India, UK trade pact to enhance exports competitiveness, slash trade costs: Experts
The India-UK free trade pact is expected to reduce trade costs significantly. Domestic goods will gain enhanced competitiveness in the British market. Labour-intensive sectors now enter the UK market with zero duty. Experts believe this agreement will achieve a USD 100 billion bilateral trade target. Indian enterprises must now leverage these commitments for tangible outcomes.
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Context
The India-UK Free Trade Agreement (FTA), termed the Comprehensive Economic and Trade Agreement (CETA), came into force on July 15, aiming to boost bilateral trade to USD 100 billion by 2030. The pact eliminates duties on 99% of Indian exports, particularly benefiting labour-intensive sectors and providing MSMEs an opportunity to integrate into global value chains while opening access to wider European markets.
UPSC Perspectives
Economic
The represents a significant shift in India's trade policy strategy, moving towards comprehensive agreements that include intellectual property, digital trade, and government procurement, alongside traditional tariff liberalisation (reducing taxes on imported goods). The agreement grants 'zero' duty access to major labour-intensive exports like textiles, processed food, and leather, which previously faced duties of 2-16%. This is crucial for India's export competitiveness (the ability of a country's goods to sell successfully in international markets) as it lowers trade costs and makes Indian products cheaper for UK consumers. Furthermore, the pact provides an opportunity for to integrate into global value chains (the full range of activities involved in creating a product across different countries). UPSC mains often examines the impact of FTAs on domestic manufacturing, and candidates must analyze how such agreements can help balance the trade deficit and boost domestic employment in labour-intensive sectors.
Governance
The successful implementation of the highlights the evolving nature of global trade governance, where agreements are increasingly comprehensive, addressing behind-the-border barriers (domestic regulations that affect trade) such as environmental and labor standards. The article specifically mentions the need for the Indian steel industry to build readiness for the (CBAM) ahead of 2027. This reflects a growing trend where developed nations impose tariffs based on the carbon intensity of imported goods. From a governance perspective, this requires India to strengthen its regulatory frameworks, incentivize investments in green technologies like 'green steel', and ensure domestic businesses meet global sustainability standards. UPSC frequently asks about the impact of environmental regulations on international trade, and the CBAM presents a significant challenge and opportunity for Indian exporters to adopt sustainable practices.
International Relations
The strategic significance of the extends beyond bilateral trade, positioning the UK as a critical hub for Indian companies to access broader international markets. The UK is a party to 39 Regional Trade Agreements (RTAs) spanning nearly 100 countries, which Indian businesses can leverage. Furthermore, the UK is a vital destination for India's services exports and a leading source of Foreign Direct Investment (FDI). This agreement solidifies the broader strategic partnership between the two nations, providing a framework for cooperation in emerging areas like telecommunications and digital trade. In UPSC Mains GS Paper 2, questions often explore the geopolitical implications of FTAs. The India-UK deal demonstrates India's strategy to diversify its trade partnerships and reduce dependence on specific regions, while simultaneously enhancing its global economic footprint through strategic alliances.