New Delhi:
India and the UK are finalizing a significant free trade agreement, marking the UK’s most substantial deal after Brexit. This is a momentous step for India, being its first trade deal with the UK outside of Asia and Australia. Trade discussions have been ongoing for years, particularly gaining urgency following former US President Donald Trump’s tariff initiatives.
The UK, currently the sixth largest economy globally, is collaborating with India, which is the fifth largest. This bilateral arrangement aims to boost trade by an impressive $34 billion by the year 2040.
What the Prime Minister said
Prime Minister Narendra Modi expressed enthusiasm for the agreement, stating, “These groundbreaking deals will further deepen our strategic partnership and spur growth, trade, investment, innovation, and job creation in both economies.” Meanwhile, British Prime Minister Keir Starmer noted that this marks a fresh era for trade, emphasizing the importance of strengthening global economic ties to bolster the UK economy.
Which sectors will benefit?
With this agreement, India and the UK will enjoy access to more liberal markets and reduced trade barriers. The sectors expected to gain the most include food and beverages, alcoholic beverages, and automotive industries.
Significant reductions in tariffs for various goods such as lamb, salmon, chocolate, and whiskey will be implemented. Additionally, New Delhi has enhanced market access for British firms, especially within the automotive sector, which could indicate a shift as India also engages with the US and EU regarding similar trade arrangements.
India stands as the largest market for whiskey globally, and under this agreement, tariffs on whiskey and gin will drop from 150% to 75%, further decreasing to 40% over the next decade.
The deal entails India reducing tariffs on 90% of British goods sold domestically, with most of those being exempt within ten years. In automotive trade, this translates to a massive reduction, going from a hefty 100% down to only 10%.
Other industries likely to benefit greatly from these trade agreements include cosmetics, aerospace, electromechanical products, and soft drinks, with tariff reductions estimated at over £400 million, increasing to £800 million over the next ten years.
The UK will also reduce tariffs on selected products, ensuring that 99% of Indian exports will enter the UK duty-free. The textile industry, a crucial sector for India, will see all tariffs eliminated, thus supporting millions of jobs.
Additional Indian sectors poised to benefit include marine products, leather, sports goods, toys, gems, and engineering products.
Challenges
Negotiations for the free trade agreement commenced in January 2022 but encountered numerous challenges, largely due to political instability in the UK, which has seen four prime ministers in as many years, alongside changes in the Indian government last year.
Both countries are also reaching out to the US in hopes of reducing existing tariffs imposed during Trump’s presidency. Additionally, India and the UK continue to pursue free trade agreements with their major trading partners.
