India is looking to replicate the pro-MSME elements of its recent Free Trade Agreement (FTA) with the United Kingdom in upcoming trade negotiations with the United States and the European Union, senior officials in the Ministry of Commerce and Industry said. The move is seen as part of a broader effort to empower Micro, Small and Medium Enterprises (MSMEs) and integrate them more effectively into the global trade ecosystem.

This strategic shift comes at a time when India is actively recalibrating its trade policy to align economic diplomacy with domestic development goals, especially for employment-rich and export-oriented sectors like textiles, engineering goods, food processing, and electronics—all of which have a high MSME presence.

India’s MSME push in trade negotiations

A top official involved in trade negotiations confirmed that the MSME-centric provisions negotiated under the India-U.K. FTA, which include market access support, capacity-building initiatives, simplified compliance, and mutual recognition of standards, are being considered as templates for replication in future FTAs, particularly with developed economies.

“Our aim is to ensure that MSMEs are not left out of the benefits of international trade. The U.K. agreement has set a precedent. We want to replicate those features with the U.S. and EU,” the official said.

The Indian government is reportedly working closely with industry associations like FICCI, CII, and FISME, as well as with state-level MSME departments, to identify sector-specific pain points and recommend MSME-friendly policy clauses for upcoming negotiations.

Key elements of the UK agreement that India wants to emulate

The India-U.K. trade pact, which came into force earlier this year, contains several MSME-targeted chapters and protocols that aim to:

• Simplify customs procedures and documentation for small exporters

• Promote online dispute resolution mechanisms and digital trade infrastructure

• Enable mutual recognition of conformity assessment bodies, helping MSMEs meet foreign standards

• Include dedicated review mechanisms to assess the MSME impact post-implementation

• Provide technical assistance and training programmes for MSMEs in priority sectors

According to the Commerce Ministry, these features are expected to significantly reduce transaction costs and boost participation of smaller firms in bilateral trade flows.

India’s objective now is to embed similar commitments in its ongoing talks with the United States Trade Representative (USTR) and the European Commission’s Directorate-General for Trade.

MSMEs in India: The backbone of trade and employment

India’s MSME sector contributes around 30 percent to GDP, employs more than 11 crore people, and accounts for 45 percent of total exports. Despite this significant role, MSMEs face multiple constraints in participating in international trade, including:

• High compliance costs and complex non-tariff barriers

• Lack of awareness of foreign regulatory standards

• Limited access to digital trade platforms

• Delayed payments and logistics inefficiencies

• Difficulty in securing finance and export insurance

By inserting MSME-focused provisions in trade deals, India is hoping to systematically address these barriers and enhance the sector’s global competitiveness.

India-U.S. and India-EU trade negotiations: Current status

India is currently engaged in two critical trade negotiations:

1. India-U.S. Trade and Investment Agreement

2. India-EU Free Trade Agreement (FTA)

Both pacts have been under discussion for several years but gained renewed traction after India successfully concluded deals with Australia, the UAE, and the U.K.

According to government sources, recent meetings with the U.S. trade delegation involved discussions around simplification of digital trade compliance, alignment of standards, and data-sharing mechanisms that would specifically aid Indian MSMEs in gaining visibility and credibility in the U.S. market.

Meanwhile, the India-EU FTA talks, which resumed in 2022 after a long pause, are currently focused on market access, rules of origin, investment protection, and sustainable development. India has formally proposed the inclusion of a dedicated MSME chapter in the FTA text, modelled on the U.K. deal.

What India seeks in future FTAs for MSMEs

Indian negotiators are pushing for the following elements to be standard in future FTAs:

• Bilateral MSME cooperation forums to help identify sector-level bottlenecks

• Time-bound technical support for MSMEs from partner countries

• E-commerce integration tools to aid cross-border selling for small businesses

• Mutual recognition of digital certifications and quality standards

• Joint innovation funds to support MSME startups in green and digital technologies

Such steps would not only open up markets but also ensure long-term capability building for Indian MSMEs, especially in semi-urban and rural areas.

Feedback from industry bodies

Industry leaders have welcomed the move, noting that past FTAs often lacked mechanisms to directly support small firms.

Sanjay Bansal, Chair of FICCI’s MSME Committee, said:

“India’s approach is evolving. Including MSME-sensitive frameworks in FTAs will level the playing field. The U.K. deal is a good starting point.”

Animesh Saxena, President of FISME, added that many MSMEs in India often fail to benefit from FTAs due to lack of awareness and procedural complexity. He said:

“What we need are clear, operational chapters in FTAs that outline how MSMEs can benefit. Also, robust monitoring mechanisms are essential.”

Political and strategic significance

This MSME-first trade policy strategy also carries political significance. The government aims to ensure that India’s integration into global trade does not disproportionately benefit large conglomerates, but also fosters inclusive growth by expanding the export footprint of grassroots entrepreneurs.

Additionally, the focus on MSME digitalisation and upskilling aligns with India’s Gati Shakti, Make in India, and Digital India missions.

From a geopolitical perspective, India’s insistence on MSME cooperation clauses also projects its leadership in inclusive globalisation, especially among developing and middle-income countries.

Challenges ahead

Despite good intentions, India will face several challenges while embedding MSME-focused clauses into trade deals with developed economies:

• U.S. and EU negotiators may resist sector-specific concessions that affect domestic producers

• Implementation of support mechanisms requires inter-ministerial coordination and budget allocation

• Lack of digital readiness among small Indian firms could limit the benefits

• Monitoring compliance and enforcement of MSME protections will be a major task

Experts suggest that India must also strengthen domestic institutional support, such as District Export Hubs, Single Window Systems, and real-time trade analytics, to maximise the benefits from pro-MSME FTAs.

Conclusion

India’s move to incorporate MSME-friendly provisions from its U.K. trade deal into upcoming FTAs with the U.S. and EU marks a pivotal shift in its global trade strategy. With MSMEs being the engine of inclusive economic growth, aligning trade policy to support them is both a strategic and developmental necessity.

The success of this approach, however, will depend on negotiation skill, policy follow-through, and the ability to translate FTA clauses into real-world benefits for millions of small businesses across India.

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