 |
|
The impending Free Trade Agreement (FTA) between India and the United Kingdom marks a significant milestone in the economic relationship between the two nations. After nearly three years of negotiations, this agreement, expected to be signed during Prime Minister Narendra Modi's visit to the UK, promises to reshape trade dynamics and unlock substantial opportunities for businesses and consumers in both countries. This FTA is particularly noteworthy as India's first major bilateral trade agreement with a developed economy in over a decade, signaling a renewed focus on strengthening international trade partnerships and fostering economic growth through reduced trade barriers. The agreement's implementation hinges on legal clearances from the British Parliament and India's Union Cabinet, a process anticipated to take up to a year. Once ratified, the FTA will usher in a new era of economic cooperation, characterized by tariff reductions, preferential market access, and streamlined trade procedures.
The core of the FTA lies in the concessions offered by both India and the UK, designed to stimulate trade flows and create a more level playing field for businesses. India's concessions primarily focus on reducing import duties on specific UK products. A notable example is the reduction of import duties on Scotch whisky and gin, which will initially fall from 150% to 75% and then gradually decrease to 40% over a ten-year period. This significant tariff reduction is expected to boost sales of UK alcoholic beverages in the Indian market, benefiting producers like Diageo. Furthermore, tariffs on UK-made cars, currently exceeding 100%, will be substantially reduced to 10% under a quota system. This measure aims to make UK automobiles more competitive in India and encourage investment in the automotive sector. In addition to alcoholic beverages and automobiles, India will also implement tariff cuts on a range of other UK products, including cosmetics, salmon, chocolates, biscuits, and medical devices. These tariff reductions are designed to enhance the competitiveness of UK products in the Indian market and provide Indian consumers with access to a wider variety of goods.
In return for India's concessions, the UK has committed to providing duty-free access to 99% of Indian products, covering nearly all of India's current trade value with the UK. This is a significant benefit for Indian exporters, as it eliminates tariffs on a wide range of goods and enhances their competitiveness in the UK market. Sectors particularly likely to benefit from this duty-free access include textiles, footwear, auto components, gems and jewellery, furniture, sports goods, chemicals, and machinery. These sectors currently face tariffs ranging from 4% to 16% in the UK, which will now be eliminated, providing a substantial boost to Indian exports. Moreover, Indian manufacturers of electric and hybrid vehicles will gain preferential access to the UK market under a new quota system, aligning with the global push towards sustainable transportation. The FTA also includes provisions to reduce non-tariff barriers to trade, such as streamlining customs procedures and harmonizing standards and regulations. These measures aim to facilitate trade flows and reduce transaction costs for businesses in both countries. Several Indian firms are poised to reap significant benefits from the FTA, including Welspun India and Arvind Ltd in the textiles/apparel sector, Bata India and Relaxo in the footwear sector, Tata Motors and Mahindra Electric in the automobiles and EVs sector, and Bharat Forge in the engineering sector. These companies are expected to see increased exports and market share in the UK as a result of the FTA.
The FTA's impact extends beyond trade in goods, encompassing also the services sector and mobility. The UK will offer temporary access for Indian yoga instructors, chefs, musicians, and other contractual service providers. This will facilitate cultural exchange and provide opportunities for Indian professionals to work and gain experience in the UK. Furthermore, Indian professionals posted in the UK will be exempt from paying social security contributions for up to three years. This exemption is estimated to save Indian professionals approximately Rs 4,000 crore annually, reducing the cost of doing business and encouraging greater mobility of skilled workers. The FTA also includes provisions for government procurement, allowing UK companies to bid on non-sensitive federal government procurement tenders in India above Rs 2 billion. This opens up access to nearly 40,000 tenders worth approximately Rs 4.09 lakh crore per year, according to UK estimates, providing significant opportunities for UK companies to participate in India's infrastructure development and other government projects. The inclusion of these provisions in the services sector and mobility reflects the FTA's comprehensive approach to fostering economic cooperation between India and the UK.
The FTA is expected to strengthen bilateral investment flows between India and the UK. Over 1,000 Indian companies currently operate in the UK, employing more than 1 lakh people and investing around $20 billion (Rs 1.73 lakh crore). The FTA is likely to encourage further investment by Indian companies in the UK, creating jobs and contributing to economic growth. Similarly, the UK has invested close to $36 billion (Rs 3.11 lakh crore) in India, making it the sixth-largest foreign investor. The FTA is expected to attract even more UK investment to India, particularly in sectors such as manufacturing, infrastructure, and technology. The reduced trade barriers and improved investment climate created by the FTA will make India a more attractive destination for UK companies looking to expand their operations overseas. British government projections suggest that the FTA could increase the UK's GDP by £4.8 billion (Rs 56,150 crore) annually over the long term. British consumers are also expected to benefit from lower prices on Indian garments, footwear, and food products. India will reduce tariffs on nearly 90% of UK goods, further strengthening the economic ties between the two countries. UK-based firms such as Diageo (Scotch whisky) and British luxury carmakers like Aston Martin and Jaguar Land Rover (owned by Tata Motors) are expected to benefit significantly from improved access to India's growing consumer market.
In conclusion, the India-UK Free Trade Agreement represents a pivotal moment in the economic relationship between the two countries. By reducing trade barriers, promoting investment, and fostering greater cooperation in the services sector, the FTA is poised to unlock substantial benefits for businesses and consumers in both India and the UK. The agreement is expected to boost trade flows, create jobs, stimulate economic growth, and strengthen the overall economic partnership between the two nations. The FTA's comprehensive nature, encompassing trade in goods and services, mobility, and government procurement, reflects a commitment to fostering a deep and enduring economic relationship. As India continues to pursue its ambitious economic development goals, the FTA with the UK will serve as a valuable tool for promoting trade, attracting investment, and enhancing its global competitiveness. Similarly, the FTA will provide the UK with access to one of the world's fastest-growing economies, creating new opportunities for its businesses and contributing to its long-term economic prosperity. The successful implementation of the FTA will require ongoing cooperation and commitment from both governments to ensure that its benefits are fully realized. This includes addressing any challenges that may arise and working together to create a level playing field for businesses in both countries. The India-UK Free Trade Agreement is a testament to the enduring strength of the relationship between the two nations and a symbol of their shared commitment to fostering economic growth and prosperity.
Source: Explained: India-UK Free Trade Agreement - Who Gains What