India-UK CETA

• India and the UK have signed a Comprehensive Economic and Trade Agreement (CETA) with the aim of doubling imports and exports to more than $100 billion by 2030 from $56 billion now.
• This historic agreement between India and UK, the world’s fourth and sixth largest economies respectively, represents one of the most economically significant bilateral trade deals in recent times.  

What is Comprehensive Economic and Trade Agreement (CETA)? It is a type of FTA that covers a wide range of economic cooperation, including goods, services, investment, and non-tariff barriers.

A Glimpse Into the History of India-UK Relations

• Colonial Era (1858-1947): 

• • • The relationship between India and the UK began during the colonial era, where India came under direct British rule in 1858 following the rebellion of 1857. This marked the beginning of nearly 90 years of British imperial control over India, which lasted until 1947.
    •  During this period, India was considered the “Jewel in the Crown” of the British Empire, serving as a crucial source of resources, labor, and markets for Britain. The British monarch assumed the title of Empress of India, further solidifying the colonial relationship.

• Post-Independence and Commonwealth Membership: 

• • • India gained independence from British rule in 1947, marking the end of colonial domination. Despite gaining sovereignty, India decided to remain within the Commonwealth of Nations after becoming a republic in 1950. 
    • This decision was a reflection of India’s diplomatic stance to maintain ties with former colonies while embracing a non-aligned foreign policy during the Cold War.

• Phase of Strained Relations (1947-1990s): 

• • • During the Cold War period, India and the UK experienced a strained relationship. India, following its non-aligned policy, maintained an independent foreign policy, distancing itself from both the US-led NATO alliance and the Soviet bloc.
    •  On the other hand, the UK was closely aligned with the United States, which led to differences, especially over India’s conflicts with Pakistan and its nuclear tests. This period witnessed political and ideological divergence between the two nations, hindering the development of stronger bilateral ties.

• Phase of Improvement (1990s-2000s): 

• • • The relationship between India and the UK began to improve after the end of the Cold War. In the early 1990s, India’s economic liberalization led to a shift in its foreign policy, which focused on expanding trade and investment. 
    • The UK, recognizing the potential of India’s emerging market, showed a keen interest in building stronger economic relations with India. This period marked the beginning of a more constructive phase in India-UK relations, characterized by growing trade, cultural exchanges, and diplomatic engagement.

• Phase of Strategic Partnership (2004-Present): 

• • • In 2004, the India-UK relationship was formally upgraded to a Strategic Partnership, signaling a deeper commitment to cooperation across various domains.
    •  High-level visits, regular dialogues, and collaborative efforts in areas like trade, defense, and technology have since strengthened the bilateral ties. 
    • This partnership has been continuously nurtured, with both nations working to enhance their diplomatic, economic, and cultural exchanges.

• Modern-Day Relations: 

• • Today, India and the UK share a modern partnership, bound by strong historical ties and mutual interests. Both countries are committed to strengthening their bilateral cooperation, and the focus remains on trade, investment, defense, and technological innovation. 
  • With the shared membership in the Commonwealth of Nations, people-to-people links have further bolstered the relationship, and India is now one of the UK’s key partners in Asia.
  • As both nations look toward the future, they aim to establish a comprehensive strategic partnership by 2030, further enhancing cooperation in global forums, advancing mutual trade goals, and collaborating on key issues like climate change and security.

Areas of Cooperation Between India and the UK

• Economic Cooperation:

• • The economic ties between India and the UK have flourished, particularly with the establishment of the Joint Economic and Trade Committee (JETCO) in 2005. Key milestones in their economic cooperation include:

• Bilateral Trade Growth: The India-UK CETA comes at a time of strong bilateral trade, with current merchandise trade valued at around US$ 22.69 billion.
• India as a Key Investor: India is the second-largest source of foreign direct investment (FDI) for the UK, with over 120 projects, creating more than 5,000 jobs.
• UK’s Largest Trading Partner: India is the UK’s 12th largest trading partner, accounting for 2% of the UK’s total trade. By FY25, the UK has become India’s fourth largest export destination, depicting the robust demand of Indian goods in the British market. Exports to the UK grew by 12.6% to US$ 14.5 billion, driven by telecom instruments, petroleum products, electronic machinery, and ready-made cotton garments. Pharmaceuticals such as drug formulations and biologicals also highlighted strength of India as a global player concerning generic medicines. 

• Defense and Security: 

• • India and the UK share a robust defense partnership, formalized through the Defence and International Security Partnership (DISP), signed in 2015. This agreement sets a strategic roadmap for defense collaboration between the two nations, which includes:

• Defense Equipment Supply: The UK supplies key defense equipment and technologies, including platforms like the Jaguar, Mirage, and Kiran aircraft.
• Regular Military Dialogues: The defense relationship is strengthened through high-level military dialogues, joint exercises, and sharing of intelligence on security concerns.

• Nuclear Cooperation:

• • In 2010, India and the UK signed a Civil Nuclear Cooperation Declaration, followed by a Nuclear Collaboration Agreement in 2015. These agreements focus on:

• Promoting peaceful nuclear energy use
• Addressing climate change through clean energy initiatives
• Facilitating joint research and development projects in nuclear energy and related sectors

• Geopolitical Cooperation:

• The geopolitical relationship between India and the UK has strengthened significantly over the past decade. The UK has been a key supporter of India’s bid for permanent membership in the United Nations Security Council (UNSC). As an influential member of the EU, G7, and G20, the UK serves as an important interlocutor for India in these global forums.
•  India and the UK also collaborate on disarmament and counter-terrorism efforts, exemplified by their joint initiatives such as the India-UK Disarmament and Non-Proliferation Dialogue and the India-UK Joint Working Group (JWG) on Counter-Terrorism.

• Education and Student Mobility:

• Education remains a cornerstone of India-UK collaboration:

• Educational Exchange: The UKEIRI Mobility Programme: Study in India was launched in 2019 to increase student mobility between the two countries. UK universities collaborate with Indian institutions to send students to study in India.
• Indian Students in the UK: The UK remains a top destination for Indian students, with approximately 50,000 Indian students currently enrolled in UK universities. The UK’s higher education institutions are highly valued by Indian students, fostering academic and cultural exchange.

• Climate Change and Environment:

• • Both nations are committed to addressing the climate crisis:

• Green Growth Equity Fund: The India-UK Green Growth Equity Fund has been established to mobilize investments in sectors like renewable energy, waste management, electric mobility, and environmental protection in India.
• Climate Change Cooperation: India and the UK have set ambitious climate goals and are working together to transition to cleaner energy solutions, support sustainable infrastructure, and address the impact of climate change.

• Cultural Cooperation: 

• • Cultural diplomacy plays an integral role in strengthening India-UK relations:

• Cultural Exchange Programs: In 2010, India and the UK signed a Memorandum of Understanding (MoU) on Cultural Cooperation, which has fostered deeper engagement through art, music, theater, and literature.
• Nehru Centre: The Nehru Centre in London has been instrumental in promoting Indian culture, hosting events, exhibitions, and educational programs.

• Diaspora Engagement: 

• • The Indian diaspora in the UK, estimated at 1.5 million, is a vital bridge between the two nations:

• Political Influence: The Indian-origin community has seen a significant rise in representation in the UK Parliament, including Rishi Sunak, who became the Prime Minister of the UK, highlighting the growing political and social influence of the Indian diaspora.
• Cultural Contributions: The Indian diaspora has made significant contributions to British society, enriching it with Indian culture, traditions, and values.

• Trade Agreements and Economic Integration:

• Other Trade Partnerships: India’s engagement in bilateral agreements such as the India-UAE CEPA and India-EU FTA negotiations further strengthens its position in the global economy.

• Healthcare and Medical Collaboration: 

• • The healthcare sector is another critical area of India-UK cooperation:

• COVID-19 Collaboration: The successful partnership between Oxford University, AstraZeneca, and Serum Institute of India (SII) played a pivotal role in the global rollout of the COVID-19 vaccine.
• Health Initiatives: The countries are collaborating on pandemic preparedness, Antimicrobial Resistance (AMR), digital health technologies, Ayurveda, and alternative medicines.

Key Highlights of India-UK Free Trade Agreement (FTA) 

• Market Access: 99% Duty-Free Trade
  • India’s Advantage: The agreement ensures that 99% of Indian exports to the UK will now face no tariffs, covering nearly the entire trade volume.
  • UK’s Commitments: The UK will reduce tariffs on 90% of its tariff lines, with 85% becoming duty-free within the next decade.
  • Key Beneficiaries: Sectors such as textiles, marine products, chemicals, base metals, and processed foods will see major gains. Processed food duties will be reduced from 70% to zero. Indian tea, coffee, spices, rubber, and plastic products gain unrestricted entry.
• Agriculture: Strengthening the Rural Economy
  • Tariff Relaxation: More than 95% of agricultural tariff lines will now attract zero duties.
  • Covered Commodities: Fruits, vegetables, pulses, spices, jackfruit, pickles, millets, and organic herbs are included.
  • Export Boost: The policy is projected to raise India’s agricultural exports by 20% in three years, contributing to the national agri-export target of $100 billion by 2030.
  • Sensitive Product Protection: Items like dairy, oats, apples, and edible oils are kept out of the concessional regime.
• Marine Products: Unlocking a $5.4 Billion Potential
  • Duty Removal: Shrimp, tuna, fishmeal, and other marine products will now enter the UK tariff-free.
  • Current Position: India currently accounts for only 2.25% of the UK’s marine product imports.
  • Future Scope: The agreement promises significant growth for India’s coastal and seafood economy.
• Textiles & Apparel: Improved Global Standing
  • Product Coverage: All 1,143 textile and apparel categories are included under the duty-free list.
  • Market Expansion: India stands to increase its UK market share by at least 5%.
  • Core Exports: Ready-made garments, handicrafts, carpets, and home textiles are among the major products set to benefit.
  • Competitive Edge: This levels the playing field for India against Bangladesh and Cambodia, which previously enjoyed preferential access.
• Engineering Goods: Doubling Exports
  • Current Trade Status: India exports $4.28 billion worth of engineering goods to the UK, which imports $193.5 billion globally.
  • Tariff Revisions: Up to 18% duties have been eliminated.
  • Growth Projection: Engineering exports are expected to double and reach $7.5 billion by 2030.
• Pharmaceuticals & Medical Devices
  • Zero Duties: Generic medicines and medical equipment from India will enter the UK duty-free.
  • Market Dynamics: The UK imports around $30 billion in pharmaceuticals annually, while India’s share is just $1 billion.
  • Included Products: ECG machines, X-ray systems, surgical tools, and related equipment.
• Chemicals & Plastics
  • Chemicals: Export growth of 30–40% is expected, with values touching $650–750 million in FY26.
  • Plastics: Categories like plastic films, sheets, and kitchenware will see a 15% export increase.
  • Global Competitiveness: Indian products will now enjoy better pricing compared to global rivals.
• Toys, Sports Goods, Gems & Jewellery
  • Toys and Sports: India is likely to gain an edge over China and Vietnam in these sectors.
  • Jewellery: Exports may double within 2–3 years, targeting the UK’s $3 billion market.
• Leather & Footwear
  • Tariff Abolition: The agreement removes 16% duties on Indian leather and footwear exports.
  • Growth Target: Export volumes are projected to cross $900 million.
  • Benefiting Clusters: MSME hubs like Agra, Kanpur, Kolhapur, and Chennai will benefit the most.
• Services & Labour Mobility
  • Social Security Relief: Up to 75,000 Indian workers will be exempted from contributing to UK social security systems for up to three years.
  • Expanded Services Access: The UK has opened 36 service sectors for India without the Economic Needs Test.
  • Professional Opportunities: Indian professionals can work in 35 UK sectors for up to two years.
  • Cultural Exchange: Annually, 1,800 Indian chefs, yoga instructors, and artists will be welcomed under the agreement.

What shall be the Impact of the India-UK Trade Agreement? 

India, the fastest-growing major economy in the world, with an average growth rate of 5.6% per year between 2019 and 2030, will benefit significantly. The CETA will create large-scale employment possibilities, particularly in the labour-intensive sectors, and it will also contribute to India’s vision of Viksit Bharat 2047.  The growing middle-class population of India, which was 30 million people in 2019 and is projected to double to 60 million by 2030, opens immense prospects for amplified trading.  

• Expanded Opportunities for Indian Export Sectors:
  • India’s prominent export industries such as agriculture, processed foods, textiles, leather and footwear, marine products, gems and jewellery, and engineering goods will gain improved access to the UK market.
  • This access is facilitated through significant reductions in tariffs, making Indian products more competitive.
• Enhanced Market Access for British Goods:
  • British exporters are also set to benefit from the agreement.
  • Tariff reductions will ease the entry of products like whisky, automobiles, and various UK-manufactured goods into the Indian market.
  • This will help the UK diversify its trade portfolio and strengthen its economic ties with India.
• Surge in Bilateral Trade Volume:
  • The agreement is projected to increase UK exports to India by nearly 60% by the year 2040.
  • This growth is expected to contribute an additional £15.7 billion to UK export earnings.
  • Overall, the bilateral trade volume is anticipated to grow by 39%, amounting to an additional £25.5 billion annually compared to trade levels without the FTA.
• Provisions for Services and Professional Mobility:
  • India’s services sector, which accounts for 54% of its economy, will experience significant growth through ambitious UK commitments in IT/Information Technology-enabled Services (ITeS), financial services, professional services, and educational services. 
  • UK services sectors, which export over US$ 678.28 billion worldwide, will benefit from market certainty when trading in India’s growing economy. 
  • The agreement sets a quota of 1,800 visas a year to Indian chefs de cuisine, yoga teachers, and classical musicians. 
• Social Security Relief through Double Contribution Convention:
  • A particularly significant achievement is the exemption for Indian workers temporarily in the UK from social security contributions for three years under the Double Contribution Convention. This provision will enhance the competitiveness of Indian service providers in the UK market and create new job opportunities. 
• Strategic Diversification Post-RCEP Exit:
  • India’s 2019 withdrawal from the Regional Comprehensive Economic Partnership (RCEP), primarily due to concerns over a potential surge in Chinese imports, marked a strategic realignment.
  • Since then, India has shifted its focus towards establishing deeper trade relationships with high-income nations.
  • The India-UK FTA reflects this strategy, reinforcing ties with developed markets such as the UK and the European Union.

Challenges in India-UK Relations

• UK’s Relations with Pakistan and China:

• • • The UK’s ties with Pakistan and China sometimes complicate the relationship with India, especially in defense and security matters. The UK’s close relationship with Pakistan, along with its supply of arms to both India and Pakistan at different times, creates tensions.
    •  Additionally, the UK’s engagement with China, particularly its participation in China’s Belt and Road Initiative (BRI), contrasts with India’s concerns over China’s growing influence in the Indo-Pacific region. These diplomatic and strategic differences complicate the process of building closer defense and security cooperation between India and the UK.

• The Khalistan Issue:

• • • The UK’s perceived harboring of pro-Khalistan elements and its stance on Sikh separatism remains another significant hurdle in the relationship. India has consistently raised concerns over the activities of Khalistani groups operating from the UK. 
    • These issues continue to strain diplomatic relations, particularly when UK-based groups advocate for the creation of a separate Sikh state, which India considers an internal matter.

• Differing Stances on the Russia-Ukraine Conflict:

• • • One of the significant challenges facing India-UK relations today is the differing positions of the two countries on the Russia-Ukraine conflict. The UK has strongly condemned Russia’s invasion of Ukraine, aligning itself with Western powers in opposing Russia. 
    • In contrast, India has maintained a more neutral stance, opting for diplomacy and dialogue while continuing its strategic partnership with Russia. This divergence could pose a potential roadblock in the future, particularly as global power dynamics evolve.

• Slow Progress in Defense Ties:

• • • India’s defense procurement strategy has increasingly shifted towards Government-to-Government (G2G) agreements and Foreign Military Sales (FMS).
    •  However, the UK has been slow to adapt to these changes in India’s preferred method of acquisition. This sluggishness in adapting to India’s defense requirements has limited the expansion of deeper defense cooperation between the two countries.

• Extradition Challenges:

• • • Despite having an extradition treaty in place, India has faced significant hurdles in securing the return of high-profile fugitives, such as Nirav Modi and Vijay Mallya, from the UK. 
    • The lengthy legal processes and political complexities have delayed justice for these individuals’ alleged financial crimes, reflecting the inefficiencies in the extradition process.

• Issues with Illegal Migration:

• • • The presence of illegal Indian immigrants in the UK—estimated to be over 100,000—remains a contentious issue. While both nations have expressed the desire to address the matter, the absence of a formal “migration and mobility” agreement has impeded progress. 
    • The UK has pushed for the repatriation of these migrants, but no clear framework has yet been established.

• Anti-Colonial Sentiments and Historical Grievances:

• • The legacy of British colonial rule continues to affect relations between the two countries. Issues stemming from the Partition of India and unresolved matters related to Kashmir persist as points of historical contention. 
  • These issues sometimes resurface, impacting the diplomatic dynamics between India and the UK.

Way Forward

• Streamlining the Extradition Process: The UK should fulfill its commitment to expedite the extradition of Indian fugitives. The case of Nirav Modi, which has lingered for years, is a perfect example of why the extradition process needs to be made more efficient. Both countries must collaborate to ensure that fugitives are brought to justice promptly.

• Strengthening Defense and Security Cooperation: The UK and India must enhance defense and security cooperation, particularly in the Indo-Pacific region. With shared interests in countering regional instability and addressing security challenges, there is significant potential for a robust partnership. The two countries should promote standards of transparency and sustainability in infrastructure projects in the region.

• Balancing Relationships with Other Nations: The UK must ensure that its strong relationships with China and Pakistan do not undermine its growing partnership with India. By balancing these relationships more carefully, the UK can help foster a deeper and more sustainable collaboration with India.

• Reviving Multilateralism and Global Institutions: India and the UK should work to resolve their differences in multilateral forums such as the WTO and UNFCCC. The UK can play a key role in supporting the interests of developing nations, aligning with India’s stance on issues like climate change, trade, and global equity.

• Agreement on Migration and Mobility: A formal agreement on migration and mobility should be explored to facilitate the legal movement of individuals between India and the UK. Such an agreement could help regulate and streamline the migration process, benefiting both countries economically and socially.