Why New Delhi may scale back on Scotch whisky tariff cuts – Firstpost

Just months after India and the United Kingdom celebrated the conclusion of a landmark free trade agreement, disputes over steel imports and carbon-related trade measures have stalled the pact’s timeline.

New Delhi has signalled that concessions granted to British products under the India-UK Comprehensive Economic and Trade Agreement (CETA), including the much-publicised reduction in duties on Scotch whisky and gin, may not automatically come into effect if London proceeds with measures that India believes could restrict access for its exports.

The warning comes ahead of discussions between Commerce and Industry Minister Piyush Goyal and British Trade Secretary Peter Kyle, who is visiting India on Tuesday.

Although both governments continue to describe the deal as a major milestone in bilateral economic relations, differences over steel safeguards and the UK’s proposed Carbon Border Adjustment Mechanism (CBAM) have emerged as significant hurdles before the pact can be operationalised.

The dispute is particularly notable because the trade agreement was expected to unlock new opportunities for businesses on both sides, reduce tariffs across a broad range of sectors and deepen commercial engagement between two of the world’s largest economies.

The two countries have projected that the pact could increase bilateral trade by an additional £25.5 billion, or roughly $34 billion, by 2040.

Where do UK steel measures come in?

London has argued that the measures are necessary to protect domestic producers from a surge in low-cost imports and to address broader concerns about excess global steel production. The revised framework
is scheduled to take effect from July 1, 2026.

Under the new system, tariff-free import quotas for foreign steel will be significantly reduced. In addition, imports that exceed those quotas will face a 50 per cent duty.

According to experts, the sharply reduced quotas and steep duties together could substantially limit the commercial viability of steel exports to the UK. One of the most significant changes is the reduction in tariff-free quotas by about 60 per cent.

Although Britain has established country-specific quotas for some product categories, including hot-rolled sheets and gas pipes, Indian industry representatives argue that the reduced limits leave exporters with little room to expand shipments.

Once quota thresholds are crossed, the imposition of a 50 per cent tariff could effectively negate the commercial advantages expected from the free trade agreement.

India’s concerns are rooted in the importance of the UK market for its steel sector. During FY26, India’s exports of iron and steel to Britain were valued at approximately $897.68 million. These exports represent a substantial component of India’s overall merchandise trade with the UK, which stood at roughly $13.4 billion.

New Delhi has argued that such restrictions create uncertainty for exporters precisely when businesses are preparing for the implementation of the free trade agreement.

The concerns are not limited to India. Brazil, Turkey, Japan, South Korea, Switzerland and Australia have also raised objections at the World Trade Organization regarding Britain’s safeguard measures.

Against this backdrop, Indian officials have begun openly linking the future of concessions granted to British products with London’s willingness to address New Delhi’s concerns.

“So now the ball is in their (UK) court,” an Indian trade official told reporters. “If they do not leverage their free trade agreement, we can always reconsider the concessions we offered.”

Another official indicated that India could revisit specific provisions if steel-related issues remain unresolved. “We have to rebalance the FTA,” the official said. “We haven’t made up our mind, but could consider on certain goods like Scotch unless they roll back the steel duty.”

Why is Scotch whisky at the centre of dispute?

For years, the British spirits industry had sought greater access to the Indian market, where imported alcoholic beverages face some of the highest tariff barriers in the world. At present, Scotch whisky imports are subject to a basic customs duty of 150 per cent.

Under the terms negotiated in the CETA, India agreed to reduce import duties on UK whisky and gin from 150 per cent to 75 per cent when the agreement enters into force.

The tariffs would then decline progressively until reaching 40 per cent in the tenth year of implementation.

The agreement also envisaged changes that would help more categories of Scotch whisky access the Indian market, including the possibility of a more predictable import pricing framework.

For the Scotch whisky industry, these concessions represented a potentially transformative development. India is the world’s largest whisky-consuming nation by volume. Yet despite that enormous market, genuine Scotch occupies only a small share of overall consumption.

The reason lies largely in pricing. Imported Scotch has historically faced a combination of high federal duties and significant state-level taxes, making it substantially more expensive than locally produced alternatives.

The Indian market remains dominated by Indian Made Foreign Liquor (IMFL), a category that largely consists of locally produced, molasses-based spirits. While these products account for most whisky consumption in India, they do not meet international definitions of Scotch whisky.

As a result, authentic Scotch brands have traditionally been concentrated among higher-income consumers.

Industry groups in Scotland viewed the trade agreement as an opportunity to expand far beyond that niche market. The Scotch Whisky Association had previously described the deal as a major breakthrough capable of creating significant export opportunities.

Popular Scotch labels available in India include Johnnie Walker, Chivas Regal and The Glenlivet, with Johnnie Walker remaining among the country’s leading Scotch brands.

The importance of the Indian market explains why New Delhi’s latest warning has raised eyebrows. If tariff reductions are delayed, scaled back or withheld, one of the most commercially valuable outcomes of the trade agreement for Britain could remain unrealised.

What about Britain’s planned carbon tax?

The UK plans to introduce the proposed Carbon Border Adjustment Mechanism from January 2027. Similar in concept to measures being implemented by the European Union, the system would apply a carbon-related charge to imports of emissions-intensive products.

The sectors expected to be covered include iron, steel, aluminium, fertiliser, hydrogen, ceramics, glass and cement.

British authorities refer to the proposal as an import carbon pricing mechanism. The objective is to prevent “carbon leakage,” whereby production shifts to jurisdictions with less stringent environmental regulations.

India, however, fears that the policy could function as a new trade barrier. According to economic think tank GTRI, Indian exports worth approximately $775 million to the UK could be exposed to the proposed mechanism.

The potential impact is significant because products such as steel, aluminium, cement and fertilisers form an important part of India’s industrial exports.

Estimates suggest the effective tax burden could range between 14 per cent and 24 per cent of import value after the UK’s emissions trading framework fully phases out free allowances. Indian officials believe that such measures could offset some of the advantages negotiated under the free trade agreement.

“CBAM isn’t as urgent, but it will come in January and we need to get clarity before then. Unless it is resolved, it won’t be operationalised,” the official said.

The issue has been on New Delhi’s radar for some time. During a visit to London last year, Goyal reportedly raised India’s concerns and conveyed that retaliatory options could be considered if the UK proceeded with policies that materially affected Indian exports.

Sources familiar with the negotiations have indicated that India secured provisions in the trade agreement that may allow it to take counter-balancing measures if Britain’s carbon pricing mechanism significantly reduces the value of negotiated concessions.

What does the trade agreement offer both countries?

The India-UK CETA was negotiated over several rounds before talks concluded in May 2025. The agreement was subsequently signed in July 2025 and was originally expected to be implemented by now.

The pact is among the most ambitious trade agreements negotiated by India in recent years.

It provides duty-free access for 99 per cent of Indian exports entering the UK market while lowering tariffs on a wide range of British products sold in India. The agreement
covers sectors including textiles, automobiles, whisky, cosmetics, medical devices and other goods.

Supporters of the deal have argued that it will strengthen supply chains, increase investment opportunities and deepen commercial ties between the two countries.

For Britain, access to India’s rapidly expanding consumer market represents a major attraction. For India, preferential access to the UK market offers opportunities for exporters across multiple sectors.

What happens next in the India-UK trade talks?

The upcoming discussions between Goyal and Kyle are expected to play a critical role in determining the pace and shape of implementation. British officials have maintained that steel safeguard measures are separate from the free trade agreement and are not part of implementation discussions.

A UK official said that steel is not part of the discussions on implementing the free trade agreement.

Kyle has also publicly emphasised the benefits of the deal. “I look forward to working with Piyush Goyal to make sure everybody can start to feel the benefits as soon as possible,” Kyle said.

For New Delhi, the issue is not confined to the legal text of the agreement. Officials argue that subsequent policy measures affecting steel exports and future carbon-related taxes could undermine market access gains that formed a central part of the trade bargain.

With inputs from agencies