​Caution and optimism: on India’s FTA with the United Kingdom 

The Free Trade Agreement (FTA) between India and the United Kingdom marks a strong step towards securing India’s bilateral ties in an increasingly fragmented global trade environment. The key highlight for India is that 99% of its exports will attract no duties. Apart from being hailed by business leaders, industry associations representing sectors such as engineering goods, apparel, and gems and jewellery — each among the top Indian exports to the U.K. — have expressed strong optimism for future trade growth. Engineering exports, for example, are expected to nearly double to $7.55 billion by 2029-30, according to the Engineering Exports Promotion Council of India. Overall bilateral trade is expected to double to $120 billion by 2030. The other major win is that Indian workers temporarily working in the U.K. and their employers will be exempt from making social security contributions for three years. This is likely to ease the hiring of Indian workers in the U.K. The FTA also eases the movement of professionals and investors, which should go some way in reviving India’s flagging foreign direct investment levels. On the flip side, India has agreed to cut its tariffs on 90% of the tariff lines imported from the U.K., with 85% of these to be reduced to zero tariff within a decade. While the reduction in automotive tariffs is unlikely to meaningfully change the price-conscious behaviour of Indians, the slashing of import duties on whiskey and gin will increase competition in India and perhaps slow the ongoing premiumisation trend.

Although the Modi government has been quick to criticise the FTAs signed by the UPA for putting India at a disadvantage, some of its own FTAs have faced the same issue. The India-UAE CEPA (2022), for example, has seen India’s trade balance worsen over the years. The FTA with Australia, too, has not resulted in gains for Indian exports. Indian farmer organisations — opposed to the U.K. FTA since talks began — are up in arms over the reduced tariffs on lamb and salmon and other edible products. Here, too, the government must act to ensure that India’s farmers, already in a low-income, low-margin situation, are not elbowed out. Then, there is the fact that trade experts agree that the India-U.K. FTA will be the template for future agreements with the EU and the U.S. India must be careful here. While the U.K. is a relatively small trading partner, the EU and the U.S. deals — when they happen — will have a more significant impact. India has already cut import duties on several food and auto products in line with U.S. demands. With a less than 2% contribution to global exports, Indian manufacturing needs to be helped, not undermined.