What will be impact of India-U.K. trade deal? | Explained Premium

India and U.K. agree on Free Trade Agreement, boosting bilateral trade, but concerns arise over agriculture and MSMEs.

The story so far: After nearly three-and-half years, India and the U.K. finally gave their nod to a Free Trade Agreement (FTA) this week. Commerce Minister Piyush Goyal said the pact would set a new benchmark for “equitable and ambitious trade between the two large economies”. Though the fineprint has not yet been made public, domestic industry has welcomed the announcement, amid concerns about the potential impact on agriculture and medium and small enterprises (MSMEs). The deal is likely to be signed after three months, and will take over a year to implement.

The U.K. is India’s 16th largest trading partner and India is the U.K.’s 11th largest partner. Their bilateral trade is about $60 billion with India enjoying a positive trade balance, which is expected to double by 2030, according to the Indian government’s estimates. The new trade deal, as assessed by the British government, would increase the bilateral trade by another $34 billion. The agreement comes in the backdrop of global trade reeling under uncertainty triggered by U.S. President Donald Trump’s tariff regime.

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While the details are yet to be published, the British government said it would benefit from India agreeing to slash tariffs on 90% of the product categories for export, with 85% of them becoming “tariff-free” within a decade. Further, basing its assessment on 2022 prices, it estimated that $534 million worth in tariffs would be saved when the deal is enforced. On the other hand, New Delhi expects to benefit from tariffs being eliminated on 99% of its export product categories. It expects an increase in export opportunities for sectors such as textiles, leather, footwear, auto parts, engineering as well as gems and jewellery, among others. The British government mentioned about curtailed tariffs on automotives, whisky and gin, sectors which had been hit by Mr. Trump’s tariffs. Alcoholic beverages from the U.K. will now have a 75% tariff rate, from the present 150%. This would be further reduced to 40% within a decade. Tariffs on automobile exports too stand reduced from over 100% to 10% albeit with a certain quota based on price for conventional combustion engine vehicles and capacity for electric vehicles.

With respect to services, India has secured an exemption for Indian workers temporarily in the U.K. and for their employers from paying social security contributions for three years under the Double Contribution Convention. Immigration was among the major points of contention during negotiations with the erstwhile Conservative government. The FTA will also seek that visa processes remain “transparent” and no “unnecessary” obstacles are created in professional travel.

Indian industry is upbeat about the announcement and expects a spike in exports. Textiles are among the major items of export to the U.K. Mithileshwar Thakur, secretary-general at the Apparel Export Promotion Council (AEPC), told The Hindu that exports are expected to “grow exponentially”. He said India would now enjoy duty-free access to U.K. markets like their main competitors Bangladesh and Vietnam. On competition, he clarified that there was “hardly any” import from the U.K. in this sector.

The Indian automobile industry feels it will benefit from the deal. C.S. Vigneshwar, president, Federation of Automobile Dealers Associations (FADA), contended that the FTA would ensure the the U.K. has better access to India’s premium (vehicle) segment markets, and Indian makers would serve the U.K.’s mass segment markets. “We do not expect the U.K.’s mid-segment cars to be competitive to Indian vehicles because the cost of production and labour is lower in India,” he stated.