India and UK Set to Sign Landmark Free Trade Agreement

India and the United Kingdom are poised to sign a significant Free Trade Agreement (FTA) during Prime Minister Narendra Modi’s visit to the UK. This agreement marks India’s first major bilateral trade deal with a developed economy in over a decade, following nearly three years of negotiations. The FTA is expected to be implemented after receiving legal clearances from the British Parliament and India’s Union Cabinet, likely within a year.

India’s Concessions: Lower Tariffs on UK Imports

As part of the agreement, India will reduce import duties on several UK products. Tariffs on alcoholic beverages such as Scotch whisky and gin will decrease from 150% to 75% immediately and further drop to 40% over ten years. Additionally, tariffs on UK-made automobiles, which currently exceed 100%, will be reduced to 10% under a quota system. Other UK goods, including cosmetics, salmon, chocolates, biscuits, and medical devices, will also see tariff cuts.

UK’s Concessions: Expanding Market Access for Indian Exports

The UK will grant duty-free access to 99% of Indian products, covering nearly all of India’s current trade value. This move is expected to significantly boost Indian exports to the UK market.

Beneficiaries in Indian Industry

Several sectors in India are set to benefit from the FTA, including textiles, footwear, auto components, gems and jewellery, furniture, sports goods, chemicals, and machinery. These industries currently face tariffs between 4% and 16% in the UK. Indian manufacturers of electric and hybrid vehicles will also gain preferential access under a new quota system.

Economic Impact on the UK

British government projections indicate that the FTA could increase the UK’s GDP by £4.8 billion annually over the long term. British consumers are expected to enjoy lower prices on Indian garments, footwear, and food products. UK-based firms like Diageo (Scotch whisky) and luxury carmakers such as Aston Martin and Jaguar Land Rover are anticipated to benefit from enhanced access to India’s expanding consumer market.

Services Sector and Mobility Commitments

The FTA includes progressive commitments in the services sector. The UK will offer temporary access for Indian yoga instructors, chefs, musicians, and other contractual service providers. Additionally, Indian professionals posted in the UK will be exempt from paying social security contributions for up to three years, potentially saving Rs 4,000 crore annually.

Government Procurement Opportunities

UK companies will be allowed to bid on non-sensitive federal government procurement tenders in India above Rs 2 billion. This opens up access to nearly 40,000 tenders worth approximately Rs 4.09 lakh crore per year.

Strengthening Bilateral Investment Flows

The agreement aims to bolster bilateral investment flows between India and the UK. Over 1,000 Indian companies currently operate in the UK, employing more than 1 lakh people and investing around $20 billion. Conversely, the UK has invested close to $36 billion in India, making it the sixth-largest foreign investor. Prime Minister Modi’s visit includes discussions with his British counterpart Keir Starmer on various issues such as trade, energy, health, education, and security before heading to the Maldives on July 25.