The India–UK CETA removes tariffs on nearly all Indian exports, but its impact on MSMEs will depend less on market access than on firms’ competitiveness, compliance capacity, and ability to utilise the agreement effectively.
Tariff preferences alone will not guarantee export growth. MSMEs in competitive sectors stand to benefit most, while others will continue to face testing, certification, and regulatory barriers that the CETA cannot remove.
The success of the India–UK CETA should be measured not only by growth in bilateral trade, but also by whether it enables more competitive MSMEs to participate sustainably in global export markets.
The India-United Kingdom (UK) Comprehensive Economic and Trade Agreement (CETA) entered into force on 15 July 2026, marking one of India’s most consequential trade agreements in recent years. By providing preferential access to nearly 99 percent of India’s exports to the UK, it has the potential to reshape India’s export basket and deepen bilateral trade. Its impact, however, will ultimately depend on how widely these opportunities are utilised across firms, particularly Micro, Small and Medium Enterprises (MSMEs), which underpin India’s manufacturing ecosystem and employment generation.
In FY2022-23, registered MSMEs accounted for approximately 40.25 percent of India’s exports to the UK, compared with 27.83 percent of India’s total exports. The UK, therefore, weighs more heavily for Indian MSMEs than for Indian exporters as a whole. Against this backdrop, this analysis examines how CETA’s provisions translate across five MSME-intensive sectors, assessing where the agreement is likely to reinforce India’s existing competitive strengths and where implementation will matter most.
The sectors most likely to benefit are those where three conditions align: India is already competitive, the UK market still offers room for expansion, and MSMEs account for a substantial share of production and exports.
Where the Opportunity Lies
The sectors most likely to benefit are those where three conditions align: India is already competitive, the UK market still offers room for expansion, and MSMEs account for a substantial share of production and exports. Table 1 identifies where these conditions overlap, for five MSME-intensive sectors. It combines three indicators: Revealed Comparative Advantage (RCA), which captures India’s existing export competitiveness; unrealised export potential, which estimates the additional exports that could be realised by 2030; and MSME export intensity, measured as MSMEs’ share of each sector’s global exports.
Table 1: Reading the Sectors, FY2022-23
Sector
RCA (UK market)
Unrealised Export Potential by 2030 (US$ billion)
MSME Share of Sector’s Global Exports (%)
What It Suggests
Engineering Goods
0.97
1.3
23.03%
Largest headroom, but tariff cuts may favour larger firms.
Chemicals (incl. Pharma)
1.09
0.8
21.52%
Strong potential since mutual recognition of standards could help more than tariffs
Textiles & Apparel
3.60
0.9
56.32%
CETA’s clearest opportunity for broad-based MSME exporters
Leather & Footwear
3.27
0.1
71.53%
Strong market position, scope for more consolidation rather than expansion.
Gems & Jewellery
0.72
0.8
40.68%
High potential, however, the weakest footing. This opening still needs to be built
Source: Authors’ own, using UN Comtrade and the ITC Trade Map; MSME shares from DGCI&S
Note: RCA measures whether a country exports a particular good more intensively than the world average, serving as a proxy for its competitive export strength in that good. An RCA value above 1 indicates genuine competitive strength in that good.
Three broad patterns emerge. First, Textiles & Apparel and Leather & Footwear are sectors where competitiveness and MSME participation already reinforce each other. Both record an RCA well above one, and have the highest MSME presence among the five sectors. While Leather & Footwear offers limited additional export headroom, Textiles & Apparel combines strong competitiveness with sizeable unrealised potential, making it the clearest candidate for broad-based MSME gains under CETA.
Second, Engineering Goods and Chemicals present a different profile. Both sectors offer considerable scope for export expansion, though this potential appears especially strong in Engineering Goods. MSMEs, however, account for a smaller share of activity, suggesting that export gains accruing to MSMEs may be less pronounced, even if overall sectoral exports expand. At the same time, industry evidence suggests that compliance with product standards, certification requirements, and other technical regulations remains a key determinant of export competitiveness.
Finally, Gems & Jewellery presents the widest gap between participation and competitiveness. Despite a sizeable MSME presence, its RCA remains below one, suggesting that preferential market access may not automatically translate into higher exports unless the sector strengthens its underlying competitiveness.
How CETA Changes Export Competitiveness
CETA can strengthen the existing export profile of MSMEs through three distinct channels: price, trade facilitation and capability. The agreement’s most immediate impact is on price competitiveness. The UK will eliminate duties on 99.6 percent of Indian exports over seven years, with the steepest tariff reductions in leather and footwear (16 percent) and textiles (12 percent). These concessions directly improve the price competitiveness of Indian exports. Industry projections, for instance, estimate that India’s share of the UK’s garment market could nearly double as a result.
CETA can strengthen the existing export profile of MSMEs through three distinct channels: price, trade facilitation and capability.
The agreement also seeks to lower the cost of exporting through trade facilitation measures. Self-certification of origin, which simplifies the process of claiming preferential tariffs, and a 48-hour customs release target reduce documentation requirements and border delays, lowering compliance costs. For exporters, self-certification of origin helps them avoid the certification fees firms previously paid, boosting savings. These benefits, however, depend on firms adopting and effectively using the new procedures.
Finally, CETA goes beyond trade in goods by creating new opportunities for services and professional mobility. Provisions on mutual recognition of qualifications, easier temporary movement of professionals, and annual quotas for contractual service suppliers expand access for Indian service providers. Unlike tariff cuts, the benefits from these provisions will depend on how effectively they are implemented and used.
Making CETA Work for MSMEs
India’s utilisation of existing free trade agreements (FTAs) has historically remained around 25 percent, compared to 70-80 percent in many developed economies, reflecting limited awareness, documentation burdens, and the costs of complying with rules of origin, particularly for smaller exporters. A persistent problem among MSMEs in India has been voluntary dwarfism, owing to compliance and regulatory disincentives. Policy support should therefore enable more firms to scale and participate in exports, making FTA utilisation both broader and higher.
A persistent problem among MSMEs in India has been voluntary dwarfism, owing to compliance and regulatory disincentives.
India should therefore move from broad FTA outreach to sector- and cluster-specific implementation. Export Promotion Councils, state governments, and MSME associations could establish CETA facilitation cells in the selected sectors, combining rules-of-origin guidance, buyer discovery, and troubleshooting through the agreement’s Small and Medium Enterprises (SME) contact points. The eCoO 2.0 self-certification system, which eases the self-filing process for exporters, should be paired with product-level templates and onboarding to ensure that the benefits of procedural simplification are widely realised.
A targeted conformity-assessment fund should co-finance testing, certification, and traceability upgrades, particularly in the chemicals, engineering goods, and gems and jewellery sectors, where non-tariff barriers could undermine the benefits of tariff reductions. For textiles and leather, policy should emphasise scale, design, sustainability compliance, and aggregation platforms to ensure a strong comparative advantage translates into larger and more reliable orders. Finally, the Joint Committee should publish annual, sector- and firm-size-disaggregated data on preference uptake and customs release times. These data would help track MSME participation and redirect support accordingly.
The real test of CETA, therefore, will not be the growth of bilateral trade alone, but whether it broadens India’s base of competitive exporters and enables a larger share of MSMEs to participate in global markets.
Conclusion
The CETA shifts the focus of India’s trade policy from negotiating market access to utilising it. For MSMEs, the agreement removes an important external constraint but it also exposes the domestic constraints that continue to limit participation in exports. The sectors examined show that tariff preferences matter most where competitiveness and enterprise capability already exist, while elsewhere they reveal the distance yet to be travelled. The real test of CETA, therefore, will not be the growth of bilateral trade alone, but whether it broadens India’s base of competitive exporters and enables a larger share of MSMEs to participate in global markets.
Kumkum Mohata is a Research Assistant with ORF’s Centre for New Economic Diplomacy.
Damayantee Majumdar is a Research Intern with ORF’s Centre for New Economic Diplomacy.
The authors acknowledge the use of ChatGPT 5.5 for language editing.
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