UK–India CETA and the EU–India FTA: Implications for Indian MSMEs
- News Desk
- 2 days ago
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India’s trade relationships with the United Kingdom and the European Union are entering a decisive phase. The UK–India Comprehensive Economic and Trade Agreement (CETA) has entered the stage of implementation, while negotiations on the EU–India Free Trade Agreement (FTA), after nearly two decades, have concluded and moved into legal review. Together, these developments mark an important moment in India’s engagement with two of its most significant economic partners.
However, for Indian MSMEs, which account for nearly 30% of India’s GDP and about 45-48% of exports (Ministry of MSME, Government of India), the implications of these deals extend far beyond the headlines. In destination terms, the European Union accounts for roughly 17–18% of India’s total exports, while the United Kingdom absorbs about 3–4%, together representing close to one-fifth of India’s global export market (European Commission; Government of India Trade Statistics).
Given MSMEs’ near-half share in India’s export base, a substantial proportion of trade with both the EU and the UK is driven by small and medium enterprises. MSMEs operate with limited capital, thinner margins and lower capacity to absorb regulatory shocks. As a result, their ability to benefit from trade agreements depends not only on tariff reductions, but also on how regulatory systems, standards and institutional support are designed.
This article focuses specifically on how regulatory frameworks under the UK–India CETA and the EU–India FTA shape outcomes for Indian MSMEs. It examines the regulatory environment prior to these agreements, identifies the changes introduced, and highlights areas where further attention is required to ensure that MSMEs can meaningfully benefit from expanded trade engagement.
India’s Trade Engagements: UK and EU in Context
The European Union remains one of India’s most significant trading partners. In 2024, EU–India goods trade reached approximately €120 billion, making the EU India’s second-largest trading partner (European Commission, 2025). Indian exports to the EU are diversified, with strong MSME participation.
Engineering goods account for around 15–18% of EU-bound exports, while textiles and apparel contribute roughly 10–12%, reflecting the central role of MSME clusters in these industries (IBEF; Ministry of Textiles). Agri-food products represent about 6–8% of exports and pharmaceuticals around 2–3%, with small and medium firms particularly active in processing, components and generic manufacturing (IBEF; European Commission).
The UK, while smaller in absolute figures, has gained renewed significance post Brexit. The UK–India CETA is set to eliminate tariffs on nearly 99% of Indian exports. This is especially important for sectors such as textiles, leather, gems and jewellery, seafood and processed foods (UK Government; Reuters, 2025). For many Indian MSMEs, especially those already integrated into UK supply chains, this opens immediate new opportunities.
Despite these opportunities, sustained MSME participation in both markets depends heavily on regulatory compatibility, enforcement predictability and compliance costs. These factors often determine whether smaller firms can enter and remain in foreign markets over time.
Regulatory Framework Before the Agreements
Prior to the conclusion of the UK–India CETA and the EU–India FTA, Indian MSMEs faced markedly different regulatory environments in the two markets.
Access to the EU market was governed by strict sanitary and phytosanitary (SPS) measures, traceability requirements and sustainability standards. Although these rules are harmonised at the EU level, enforcement is carried out by national authorities across 27 Member States. In practice, this resulted in variation in inspection intensity, documentation requirements and enforcement outcomes, creating uncertainty for third-country exporters.
EU monitoring systems show that agri-food imports from India, particularly rice, spices and seafood, were frequently subject to border controls and alerts linked to residue limits and documentation gaps (European Commission, 2024). For MSMEs with limited legal and compliance capacity, repeated conformity checks and fragmented enforcement translated into higher costs and greater market risk.
By contrast, Indian exporters to the UK operated under a single regulatory authority. Although UK standards remained stringent, especially in food safety, clearer administrative channels reduced procedural ambiguity. However, the absence of preferential tariffs prior to CETA constrained price competitiveness for MSMEs in labour-intensive sectors.
Regulatory Frameworks Under the UK–India CETA and the EU–India FTA
The UK–India CETA changes the regulatory experience mainly by making trade procedures easier to manage. Alongside tariff reductions, it emphasises transparency, simplified customs processes and regular dialogue between regulators. For Indian MSMEs, this reduces uncertainty as they know which authority to approach, what standards apply and how long procedures are likely to take.
The EU–India FTA adopts a different regulatory approach. Rather than immediately simplifying procedures, it focuses on long-term regulatory cooperation. This includes dialogue on food safety standards, technical regulations and sustainability requirements, with the objective of improving predictability and coordination for third-country suppliers over time.
However, evidence from existing EU frameworks shows a gap between policy design and MSME use. A Joint Research Centre survey found that only about 52% of non-EU suppliers knew where to file complaints or seek redress under EU supply-chain rules. This suggests that without targeted support, regulatory cooperation provisions may not automatically benefit smaller firms.
Remaining Regulatory Gaps for Indian MSMEs
Despite these reforms, structural regulatory challenges remain. In the EU, decentralised enforcement continues to shape MSME exposure to risk. National authorities retain discretion in implementation and dispute resolution, and Commission evaluations indicate that fear of retaliation, limited procedural clarity and lengthy timelines discourage smaller and non-EU suppliers from pursuing formal remedies (European Commission, 2024).
For Indian MSMEs dependent on a small number of EU buyers, regulatory delays carry disproportionate risks. Industry reporting documents cases where Indian exporters faced shipment delays and additional testing following regulatory alerts, even when compliance issues were later resolved (The Europe India Journal, 2025). In agri-food sectors, such delays can result in contract losses and cash-flow disruptions.
While the UK–India CETA benefits from a more centralised regulatory system, Indian MSMEs still face capacity constraints in adapting to evolving sustainability and traceability standards. This highlights that tariff liberalisation must be accompanied by targeted regulatory support to ensure effective MSME participation.
Sector based example- Agri-Food MSMEs
The agri-food sector illustrates these regulatory dynamics particularly clearly. India supplies the EU with products such as rice, spices, tea and seafood, contributing to supply diversity and price stability. These exports are largely driven by MSMEs operating upstream in global value chains.
While the UK market also imposes food safety and quality standards, Indian MSMEs generally find compliance more manageable due to fewer administrative layers and clearer regulatory oversight. In the EU market, however, evolving sustainability requirements and multiple enforcement checkpoints increase unpredictability. For perishable goods, even short delays can result in significant financial losses.
For MSMEs, therefore, effective regulatory frameworks are not defined by lower standards, but by predictability, early engagement and accessible enforcement mechanisms.
Implications for Indian MSMEs
Taken together, the UK–India CETA and the EU–India FTA offer Indian MSMEs different pathways into advanced markets. One provides relatively quicker access and administrative simplicity while the other offers scale, diversification and long-term integration accompanied by higher regulatory expectations.
For MSMEs, success under either framework depends on how well trade commitments translate into operational support. Capacity-building, regulatory cooperation and accessible enforcement mechanisms will determine whether smaller firms can become active participants in the trade.
Conclusion
The UK–India CETA and the EU–India FTA reflect two different approaches to economic engagement with Indian MSMEs. Rather than viewing one as inherently superior, their impact depends on how market access provisions interact with regulatory design and institutional support.
For Indian MSMEs, trade agreements deliver value only when regulatory systems are transparent, predictable and accessible. As India deepens its trade engagement with both the UK and the EU, the key challenge will be ensuring that regulatory cooperation moves beyond formal commitments and translates into practical support. Without this, the gains from expanded market access risk remaining concentrated among larger firms, limiting the broader developmental impact of India’s trade strategy.
This article is written by
Honey Vasani, EICBI Business and Trade Research Intern
References-
European Commission. (2025). EU trade relations with India.
Ministry of Micro, Small and Medium Enterprises. (2023). Annual report 2022–23. Government of India.
Reuters. (2025). Key facts about the UK–India trade agreement.
UK Government. (2025). UK–India free trade agreement: Overview and impacts.
European Commission. (2024). Evaluation of the Unfair Trading Practices Directive.
The Europe India Journal. (2025). Indian agri-exports and EU compliance challenges.
India Brand Equity Foundation. (2024). Market spotlight: Europe. https://www.ibef.org/economy/quarterly-newsletter/market-spotlight-europe
Economic Times. (2025). MSME sector’s role critical in enabling effective supply chain participation: Economic Survey 2025–26. https://economictimes.indiatimes.com/small-biz/sme-sector/msme-sectors-role-critical-in-enabling-effective-supply-chain-participation-eco-survey-2025-26/articleshow/127765473.cms
European Commission. (2025). EU–India trade in goods: Facts and figures. https://www.consilium.europa.eu/en/infographics/eu-india-trade-facts-and-figures/
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