By R. Suryamurthy
The entry into force of the India-UK Comprehensive Economic and Trade Agreement (CETA) on July 15 has understandably been celebrated as a diplomatic triumph and an economic milestone. Yet the temptation to portray the agreement merely as another free trade pact promising higher exports and lower tariffs risks obscuring its far greater significance. CETA is less about dismantling customs duties than about exposing the structural strengths—and weaknesses—of two economies attempting to redefine their place in an increasingly fragmented global trading order.
For India, the agreement represents a decisive departure from nearly a decade of cautious trade policy that had often privileged protection over integration. After walking away from the Regional Comprehensive Economic Partnership (RCEP) in 2019 amid fears of import surges, New Delhi has returned to the negotiating table with a markedly different philosophy: selectively embrace globalisation where domestic industry is confident enough to compete, while insulating politically sensitive sectors that remain vulnerable to international competition.
That calibrated approach is visible throughout CETA. Nearly 99 per cent of Indian exports enter Britain duty-free almost immediately, while India’s tariff reductions on British products unfold gradually over a decade. Agriculture, dairy, edible oils and several politically sensitive commodities remain protected. The agreement therefore represents neither wholesale liberalisation nor protectionism; rather, it reflects a new doctrine of strategic openness in which market access is carefully exchanged for competitiveness gains.
Whether this balancing act succeeds, however, will depend far less on what governments negotiated than on what businesses accomplish after the ink has dried.
The most immediate beneficiaries are undoubtedly India’s labour-intensive manufacturing sectors. Textiles, garments, leather, footwear, engineering goods, marine products and processed foods finally gain tariff parity with competitors that have long enjoyed preferential access to the British market. For decades, Indian exporters have argued that tariffs—not productivity—placed them at a disadvantage against suppliers from Bangladesh, Vietnam and Turkey. That argument will now be tested.
If exports fail to accelerate despite zero-duty access, the uncomfortable conclusion will be unavoidable: tariffs were only part of India’s competitiveness problem. This distinction matters because modern trade agreements have evolved beyond border taxes. The real contest increasingly revolves around logistics efficiency, quality certification, digital supply chains, environmental compliance, design capability and speed to market. Tariff preferences can open the door, but they cannot compel international buyers to walk through it. Indeed, CETA may prove less a story of tariff elimination than of institutional preparedness.
The Central Board of Indirect Taxes and Customs’ decision to replace traditional certificates of origin with a self-certification framework exemplifies this shift. On paper, digitising origin verification appears an administrative reform. In practice, it signals the emergence of a more sophisticated trade architecture in which customs compliance, traceability and digital authentication become integral components of competitiveness.
The agreement therefore demands a different kind of exporter—one capable not merely of producing competitively priced goods but of navigating complex rules of origin, maintaining digital documentation, satisfying increasingly stringent product standards and integrating into sophisticated global supply chains. That challenge is especially acute for India’s MSMEs.
Industry bodies have understandably hailed CETA as transformative, and there is substance behind the optimism. Labour-intensive sectors should experience measurable gains, engineering exporters have an opportunity to move deeper into British manufacturing ecosystems, while food processors and seafood exporters gain access to premium consumer markets previously constrained by high tariffs. Yet optimism should not become complacency.
Small manufacturers continue to face chronic disadvantages in logistics costs, fragmented supply chains, access to technology, export finance and quality certification. Britain’s consumers are unlikely to purchase Indian products simply because tariffs have disappeared. They will continue to demand consistency, sustainability, traceability and internationally recognised quality standards. Export competitiveness, in other words, begins where tariff preferences end.
Perhaps the most strategically significant aspect of CETA lies not in merchandise trade but in services. Britain’s opening of 137 services sub-sectors, combined with the Double Contribution Convention exempting Indian professionals from dual social security contributions for up to five years, represents a structural gain for India’s knowledge economy. Unlike manufacturing, where India’s comparative advantage remains contested, services have become India’s most durable source of international competitiveness.
Information technology, consulting, financial services, engineering and healthcare already account for much of India’s global commercial presence. By reducing regulatory friction rather than simply customs duties, CETA acknowledges a fundamental reality of twenty-first century trade: intellectual capital increasingly matters more than physical merchandise. Yet here too the agreement raises larger questions.
As artificial intelligence reshapes professional services and automation alters global outsourcing patterns, India cannot indefinitely rely on labour-cost arbitrage. The next generation of services exports will depend upon innovation, specialised expertise and technological leadership rather than merely abundant skilled labour. For Britain, meanwhile, CETA reflects equally profound strategic calculations.
Post-Brexit Britain has spent years attempting to demonstrate that independent trade policy can compensate for diminished access to European markets. The agreement with India, one of the world’s fastest-growing major economies, therefore carries significance extending well beyond commerce. It offers British manufacturers privileged access to a market expected to become the world’s third-largest economy within this decade while reinforcing London’s ambition to remain a global commercial hub. The beneficiaries are already evident.
Scotch whisky producers secure tariff reductions that transform one of their largest emerging markets. Premium automobile manufacturers obtain carefully calibrated access to India’s previously protected passenger vehicle segment. Aerospace suppliers strengthen their position within India’s expanding aviation ecosystem. Yet even Britain should temper expectations.
India’s tariff reductions remain phased, quota-bound and strategically selective. Sensitive sectors continue to enjoy substantial protection, while domestic manufacturing policies continue to favour local production under initiatives such as Make in India and Production-Linked Incentive schemes.
This reflects perhaps the agreement’s defining characteristic: neither side has embraced unfettered free trade. Both have negotiated carefully managed liberalisation designed to maximise strategic advantage while minimising domestic political disruption. That realism may ultimately become CETA’s greatest strength.
Nevertheless, one unresolved issue threatens to undermine much of the goodwill generated by the agreement: Britain’s proposed Carbon Border Adjustment Mechanism (CBAM).
If Indian exports, having secured preferential tariff access, subsequently confront carbon-related border taxes, the agreement risks becoming internally contradictory. Traditional tariffs may disappear only to be replaced by climate-linked trade barriers. While environmental objectives are legitimate, carbon pricing must not evolve into disguised protectionism that disproportionately disadvantages developing-country exporters still navigating their industrial transition.
This issue extends beyond India and Britain. It reflects the increasingly uneasy intersection between trade policy and climate policy—a frontier likely to dominate international economic diplomacy over the coming decade.
Ultimately, CETA should not be judged by the number of tariff lines liberalised or by optimistic projections of bilateral trade reaching $100 billion or even $120 billion by 2030. Such targets are politically attractive but economically secondary.
The agreement’s real legacy will depend upon whether Indian manufacturers become globally competitive without tariff handicaps; whether British investors deepen industrial partnerships rather than merely expand exports; whether services evolve into higher-value collaboration instead of transactional outsourcing; and whether both governments resist the temptation to replace conventional protectionism with more sophisticated regulatory barriers.
Trade agreements rarely transform economies on their own. They merely alter incentives. It is firms—not governments—that create exports, innovate products and build supply chains. CETA has opened one of the widest commercial corridors India has ever negotiated with a developed economy. Whether that corridor becomes a highway of industrial transformation or merely another underutilised preferential arrangement will depend not upon customs notifications or diplomatic ceremonies, but upon competitiveness, productivity and execution. The negotiation is over. The harder test has only just begun. (IPA Service)
