India–UK CETA comes into force; Telangana well poised to reap benefits
The India-UK Comprehensive Economic and Trade Agreement (CETA) came into force on 15 July 2026, granting zero-duty or reduced-duty access to the United Kingdom for close to 99% of India's tariff lines.
Sectors identified as the principal beneficiaries include pharmaceuticals and life sciences, electronics and precision engineering, engineering goods and industrial machinery, and chemicals and specialty chemicals.
States with concentrated manufacturing clusters in these sectors are positioned to capture a disproportionate share of the resulting export growth, since trade agreement gains are realised through state-level industrial ecosystems even though trade policy itself is centrally negotiated.
The tariff cuts are being phased in over a multi-year schedule rather than applying uniformly from day one across all product categories.
Trade Policy as a Union Subject, Realised Through State-Level Ecosystems
Under the Seventh Schedule to the Constitution, "Trade and commerce with foreign countries; import and export across customs frontiers; definition of customs frontiers" is Entry 41 of the Union List, giving Parliament exclusive legislative competence over foreign trade. States have no constitutional role in negotiating or ratifying a trade agreement like CETA, but the practical benefit of tariff concessions flows through state-level industrial infrastructure, cluster policies and ease-of-doing-business reforms — which is why some states are better placed than others to convert a uniform national tariff cut into actual export growth.
Key Details
- Entry 41 (List I) is distinct from Entry 42 (List I), which covers inter-state trade and commerce
- NITI Aayog's Export Preparedness Index (EPI) — 2024 edition assesses states across four pillars (export infrastructure; policy and governance; industry and innovation ecosystem; export performance) split into 13 sub-pillars and roughly 70 indicators
- States are classified as Leaders, Challengers and Aspirers within Large States, Small States, North-Eastern States and Union Territory categories
- The Foreign Trade Policy 2023 places new emphasis on "Districts as Export Hubs," treating districts rather than only states as units of export competitiveness
CETA's tariff schedule is uniform across India, but which state captures the resulting export growth depends on existing sectoral specialisation and export infrastructure — exactly what the Export Preparedness Index is designed to measure and improve.
Pharmaceutical Export Geography — Bulk Drug Parks and the PLI Scheme
India's pharmaceutical exports are concentrated in a small number of state clusters, of which the Hyderabad region's Genome Valley is among the most significant, accounting for a large share of the country's bulk drug (Active Pharmaceutical Ingredient) production and vaccine manufacturing. The central government's Bulk Drug Park scheme and the Production Linked Incentive (PLI) Scheme for Pharmaceuticals were designed to reduce India's import dependence on Chinese APIs and scale up high-value, export-oriented drug manufacturing.
Key Details
- In-principle approval was granted in September 2022 for three Bulk Drug Parks — in Himachal Pradesh (Una), Andhra Pradesh (East Godavari) and Gujarat (Bharuch) — with combined central government incentive support of about ₹3,000 crore
- The PLI Scheme for Pharmaceuticals prioritises biopharmaceuticals, complex generics, and patented or near-patent-expiry drugs
- Hyderabad-centred manufacturing accounts for roughly a third of India's pharmaceutical production and around a fifth of pharmaceutical exports, alongside a substantial share of global vaccine doses produced
- Pharmaceuticals and chemicals faced UK import tariffs of up to 8% before CETA, now scheduled to move to zero
CETA's tariff elimination on pharmaceuticals directly benefits clusters built around Bulk Drug Park and PLI infrastructure, since these clusters already supply the complex generics and API-based formulations the UK market imports.
PLI for Electronics and the Semicon India Programme
Precision engineering and electronics exports are underpinned by the Production Linked Incentive (PLI) Scheme for Large Scale Electronics Manufacturing, notified in April 2020, and the broader Semicon India Programme for semiconductor and display manufacturing. These schemes offer output-linked (not investment-linked) financial incentives, a design intended to reward actual production and export volumes rather than mere capital commitment.
Key Details
- PLI for Large Scale Electronics Manufacturing: outlay of about ₹41,000 crore, offering a 3-6% incentive on incremental sales of eligible electronics (primarily mobile phones and components) over a five-year window
- Semicon India Programme: approved with a total outlay of ₹76,000 crore for semiconductor and display fabrication units, with fiscal support of up to 50% of project cost for fabs
- Engineering goods and auto components faced UK tariffs of up to 18% pre-CETA; specialty chemicals faced up to 8%
- The Engineering Export Promotion Council (EEPC India), under the Ministry of Commerce and Industry, is the nodal export promotion body for engineering goods
The engineering goods and electronics sectors flagged as CETA beneficiaries are the same sectors the PLI and Semicon India schemes have spent several years building manufacturing capacity in — the trade deal provides the export-market access that domestic production incentives were designed to eventually exploit.
Specialty Chemicals and the PCPIR Framework
The Petroleum, Chemicals and Petrochemicals Investment Region (PCPIR) policy, introduced in 2007 (building on an earlier 2005 chemical-hub concept), designates large integrated zones for chemicals and petrochemicals manufacturing to attract investment and cluster-based infrastructure. Specialty chemicals — high-value, application-specific chemical products as opposed to bulk commodity chemicals — are a growing segment of India's chemicals trade and were named among the sectors CETA benefits most.
Key Details
- PCPIRs are currently developed in Gujarat, Andhra Pradesh, Odisha and Tamil Nadu
- India's specialty chemicals market has been projected to grow at a compound annual rate of around 12%
- CETA is scheduled to bring UK tariffs on chemicals and specialty chemicals (up to 8% pre-agreement) down to zero
- PCPIRs function similarly to Special Economic Zones but are sector-specific to petroleum, chemicals and petrochemicals rather than general-purpose export zones
Specialty chemicals exporters located within or linked to PCPIR clusters are best positioned to use CETA's zero-duty access, since these zones already provide the integrated feedstock and logistics infrastructure the sector needs to scale export volumes.
- CETA and the companion Double Contribution Convention entered into force: 15 July 2026
- UK tariff elimination/reduction coverage under CETA: close to 99% of tariff lines
- Pre-CETA UK tariffs cut to zero (phased): pharmaceuticals and chemicals up to 8%, engineering goods/auto components up to 18%
- Bulk Drug Parks approved (2022): Himachal Pradesh (Una), Andhra Pradesh (East Godavari), Gujarat (Bharuch)
- Hyderabad-centred cluster share: roughly one-third of India's pharmaceutical production, about one-fifth of pharmaceutical exports
- PLI for Large Scale Electronics Manufacturing: ~₹41,000 crore outlay, notified April 2020
- Semicon India Programme: ₹76,000 crore outlay for semiconductor/display manufacturing
- PCPIR states: Gujarat, Andhra Pradesh, Odisha, Tamil Nadu
- Constitutional basis for Union trade competence: Seventh Schedule, Union List, Entry 41