India-UK Trade Pact: Big Boost for Food, Footwear, and Textile Exports; Tariff Reductions on Autos, Liquor

India-UK Free Trade Agreement Finalized: Boost for Indian Exports, Tariff Relief for UK Goods

In a major leap forward in international trade relations, India and the United Kingdom have signed a historic Free Trade Agreement (FTA) aimed at reducing tariffs, boosting bilateral trade, and opening new market opportunities for both nations. The deal was finalized during Prime Minister Narendra Modi’s visit to the UK, where he met with British Prime Minister Keir Starmer at the Chequers Estate.

This agreement, concluded in May after nearly three years of back-and-forth negotiations, comes in the wake of widespread global trade disruptions largely triggered by former US President Donald Trump’s protectionist policies. It marks one of the most comprehensive trade partnerships for India and is being hailed as the UK's most significant post-Brexit trade agreement.

Key Highlights of the India-UK FTA:

• Projected Bilateral Trade Boost: The deal is expected to raise trade between India and the UK by £25.5 billion (USD 34 billion) by the year 2040.
• Economic Impact for the UK: According to UK government estimates, the FTA will add USD 6.14 billion to the UK economy and raise annual wages by USD 2.81 billion in the long term.
• Tariff Reductions for British Goods:
  • Cars and Auto Components: India will reduce import duties on a limited number of UK-manufactured luxury vehicles from over 100% to 10%, raising competitiveness in India’s high-end auto market.
  • Cosmetics, Medical Devices, and Soft Drinks: Tariffs will drop from 15% to just 3%, making UK goods more accessible in the Indian market.
  • Alcoholic Beverages: Duties on Scottish whisky and other spirits will also be slashed, a major win for UK exporters.
• Indian Export Gains:
  • The UK will cut tariffs on footwear, leather products, and textiles, strengthening India’s position in its traditional export strongholds.
  • Improved access for IT services, pharmaceuticals, and agricultural products is also part of the package.

Strategic Significance

While the deal's economic impact for the UK is relatively modest when compared to the loss of frictionless trade with the EU, it is a strategic victory for both nations. For India, this represents its most comprehensive trade agreement with a developed economy, potentially setting the tone for future FTAs with the European Union, Canada, and Australia.

The UK, on the other hand, gains a foothold in the rapidly expanding Indian market, home to over 1.4 billion consumers and an increasingly influential middle class.

Concerns and Criticism

While hailed as a breakthrough, the deal has also raised concerns among Indian carmakers and labor groups, especially regarding the reduced tariffs on British cars. Local manufacturers fear increased competition and job losses, particularly in the luxury and mid-segment vehicle markets. Trade unions have called on the government to ensure domestic industries are shielded from adverse impacts.

Future Outlook

This FTA is part of India’s broader push to integrate more deeply with global supply chains and attract foreign investment. It also enhances India’s image as a reliable trade partner and could accelerate progress on other pending agreements, including with the Gulf Cooperation Council (GCC) and African nations.

Conclusion:
The India-UK Free Trade Agreement is a landmark economic and strategic milestone for both countries. With benefits spanning multiple sectors, from food and fashion to automobiles and alcohol, it paves the way for a more integrated and mutually beneficial trade ecosystem in the years to come.