India-UK FTA: Game-Changer For Exporters In Post-Trump Era

While the agreement promises "significant gains" for both nations, particularly for Indian exporters who faced the brunt of unilateral US tariffs, lingering "concerns" surrounding implementation and the potential resurgence of trade barriers remain.

The FTA, aimed at doubling bilateral trade, offers a counter-narrative to the Trump-era's unilateralism, with its reciprocal tariff reductions and market access commitments.

Threat From Carbon Tax Remains

However, the shadow of potential future trade barriers, specifically UK's Carbon Border Adjustment Mechanism (CBAM), raises anxieties about a shift from tariff-based to carbon-based protectionism.

This agreement, while offering a path towards diversified markets and reduced reliance on potentially volatile trade partners, underscores the continued need for vigilance against the re-emergence of trade restrictions that characterised the previous administration.  

The comprehensive Free Trade Agreement (FTA), alongside a complementary Double Contribution (Avoidance) Convention which will boost services trade, is anticipated to reshape the bilateral trade relationship, streamline professional mobility, and unlock a wave of economic opportunities across diverse sectors.

Experts project that this "most comprehensive bilateral trade pact signed by India to date" could double the current two-way trade, which hovers around US$ 60 billion, to a staggering US$ 120 billion by the close of the decade. The FTA is expected to catalyse job creation, spur economic growth, and foster deeper investment ties between the two nations.

At the heart of this transformative agreement lies a sweeping liberalisation of tariffs, designed to dismantle existing trade barriers and enhance the competitiveness of exporters on both sides.

Near-Universal Zero-Duty Access

For Indian exporters, the FTA represents a significant victory, granting near-universal zero-duty access to the UK market for approximately 99 per cent of their goods.

This encompasses a wide spectrum of crucial sectors, including labour-intensive industries like textiles and apparel, leather and footwear, and marine products, as well as technology-driven segments like gems and jewellery, engineering goods, auto components, organic chemicals, and sports goods and toys.

The elimination of UK tariffs, which currently range between 4-16 per cent across these categories, is projected to substantially improve the price competitiveness of Indian products, particularly when pitted against those from rival exporting nations like Bangladesh and Vietnam.

As FIEO President S C Ralhan stated, this makes the FTA a "game changer" that "opens new markets for Indian MSMEs and integrates Indian firms into global supply chains".

From the UK's perspective, the FTA unlocks substantial market access to one of the world's fastest-growing economies. India has committed to progressively reducing tariffs on 90 per cent of UK exports, with 85 per cent of these slated to become fully duty free within a 10-year timeframe.

Notable reductions include spirits like Scotch whisky and gin, where Indian tariffs will see an immediate reduction from a hefty 150 per cent to 75 per cent, with a further phased decrease to 40 per cent by the 10th year.

The Scotch Whisky Association anticipates this will "boost exports to India by £ 1 billion over five years". The medical devices sector is also expected to gain from tariff cuts and streamlined customs procedures, bolstering the UK's life sciences industry.

Additionally, the automotive and aerospace sectors stand to benefit, with tariffs exceeding 100 per cent on high-end vehicles being reduced to 10 per cent under a defined quota system. A range of processed food and consumer goods, including chocolate, salmon, biscuits, cosmetics, and lamb, will also see a reduction in Indian duties.

Beyond tariff concessions, UK exporters will also gain from the establishment of new digital trade rules, simplified customs procedures, and India's commitment to publishing trade-related laws online in English.

These measures are specifically designed to support small and medium-sized enterprises (SMEs) and high-growth sectors like clean energy and digital services, fostering a more transparent and accessible trading environment.

Services Trade To Get A Fillip

Complementing the tariff reductions is the Double Contribution (Avoidance) Convention, a parallel agreement aimed at easing the mobility of professionals. This convention ensures that Indian citizens working in the UK for short-term assignments, up to three years, will be exempt from mandatory social security contributions.

This measure is anticipated to significantly enhance the cost competitiveness of Indian IT, ITeS, and other service sector companies that frequently send personnel to the UK for project-based work, fostering greater collaboration and exchange of expertise.

The FTA places a significant emphasis on strengthening the India-UK services corridor, particularly in the realm of digitally delivered services. India has secured ambitious market access commitments in key areas, including IT and IT-enabled services, financial and professional services, education services, architecture, engineering, telecom, and computer-related services.

Furthermore, the agreement facilitates greater mobility for Indian professionals, encompassing independent service providers such as yoga instructors, chefs, and musicians. Indian companies will also benefit from the mutual recognition of qualifications in select professional categories and the easier movement of contractual service suppliers and intra-corporate transferees.

Commerce and Industry Minister Piyush Goyal stated on Tuesday that the deal "sets a new benchmark for equitable and ambitious trade" and aligns with India’s goal of becoming a global economic powerhouse. He emphasised that the FTA transcends mere trade, encompassing "people, possibilities and prosperity".

The agreement also incorporates provisions for investment facilitation, intellectual property protection, and regulatory cooperation, aiming to provide long-term predictability for UK investors in India. Reciprocally, India has secured commitments to address non-tariff barriers in the UK, ensuring that regulations do not inadvertently become disguised trade restrictions.

The projected economic impact of the FTA is substantial. As bilateral trade approaches US$ 60 billion, the agreement is expected to act as a significant catalyst for growth, with the aim of doubling this figure by 2030. British government estimates suggest that the deal could add approximately £ 4.8 billion to the UK's GDP and £ 2.2 billion to wages annually in the long term.

UK Prime Minister Keir Starmer hailed it as a "landmark deal" that "delivers for British people and businesses", and advances UK’s post-Brexit global trade ambitions. 

CII President Sanjiv Puri praised the agreement for "enhancing technology cooperation and supply chain diversification under the 2030 roadmap". The UK India Business Council said the deal "strengthens investment confidence and long-term partnership".

While the FTA is celebrated as a transformative step, trade analysts have cautioned that effective implementation will be crucial. Ajay Srivastava of GTRI raised a critical point regarding the UK's planned CBAM, cautioning, "If Indian exports are still subject to CBAM levies, while UK goods enter India duty-free, the FTA could tilt into a one-sided bargain."

Professor Arpita Mukherjee of ICRIER highlighted the importance of addressing existing regulatory barriers in the UK to fully realise the FTA's potential, particularly in the services sector, noting, "It will be interesting to see how this agreement has tackled those barriers to enhance market access for digitally delivered services."

Nevertheless, the India-UK FTA is widely regarded as a template for modern, balanced, and inclusive trade agreements capable of supporting sustainable development and shared prosperity. 

As Mahesh Jaising, partner and leader (Indirect Tax) at Deloitte India, aptly put it, "This is a unique and forward-looking trade deal. It covers not just goods, but also services and mobility, while targeting transparent and business-friendly practices. It’s aligned with India’s long-term vision of becoming a developed economy by 2047.”

(The writer is a well-known economic journalist and analyst. Views are personal)