​Promising compromise: on the India-United Kingdom Comprehensive Economic and Trade Agreement  

The India-United Kingdom Comprehensive Economic and Trade Agreement (CETA), signed by the two countries on Thursday, is a good example of the give and take between two large economies of comparable size. While the U.K. has agreed to provide India duty-free access to about 99% of its tariff lines, it has been more conservative when it comes to the movement of professionals. It has set an annual quota of just 1,800 visas for niche professional roles such as yoga instructors and classical musicians, and the agreement falls short of making commitments on broader visa categories such as business visitors or IT professionals. This was something India had been keen on. On the other hand, while India has opened about 90% of its tariff lines for duty-free import from the U.K., it has kept key agricultural products such as dairy products, apples, oats, and edible oils out of the deal — key demands of the U.K. Similarly, while India has committed to reducing duties on automobile imports by a substantial 100 percentage points over time, these are subject to a graded quota over the next decade, which gives the domestic industry time to adjust. A sign of a good deal is when both sides walk away happy but not satisfied. In any case, such bilateral deals should not be viewed as a zero-sum game where one side’s loss is another’s gain. Enhancing bilateral trade is in both countries’ interests, especially at a time when the world’s biggest trading powers are raising tariff and non-tariff barriers.

The U.K. is a relatively small trading partner for India, but therein lies ample scope for growth. While at a macro scale the gains might initially be limited, the sector-wise increases have the potential to be significant. Sectors such as agriculture, textiles, leather and chemicals are all set to see quick gains. There is potential for longer term benefits too. The U.K. is a major gateway to Europe, which is a much bigger trading partner of India’s. Goods destined for Europe could be routed through the U.K., and the duty-free arrangement will likely enhance this flow. Companies in other countries that already export to the U.K. will also start viewing India more favourably as an investment destination so as to take advantage of the duty-free access. It is now up to the government to help Indian exporters scale up and compete internationally. Another important consideration is that such a deal sets the template for future ones. The general trend is that the bigger the economy being negotiated with, the bigger the concessions given. The United States and the European Union will now want more from India than what it has conceded to the U.K.