India-UK CETA - Why it is the biggest economic milestone?

After three years of long negotiations, India has finally signed the CETA with the UK. This is considered as a pivotal step in strengthening economic and strategic ties between the two nations. It is believed that CETA could eliminate or at least lower tariffs, offer open market access, and boost bilateral trade. Some of the key sectors where CETA could add value include pharmaceuticals, textiles, technology, and services.

CETA holds the potential to reshape global supply chains and foster innovation-driven growth. This agreement also signifies a shared commitment to sustainable development and long-term economic collaboration.

Here’s a detailed note on this CETA and why it is a turning point in the growth story of India.

Why CETA is a turning point for India?

Pushing the productivity frontier of textile exports

With CETA, India has the a duty-free access for 99 per cent of its exports to the UK. Textiles, marine exports, leather, footwear, gems, jewellery etc. now have a significant benefit as tariffs on these are completely eliminated. Export volumes of textile products (earlier facing a 12 per cent tariff) will quadruple. Currently, 6.6 per cent of the UK’s imported textiles are from India, which is worth US$1.79 billion. However, the potential is as high as US$26.95 billion. Trade experts believe the current volumes will double in the near future as India’s textile industry will look for opportunities to boost its capacity. In turn, producing more job opportunities skilled labourers in tier-2 and 3 cities.

India’s textile conundrum generates 45 million direct employment followed by 60 million employment in the allied industries. With the expanding capacities and a larger opportunity, the number is set to increase to new levels. Readymade garments, carpets, home textiles and handicrafts are among the most bought Indian textile products in the UK.

India will grab the market share from China, which is currently at 25 per cent, followed by Bangladesh with a 15 per cent and Turkey with nearly 8 per cent. India will grab market share from these countries in the coming years.

Moving the desi farm cart

Like the textile industry, agriculture and dairy in India too will find a major market in the UK with zero-duty access. Vegetables, fruits, pulses, spices, organic herbs, millets, edible oil and other key products from India will serve the UK market duty-free. If the push is aggressive, then reaching US$100 billion agricultural export by 2030 is seamless to achieve. Mostly, exports to the UK will increase by 20 per cent in the next three years in this sector alone.

Currently, the UK imports only US$811 million worth of agricultural products from India. This leaves a major untapped market of nearly US$36 billion. Moreover, instant coffee, tea, spices and ready-to-eat products from India is expected to be better positioned in the UK with tariff exemptions.

Agriculture industry is the largest employer in the country with 46 per cent employment as of 2023-24, which is approximately 67 crores of the entire population. On the other hand, CETA also protects the sensitive sectors to prioritise food security and domestic price stability.

Other sectors

In addition to this footwear, leather, gems and jewellery, fisheries and other sectors too are significantly benefitting due to CETA. Even pharmaceutical, engineering goods, chemicals and plastics are expected to see an uptick in demand. With the duty-free access for leather exports from India, MSMEs from Agra, Kanpur, Kolhapur and Chennai can benefit from finding new buyers overseas without any hassles.

Rural economy, the major beneficiary

Overall, CETA will help India realise the huge market potential it has in the years to come and significantly increase its GDP from exports. Moreover, Tier-2, 3 and rural markets are expected to be the major beneficiaries of the free trade agreement. Moreover, it will also boost India’s ambitions to fuel the make in India initiative for the local manufacturers and scale up.

Similarly, a robust free trade agreement with the USA, European Union and other countries once ratified will open up new opportunities for India.