Policy Update
Arushi Jain
Background to the Historic Day
On 24 July 2025, India and the United Kingdom signed the much-awaited India–UK Comprehensive Economic Partnership Agreement (CEPA)—a Free Trade Agreement that the two prime ministers have described as a ‘historic day’ for both countries’ strategic and economic partnership. This is a landmark in the context of history, where trade had been the backbone of British colonisation and imperialism. The agreement now rewrites the bilateral partnership on the basis of respect and economic parity, with India as a confident player in international trade.
CEPA negotiations began as early as 2022, following a Joint Statement of Intent from a year earlier. While initial momentum suggested a speedy resolution, domestic political realignments in the UK and India’s protectionist stance on industries like agriculture slowed things down. It took 14 formal negotiation rounds and over 200 technical meetings to synchronise two complex economies.
Despite close business ties, bilateral trade had historically been underexplored. Through FY 2023–24, trade value exceeded USD 20 billion, led by Indian exports of pharmaceuticals, textiles, and IT services, aided by UK exports of Scotch whisky, automobile parts, and financial services. Yet, high tariffs, bureaucratic controls, and sensitive industries curbed the prospects for deeper integration. For the UK, this is its most ambitious trade pact since leaving the EU, placing India at the center of its Indo-Pacific strategy. The agreement is also a reflection of India’s increasing trade diplomacy based on pragmatism, national interest, and an evolving global trade order.
Functioning: What CEPA Offers
The India-UK CEPA covers trade in goods and services, investment, digital trade, IPR, sustainability, and labour mobility, making it one of India’s most comprehensive FTAs to date. The CEPA is expected to double bilateral trade to USD 50 billion by 2030, up from USD 20.36 billion in FY 2023–24.
Tariff Reductions on Goods
- The UK will eliminate duties on 99% of Indian goods over a phased timeline, including critical export items such as textiles, rice, leather products, and machinery.
- India, in return, will lower tariffs on high-value UK exports like Scotch whisky, automobiles, and premium cheese. For instance, the 150% tariff on Scotch whisky will be gradually reduced to 50% over 10 years.
- Both countries have agreed on the rules of origin to prevent trade leaks through third countries.
- For the electric vehicle and luxury car markets in India, there will be gradual tariff reductions to approximately 50-75% over a timeframe of 5-7 years.
Services and Labour Mobility
- Short-term business visas and work permits will be facilitated for Indian IT professionals, engineers, and healthcare workers. The agreement will also facilitate mutual recognition of qualifications in tertiary education, such as law, accounting, architecture, and engineering.
- The UK will ease quotas placed on Indian service suppliers travelling under Mode 4. This means the FTA will relax the movement of natural persons across borders to supply a service.
Investment and Business
- Investor protection will be strengthened through guarantees of non-discriminatory treatment, transparency of regulation, and recourse to arbitration.
- The FTA will also establish favourable conditions for FDI, particularly joint ventures in green technology, financial services, and semiconductors.
Digital Trade and Intellectual Property
- Both countries will work together to provide frameworks for data localisation, cybersecurity cooperation, and cross-border digital flows.
- Importantly, the CEPA also improves IPR protections through dialogue on patent law and norms on technology transfer.
Sustainability and Fair Trade
- This is the first Indian FTA to include a dedicated chapter in the agreement on sustainability, addressing climate resilience, carbon transition, and decent work standards. It also promotes gender-inclusive entrepreneurship, linkages for MSMEs, and low-carbon supply chains.
Performance and Projected Sectoral Gains
Trade forecasts project that the India-UK CEPA could raise trade volumes between the two countries by £25.5 billion annually by 2040, with the UK potentially having a contribution of £4.8 billion in GDP and £2.2 billion in additional wages each year, as the UK Department for Business and Trade identifies.
The labour-intensive textiles sector of India, driven by MSMEs, is expected to have an increase in exports by 30-45% into the UK. This will benefit textile-heavy states such as Tiruppur, Surat and Ludhiana. Duty-free access for Indian gems and jewellery, identified in the PIB report (Press Information Bureau, 2025), could similarly increase export revenues for Indian companies. This would also benefit exporters from cities such as Surat and Jaipur, that are central to India’s global jewellery supply chain.
The FTA will be a useful strategic enabler for domestic manufacturing and services as well. For instance, UK automakers such as Jaguar Land Rover will enjoy reduced duties on high-end vehicles, while Indian manufacturers such as Mahindra plan to enter the UK EV and SUV market. On the other hand, the changes help to smooth the visa application, in addition to qualification recognition standards, for IT, finance, and consulting Indian professionals. These initiatives support India’s wider economic vision under Viksit Bharat 2047 and schemes such as the Production Linked Incentive (PLI) and One District One Product (ODOP). The agreement also strengthens the UK’s pivot to Asia strategy and Indo-Pacific tilt.
Impact of the CEPA
While the anticipated economic performances created headlines, the significance of the India-UK CEPA agreement will be driven through the institutional and regulatory changes it will soon facilitate. For Indian MSMEs in textiles, gems and pharmaceuticals, particularly in Tiruppur, Surat and Hyderabad, these benefits will provide access to a rules-based, high-income market with not only lower tariffs. The Mutual Recognition Agreements (MRA) on standards and expedited customs clearances would also reduce the average export clearance wait times by as much as 20%, according to a report by the Economic Times.
On the UK side, industries such as the Scotch whisky industry, legal services, and food exports now have unprecedented access to a complex but growing Indian economy. The Scotch Whisky Association is projecting a 150% increase in exports in five years. The British legal sector is already working with Indian law firms to chalk out their entry points as they await liberalisations. The amended labour mobility and visa regimes through the agreement could lead to up to 12,000 additional professionals entering the UK, particularly those in healthcare and the Information and Communication Technology sector.
More broadly, the India-UK CEPA will have a forward-looking influence on trade, which will help India’s current economic negotiations with the EU and Australia too. Moreover, the deal implicitly signifies a maturation of India’s trade diplomacy through binding commitments on sustainability, digital trade and intellectual property, particularly in the wake of the Regional and Comprehensive Economic Partnership RCEP withdrawal.
Emerging Concerns: Frictions and Adjustments
- Intellectual Property & Public Health: The FTA does not grant patent term extensions or data exclusivity, a critical victory for India’s public health protections. However, concerns remain with loose clauses around biotechnology, pharma co-operation and regulatory data-sharing. These can raise concerns amongst civil society groups and generic medicine manufacturers in India. Experts warn of the need to strengthen IP protection, as it may lead to weakened access to affordable, essential medicines in the Global South.
- Carbon Border Adjustment Mechanism (CBAM): The CEPA is silent on the UK’s forthcoming carbon tax, which is slated for implementation in 2027. Accordingly, Indian exporters of steel, aluminium, and fertiliser could see an assessed penalty of $775 million/year, making the aforementioned tariff cuts lose their value.
- Agriculture & Food Products: Through the FTA, 95% of processed agro-exports from India (i.e., spices and seafood) will enter the UK market duty-free. However, there will still be sensitive items such as dairy, apples, and edible oils, which remain excluded from the agreement, undermining export diversification for rural areas. Though this also has a positive side of protectionism by the Indian government for key agro products.
- Limits to Labour Mobility: Although provisions exist for new mobility schemes, the quotas under the UK scheme for Indian professionals in the tech and health sectors remain very low. The implementation of the agreement will clarify whether the limit to labour mobility can be changed.
- MSME hurdles: A range of Indian small exporters are unaware of compliance with the norms, such as the rules of origin, sustainability certifications, etc., putting them at risk of exclusion from tariff advantages.
Way Forward
The India-UK Comprehensive Economic Partnership Agreement represents a transition away from a colonial trade backdrop towards an equal partnership. The FTA aligns with India’s Viksit Bharat 2047 vision as well as the UK’s post-Brexit global strategy. As the agreement matures, success will depend on effective implementation, addressing the elements of intellectual property, digital trade, mobility and facilitating the development of MSMEs and other vulnerable sectors. This FTA is not a destination, instead, it should serve as a platform for deeper strategic and economic collaboration.
References
- Economic Times. (2025, July 5). India eyes $1 billion in technical textile exports to UK by 2030 under new CETA trade deal. https://economictimes.indiatimes.com/news/economy/foreign-trade/india-eyes-1-billion-in-technical-textile-exports-to-uk-by-2030-under-new-ceta-trade-deal/articleshow/123011815.cms
- India Briefing. (Rao, A.). (2025, July 28). India–UK trade deal: Winners and economic benefits explained. https://www.india-briefing.com/news/india-uk-trade-deal-winners-and-economic-benefits-explained-38824.html
- Ministry of Commerce and Industry, Government of India. (2025, July 24). India and the United Kingdom sign historic Comprehensive Economic and Trade Agreement (CETA). Press Information Bureau. https://pib.gov.in/PressReleasePage.aspx?PRID=2147805
- Reuters. (2025, July 23). Britain and India sign free trade pact during Modi visit. https://www.reuters.com/world/uk/britain-india-sign-free-trade-pact-during-modi-visit-2025-07-23/
- Reuters. (2025, July 25). India–UK trade deal signals Modi’s priorities as New Delhi eyes EU, US pacts. https://www.reuters.com/world/asia-pacific/india-uk-trade-deal-signals-modis-priorities-new-delhi-eyes-eu-us-pacts-2025-07-25/
- Reuters. (2025, July 30). Big Scotch tariff cut to bring little cheer for Indians after UK trade deal. https://www.reuters.com/world/india/big-scotch-tariff-cut-bring-little-cheer-indians-after-uk-trade-deal-2025-07-30/
- Reuters. (2025, July 30). India file: UK deal sets cautious tone on trade. https://www.reuters.com/world/india/india-file-uk-deal-sets-cautious-tone-trade-2025-07-30/
- UK Department for Business and Trade. (2025, May 6). UK-India trade deal: Conclusion summary. GOV.UK. https://www.gov.uk/government/publications/uk-india-trade-deal-conclusion-summary/uk-india-trade-deal-conclusion-summary
About The Contributor: Arushi Jain is a Research Intern at the Impact and Policy Research Institute (IMPRI) and is in the final year of her Master’s degree in International Studies from Symbiosis School of International Studies, Pune. Her interest lies in analysing domestic and foreign policies of countries globally.
Acknowledgement: The author sincerely thanks the IMPRI team for their valuable support.
Disclaimer: All views expressed in the article belong solely to the author and not necessarily to the organisation.
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