Context:

• On a landmark afternoon at Chequers, Prime Ministers Keir Starmer and Narendra Modi signed the long-awaited Comprehensive Economic and Trade Agreement (CETA) — the largest UK trade deal since Brexit and India’s first with a G7 economy in over a decade.
• Initiated in 2022, the pact signals a geopolitical and commercial realignment amidst global supply chain diversification and rising protectionism.

Background and Strategic Context:

• Timeline and political backdrop:
  • Negotiations started in 2007, stalled for years due to EU demands, and resumed after India’s Regional Comprehensive Economic Partnership (RCEP) withdrawal in 2019.
  • The agreement materialised under UK PM Keir Starmer’s Labour government, post-Brexit, after missed deadlines under Boris Johnson and political volatility in the UK.
• Historic importance:
  • Post-Brexit milestone for UK: Largest deal since UK’s exit from the EU, showcasing Labour government’s proactive trade agenda.
  • Western market entry for India: First big Western trade agreement for India since the 2024 European Free Trade Association (EFTA) deal, expanding access in food processing, textiles, and automotive components.
• Aligns with the wider India–UK Roadmap 2030: CETA complements cooperation on climate change, critical minerals, maritime security, and a rules-based order to counter China-dependent supply chains.

Economic Impacts and Sectoral Gains:

• Tariff reductions:
  • India’s tariff cuts:
    • Average Indian duties on British goods drop from around 15% to just 3% on 90% of tariff lines.
    • For example, from 150% to 75% immediately on Scotch whisky and 40% over ten years.
    • From over 100% to 10% (within a quota of 25,000 units) on high-end cars arriving from the UK, and British salmon, chocolates, and cheese will enter on near-zero tariffs.
  • In return, the UK eliminates duties on almost every Indian export, from labour-intensive textiles and leather to gems, generic pharmaceuticals and marine produce.
    • With tariffs coming down from 9% to zero, India – the 4th-largest textile supplier to the UK – could expand its market share of little over 6% at the expense of the three countries – China (25% share), Bangladesh (20%), and Turkey (8%).
• Bilateral trade growth: Even though India-UK trade currently makes up a very small portion of each nation's overall external sector—roughly 2.4% of all trade in the UK and 1.8% of all trade in goods and services in India as of 2024—the two countries' relationship has shown steady growth.
  • Projections:
    • The UK Treasury anticipates an annual GDP increase of approximately £4.8 billion by 2040, alongside investment and export gains valued at £6 billion.
    • Concurrently, India’s Ministry of Commerce projects a potential expansion of up to US$34 billion in bilateral trade over five years.
• Key beneficiaries:
  • UK: Scottish distilleries, Midlands carmakers.
  • India: Tirupur textile exporters, processed food, marine producers.

A Model for Future Deals (EU and US):

• Negotiation template: UK deal likely to influence India’s stance in -
  • EU trade talks — still under negotiation.
  • US interim deal — currently under rushed talks with a deadline of August 1, 2025 to avoid retaliatory tariffs up to 26%.
• Agriculture as a red line: India excluded sensitive items like dairy, apples, whey, and seeds — similar pushback expected in US talks, especially against GM crop access (soy, corn).

Challenges and Unresolved Issues:

• Mobility and Mode 4 access: India’s demand for liberalised IT professional movement is not met due to UK’s domestic immigration constraints.
• Regulatory disappointments:
  • UK financial/legal sectors: No preferential access like the UK-Australia deal.
  • Indian agri-exporters: Still face sanitary and phytosanitary (SPS) hurdles.
• Investment treaty pending: Investor–state dispute settlement (ISDS) framework still under negotiation.
• Ratification hurdles: Requires UK Parliament and Indian Cabinet approval — possible delays due to domestic lobby pressures.
• Carbon Border Adjustment Mechanism (CBAM): India failed to secure exemption; risks for carbon-intensive Indian exports (e.g., steel, cement).
• Intellectual property rights (IPR) - A concession too far?
  • Voluntary licensing preference: India allowed voluntary licences over compulsory licensing, a shift from its earlier pro-public health stance.
  • Patent working clause removed: Patent holders no longer need to disclose whether a patent is being actively used (“working”) for three years — potentially curtailing India’s ability to invoke public interest-based provisions.

The Road Ahead:

• Subnational and sectoral optimisation: State governments (e.g., Gujarat, Maharashtra) may create targeted incentives to access UK procurement.
• Trade deficit politics: India's trade deficit with the UK may trigger political backlash if luxury imports surge.
• Digital trade prospects: Potential collaboration between UK fintech and India Stack if India revisits data localisation norms.

Conclusion:

• The India–UK CETA, though modest in macroeconomic terms, marks a pivotal shift in bilateral strategic alignment.
• Its real success hinges on regulatory execution, ratification timelines, and the ability of both nations to sidestep rising domestic protectionist currents.