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It’s taken three years, but the moment is finally here. The Free Trade Agreement between India and the United Kingdom kicks into effect today (July 15), opening one of the country’s biggest export opportunities in recent years, and giving Indian manufacturers preferential entry into the world’s sixth-largest economy.
The India-UK Comprehensive Economic and Trade Agreement (CETA) and Double Contribution Convention (DCC) are a “gold standard” and one of the “most ambitious and aspirational free trade agreements” signed by India, said Commerce Secretary Rajesh Agrawal on Tuesday (July 14).
“This is one of the first free trade agreements (FTAs) of its kind, which establishes a future-oriented economic architecture between two major economies of the world,” added Agrawal. “This is also one of the most ambitious and aspirational FTAs of India, which we are operationalising as till date.”
But what does this mean for the common man in India? Let’s understand.
What’s the India-UK FTA all about?
Before we dive into how the India-UK agreement benefits Indians, let’s better understand the trade deal.
The
FTA between the world’s fifth and sixth largest economies removes or reduces tariffs on 99 per cent of Indian exports to the UK and 90 per cent of UK imports into India. The UK has called it its “biggest and most economically significant bilateral trade pact” since leaving the European Union, with its GDP estimated to rise by 0.13 per cent. India’s, on the other hand, is expected to increase by 0.06 per cent.
But the agreement, made up of 30 chapters, isn’t just about tariff cuts. It also covers areas such as digital trade, telecommunications, financial services, intellectual property, innovation, small and medium enterprises, sustainability, transparency, and government procurement.
Indian professionals working in the UK are also set to benefit from social security relief as the Double Contributions Convention (DCC) comes into effect from July 15, allowing eligible temporary workers to avoid paying social security contributions in both countries for the agreed period.
Which sectors in India are expected to gain?
With the FTA coming into effect today, multiple sectors in India, such as textiles, leather, gems and jewellery, auto parts and engines, furniture, sports goods, chemicals, and machinery, stand to benefit.
Goods in these sectors, until now, faced UK tariffs ranging from four per cent to 16 per cent.
The removal of UK taxes on Indian garments and home textiles – which range from eight to 12 per cent – will make them more competitive against products from
Pakistan, Bangladesh, and Vietnam. The Indian exports in this sector are projected to rise to up to 40 per cent in the next three years.
Dipali Goenka, CEO of Welspun Living — the company that creates
Wimbledon towels — told the BBC, “If you look at just home textiles, Pakistan’s share of UK exports is around 55 per cent, whereas India’s is just six-seven per cent. That’s the gap we can finally cover.”
Zero tariffs on gold, diamond jewellery, and leather goods will also provide a boost for MSME exporters and luxury product manufacturers in India.
The European country will also cut duties on Indian processed foods, basmati rice, shrimp, spices, and tea, giving a fillip to exports from Kerala, Assam, Gujarat, and West Bengal. Under the FTA, premium Indian food brands will have enhanced access to the UK market.
Tariffs will also be removed on agrochemicals, industrial chemicals, and plastics. India’s chemical exports to the UK could double by 2030.
Indian electric and hybrid vehicle makers are also set to benefit with preferential access to the UK under a quota system.
Another sector to benefit is India’s steel segment. Under the FTA, India has secured a quota worth approximately $350 million, well above its average steel exports of around $200 million to the UK. This may enable India’s steel exports to the UK to touch $1 billion by FY2027.
The India-UK FTA also brings relief to Indian professionals and employers through the
Double Contribution Convention (DCC). As per this, Indians working temporarily in the UK won’t have to pay the UK’s National Insurance contributions during the five-year period.
India’s Commerce Ministry notes that this provision will benefit more than 75,000 Indian workers and around 900 employers, translating into annual savings of over $600 million for industry and significantly improving the competitiveness of Indian firms operating in the UK.
How will Indian customers benefit from the FTA?
The India-UK FTA isn’t just beneficial to exporters; even the common man in the country stands to gain from this trade deal.
As
India cuts tariffs on certain items, they will become cheaper, a gain for the Indian customer.
For instance, the India-UK FTA provides for tariff reductions on a broad range of premium alcoholic beverages. India has agreed to reduce tariffs on Scotch whisky and gin from 150 per cent to 75 per cent, and further to 40 per cent over the next 10 years.
This means that the price of these spirits will reduce in the Indian market, making them more appealing to the Indian consumer.
Moreover, through this trade deal, India has for the first time agreed to significantly lower import duties on fully built cars and trucks manufactured in the UK. The tariff on these vehicles will be reduced in phases from 110 per cent to 10 per cent.
The deal notes that concessional treatment for petrol and diesel vehicles will begin on Day 1. Meanwhile, electric, hybrid and hydrogen-powered passenger vehicles will receive concessions from year six of the agreement.
Tariffs on fully built trucks imported from the UK will also be slashed. Within the prescribed quota, the existing 44 per cent duty will be brought down to 8.8 per cent by the fifth year.
The prices of cosmetics and beauty products imported from the UK are also expected to come down. Until now, these products attracted import duties of up to 22 per cent, which will either be eliminated immediately or gradually reduced to zero over a period of 10 years.
British consumer goods such as chocolates, sweet biscuits, and soft drinks are also expected to get cheaper as tariffs on them will be slashed.
According to the India-UK FTA, silver imports from Britain will also see a gradual reduction in tariffs. Levies on 99.9 per cent purity silver bars will be phased out over a period of 10 years. However, while duties are being reduced, all silver imports from the UK still require an import licence from the Directorate General of Foreign Trade.
British medical items such as surgical instruments, diagnostic equipment, ECG machines, and X-ray systems will also see reduced tariffs.
As Commerce Minister Piyush Goyal wrote in an opinion piece in the Times of India, “This ambitious agreement will empower every section of society. Women, farmers, youth, MSMEs, innovators, professionals and fisherfolk, all stand to gain from the opportunities it creates.”
With inputs from agencies
