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In a landmark move marking a new chapter in global commerce, India and the United Kingdom have successfully concluded a Free Trade Agreement (FTA), bringing an end to years of negotiations. The deal, hailed as a ‘historic milestone’ by Prime Minister Narendra Modi, is expected to significantly enhance bilateral trade, create new job avenues, and boost economic growth.
For India, the agreement presents both opportunities and challenges. While it opens doors for increased exports and foreign investment, it also raises concerns about domestic industries facing heightened competition. The deal is expected to catalyse trade, investment, and innovation, but its long-term impact on India’s economy remains to be seen.
One of the most significant advantages of the FTA is the elimination or reduction of tariffs on a wide range of goods and services. Indian exporters, particularly in labour-intensive sectors such as textiles, footwear, and automobile components, stand to benefit immensely. The UK has agreed to eliminate tariffs on these products, making Indian goods more competitive in the British market.
Additionally, the agreement includes provisions for increased mobility of skilled Indian professionals to the UK, particularly in sectors such as information technology (IT) and healthcare. The Double Contribution Convention, a social security pact, ensures that Indian workers in the UK and their employers are exempt from paying social security contributions for three years, reducing financial burdens and enhancing employment opportunities.
The pharmaceutical and medical device industries are also expected to see a surge in exports, as the UK lowers tariffs on these products. With India being a global leader in generic medicines, this move could significantly boost revenue for Indian pharmaceutical firms.
While the agreement offers numerous benefits, it also presents challenges for certain Indian industries. The reduction of tariffs on British whisky and gin, for instance, has raised concerns among domestic beverage manufacturers. Indian tariffs on these products will be halved from 150% to 75%, and further reduced to 40% over the next decade. This could lead to increased competition for Indian liquor brands, potentially impacting local businesses.
Similarly, the automotive sector faces mixed outcomes. While Indian manufacturers will benefit from reduced tariffs on exports, the influx of British automobiles at lower duties could pose a challenge for domestic carmakers. The UK has negotiated a tariff reduction from 100% to 10% under a quota system, which may lead to increased imports of British vehicles.
Agriculture remains another sensitive area. India has excluded certain agricultural products, such as dairy, apples, and cheese, from duty concessions to protect its farmers. However, concerns persist about the potential impact of increased competition from British agricultural exports.
The FTA is expected to have a positive impact on India’s gross domestic product (GDP) growth, with projections indicating a substantial increase in bilateral trade. The British government estimates that trade between the two nations will rise by £25.5 billion annually from 2040 onwards. This surge in trade is likely to contribute to India’s economic expansion, fostering job creation and investment.
Moreover, the agreement strengthens India’s position as a global trade partner, reinforcing its commitment to economic liberalisation. By opening up key sectors and reducing trade barriers, India is positioning itself as a flexible and attractive destination for foreign investment.
(Write to us at editorial@bombaychamber.com)
