Beyond tariff reductions, the India–UK CETA deepens investment linkages, strengthens value chains, and lays the groundwork for long-term economic architecture.
Image Source: @narendramodi
The recently concluded India–United Kingdom (UK) Comprehensive Economic and Trade Agreement (CETA) represents a landmark development in the trade trajectories of both countries, offering a platform to recalibrate the economic dimension of the India–UK Roadmap 2030. The agreement reflects a convergence of strategic imperatives: the UK's quest for post-Brexit market diversification, India's export-oriented push through its ‘Make in India, for the World’ agenda, and a shared geopolitical interest in constructing a rules-based, democratic trade corridor as global supply chains shift away from China. Steep tariff reductions form the core of CETA, with sweeping cuts across goods ranging from premium automobiles to processed food products. One of the most eye‑catching cuts is the phased drop in prohibitive duties on Scotch whisky—signalling both symbolic and commercial intent.
Table 1: Key Trade Concessions under the India–UK CETA
| Area | Headline change under CETA |
| UK goods entering India | Tariffs on ≈ 90 % of tariff lines decrease from an average 15 % to about 3 %. |
| Indian goods entering the UK | 99 % of Indian exports—including textiles, gems and generics—now face zero duty. |
| Scotch whisky & other UK spirits | Duty in India falls from 150% to 75% immediately and to 40% after 10 years. |
| Fully built UK cars | Indian tariffs drop from up to 110% to 10% within five years under a 25,000-unit quota. |
| Temporary postings | Workers on short assignments will no longer be required to pay social security contributions in both countries, thereby eliminating double charges. |
Source: Reuters
While India and the UK still account for only a small share of each other's overall trade—India represents just 2.4 percent of the UK’s total trade, and the UK's share of India's trade has declined from 2.4 percent in 2009 to about 1.8 percent in 2024—the total bilateral economic relationship has grown steadily over the years. In the year ending December 2024, total two-way trade reached £42.6 billion (approximately US$55 billion), representing an 8.3 percent increase over the previous year. Services continue to dominate the exchange, accounting for nearly 59 percent of UK exports to India and 58 percent of imports from India. Concurrently, goods trade is concentrated in sectors such as engineering, textiles, pharmaceuticals, and refined petroleum. Investment flows, although asymmetrical, remain robust: the UK's Foreign Direct Investment (FDI) stock in India stood at £17.4 billion in 2023, and Indian FDI in the UK totalled £13.1 billion, reflecting deepening commercial integration and a growing network of cross-border enterprises.
Figure 1: FDI Stock between the UK and India
Source: UK Department for Business and Trade, 2025
Although the India–UK trade agreement may appear modest in terms of aggregate impact, the underlying economic gains—particularly in terms of sectoral shifts, productivity enhancements, and supply chain resilience—are substantial. The UK Treasury estimates that the agreement will raise Britain's annual Gross Domestic Product (GDP) by approximately £4.8 billion by 2040, alongside real wage growth of £2.2 billion and over £1 billion in new fiscal revenues. This equates to a 0.13 percent increase in national output—seemingly marginal at the macro level but materially significant when viewed through the lens of individual sectors and regional economies. The Indian government's projections suggest a corresponding increase of US$34 billion in bilateral trade over a five-year horizon, with industries such as electronics, chemicals, and software services expected to experience accelerated export growth.
The recently concluded India–UK Comprehensive Economic and Trade Agreement (CETA) represents a landmark development in both countries' trade trajectories, offering a platform to recalibrate the economic dimension of the India–UK Roadmap 2030.
For the UK, the agreement arrives at a time when domestic manufacturing is facing the dual pressures of post-Brexit adjustment and recalibrating its supply chain. Indian intermediate goods—particularly in pharmaceuticals, automotive components, and IT services—are expected to reduce production costs in British industry by up to 2 percent in specific subsectors. This cost efficiency, combined with preferential access to India's growing procurement and infrastructure markets, could incentivise British firms in clean technology, engineering, and aerospace to make deeper long-term investments. The agreement also ensures strategic market access for high-value British exports—such as premium spirits and high-end automobiles—into one of the world's fastest-growing consumer markets. These opportunities are expected to have a stabilising effect on Britain's manufacturing-heavy regions such as the West Midlands and North East, which have faced steady deindustrialisation pressures.
On the Indian side, the agreement aligns with the broader national objective of embedding domestic firms into global value chains. The tariff reductions and regulatory certainty offered under CETA are likely to benefit export-intensive hubs—such as the knitwear cluster in Tiruppur, leather exporters in Kanpur and Chennai, and speciality chemicals firms in Gujarat—by providing them with more predictable and competitive access to the UK market. Moreover, the agreement aligns with India's production-linked incentive (PLI) schemes, providing a stable demand corridor for sunrise sectors, including electronics, solar modules, and electric vehicle components. The inclusion of carve-outs that preserve India's localisation policies and procurement flexibility ensures that the deal does not constrain New Delhi's developmental ambitions.
Although the India–UK trade agreement may appear modest in terms of aggregate impact, the underlying economic gains—particularly in terms of sectoral shifts, productivity enhancements, and supply chain resilience—are substantial.
Capital flows and investment frameworks also stand to benefit. The agreement's reaffirmation of the 49 percent FDI cap in India's insurance sector, along with mutual recognition of supervisory standards, is expected to unlock greater participation by UK-based institutional investors in India's long-term infrastructure debt market. British pension funds and green finance institutions are likely to deepen their exposure to Indian municipal bonds and climate-resilient infrastructure projects. In parallel, Indian multinational corporations—such as Infosys, Tata, and Mahindra—are expected to strengthen their presence in the UK's innovation and research and development zones, supported by legal certainty and a more stable investment climate. Although the absence of a concluded bilateral investment treaty is a significant drawback, it does not overshadow the broader structural benefits the agreement sets in motion.
Despite its strategic promise, the agreement leaves some critical gaps that could temper its overall impact. India's push for a more generous ‘Mode 4’ mobility framework—aimed at securing more effortless movement for its IT professionals—fell short due to political sensitivities surrounding immigration in the UK. On the other side, British financial and legal sectors expressed dissatisfaction over not receiving the same level of market access granted under the UK-Australia deal. Additionally, India's failure to secure relief from the UK's upcoming Carbon Border Adjustment Mechanism also poses future risks for its carbon-intensive exports. At the same time, Indian agricultural exporters continue to face stringent sanitary and phytosanitary barriers. Looking ahead, several dynamics warrant close attention: whether Indian states craft proactive incentives to tap into the UK's procurement markets; how the bilateral trade deficit influences domestic political narratives; and whether digital trade cooperation can progress, contingent upon reforms to India's data localisation regime.
The agreement has the potential to serve not only as a commercial win, but as a long-term economic architecture that supports inclusive, innovation-led growth on both sides.
Ultimately, the economic impact of the India–UK Free Trade Agreement (FTA) will not be captured solely through headline trade balances or GDP projections. Its real significance lies in its ability to shift the underlying geometry of trade and investment, foster firm-level competitiveness, and catalyse new partnerships in areas such as green technology, pharmaceuticals, and digital innovation. If implemented effectively, the agreement has the potential to serve not only as a commercial win, but as a long-term economic architecture that supports inclusive, innovation-led growth on both sides.
Soumya Bhowmick is a Fellow and Lead, World Economies and Sustainability at the Centre for New Economic Diplomacy (CNED) at the Observer Research Foundation.
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Dr. Soumya Bhowmick is a Fellow at the Centre for New Economic Diplomacy (CNED) at the Observer Research Foundation (ORF). He completed industry- endorsed Ph.D. ...
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