By Ashok Gulati & Sulakshana Rao, Respectively distinguished professor and senior fellow at ICRIER
UK Prime Minister Keir Starmer’s visit to India with a strong business contingent of 125 people augurs well for India. This is especially so when India is facing the tariff blow of 50% from US President Donald Trump. This is not only good diplomacy but also good business. Starmer himself said that the India-UK trade partnership, Comprehensive Economic and Trade Agreement (CETA), is a “launchpad for growth”. Both countries are looking to deepen their partnership in various sectors ranging from defence and education to critical minerals. Let us try to dig deeper and see how India can gain from this, and where it should focus as far as trade between the two countries is concerned.
CETA (signed on July 24) is significant in both depth and breadth. It covers more than 99% of tariff lines in industrial and agri-products. This clearly shows that India can successfully negotiate and come to an agreement that is mutually beneficial. It is a good precursor to our negotiations with the European Union (EU), and also a pointer to the US for not pushing India too far under the pretext of buying Russian oil.
India-UK bilateral trade in goods ($23 billion) and services ($33 billion) stands at $56 billion. Under CETA, both sides have set an ambitious goal to double this and reach $120 billion by 2030. In 2024, the UK imported $12.9 billion goods (1.5% of its goods imports) and $19.8 billion (4.6%) in services (2023) from India. India imported goods worth $8.4 billion and services worth $13 billion from the UK. So, overall, India enjoys a surplus in both goods and services. But the trade potential is much more on both sides.
The UK’s imports from all countries stood at $815.5 billion for goods and $423.4 billion for services. Let us concentrate on the goods part. The UK’s goods imports are dominated by China ($99.1 billion, 12%), the US ($92.1 billion, 11%), Germany ($76.3 billion, 9%), France ($39 billion, 5%), and Italy ($31.9 billion, 4%). In 2024, the largest import category was machinery and engineering goods (HSN84, 85, $167.44 billion) coming largely from China (26%), the US (15%), and Germany (9%); followed by gems and jewellery (HSN71, $92.8 billion) from Canada (20%), the US (13%), and Switzerland (12%). Vehicles (HSN87, $88.8 billion) came mainly from Germany (24%), China, and Spain (8%), and France (7%). Pharmaceuticals (HSN30, $30 billion) came from the US (16%), Germany (14%), and Italy (10%).
Where, then, are the opportunities for India? Granular analysis at the commodity level gives a better picture. Take for example gems and jewellery—of the $92.7 billion imports by the UK, India’s contribution was just $0.6 billion. With nearly $11.9 billion of Indian exports at stake in the US market, the UK can be a very promising hedge. In 2023, the average most-favoured nation (MFN) tariff was 1.16% for India, 0.11% for the US, and 0.04% for Germany; while Canada and South Africa had zero duty. Labour-intensive sectors like textiles and apparel tell a similar story. The UK imported $22.3 billion worth of apparel and made-ups in 2023, while India supplied only $1.59 billion. Before CETA, India faced MFN tariffs averaging 9-12% (HSN61-63). With CETA, Indian exporters are on par with Bangladesh and Vietnam (zero tariff), and enjoy a tariff edge over China. This effectively removes a long-standing cost disadvantage and strengthens India’s competitiveness in one of the UK’s largest import categories.
Likewise, in leather and footwear (HSN 42, 64), the UK imported around $8.5 billion, while India’s exports were just $453 million. In 2023, footwear faced an average MFN duty of 8.04% for India, compared with 13.02% for China and 13.09% for Vietnam. Leather goods carried around 3% for India, similar to China, Italy, France, and Vietnam. With CETA now reducing duties, India’s share in the UK’s overall imports could increase substantially, partly offsetting the losses arising from the US tariff shocks. Although the UK cannot fully compensate India’s losses in the US market, it can help soften the tariff blow.
At the same time, India too must make space for UK products to ensure a balanced and credible trade partnership. One of the most prominent areas is alcoholic beverages, where India will gradually cut import duties on Scotch whisky and gin from 150% to 75% immediately and to 40% over 10 years. However, a 10-year timeline is long. Reducing it to five would signal stronger partnership. Beyond beverages, advanced machinery including defence equipment, clean energy technologies, and medical devices offer further scope for UK exports.
With Starmer’s visit and CETA in place, the UK market offers significant opportunity for India. But reduced tariffs alone will not translate into exports unless matched with structural reforms that promote India’s competitiveness. This is because many competitors like Canada (UK-Canada Trade Continuity Agreement), Bangladesh (Developing Countries Trading Scheme), and Vietnam, Singapore, and Australia (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) already have a head start.
What should India do? Policy support through targeted incentives can help Indian exporters tap the UK market. Domestic reforms are equally important. Access to capital must improve, both in terms of ease of access and cost. Trade facilitation is another critical gap. According to the World Bank Enterprise Survey, the average export custom clearance time in India is 17.3 days compared to 6.7 days in Bangladesh and 3.3 in China. The next important thing to address is India’s “regulatory cholesterol” as highlighted by Manish Sabharwal. India’s regulatory framework often constrains rather than enables scale. The ease of doing business also has to improve. Finally, India must scale up and integrate its industrial clusters by investing in shared testing facilities as well as infrastructure that can reduce costs, and improve quality across sectors.
India needs to move quickly on domestic policy support and systemic reforms to reap the benefits of CETA and Starmer’s visit with the largest business contingent. The UK could be India’s first strategic destination in its quest to diversify exports in the face of Trump’s tariffs. As global trade realigns, the onus is on India to seize this opportunity.