative agreement expected to deepen economic ties, foster export diversification and competitiveness, and enhance cooperation in services and technology, benefiting both countries significantly over the coming years.
- The India-UK CETA aims to eliminate tariffs on 99% of Indian tariff lines and reduce tariffs on 90% of UK tariff lines, providing duty-free access for 99% of India’s exports to the UK.
- The agreement offers duty-free access for Indian fruits, vegetables, cereals, spices, ready-to-eat foods, mango pulp, pickles, pulses, tea, coffee, and spices.
- Indian Micro, Small, and Medium Enterprises (MSMEs) gain access to participate in UK government procurement, opening new business opportunities.
- The CETA is projected to double bilateral trade, reflecting significant expansion in goods and services trade, and boost the competitiveness of Indian products against European suppliers.
- Under the DCCA, temporary Indian workers are allowed to pay their social security contribution in India for the first year and exempted from any social security payment for the next two years.
- The India-UK CETA is expected to increase investor confidence by way of regulatory stability, leading to increased foreign direct investment in critical sectors such as advanced manufacturing, infrastructure, and renewable energy.
