India-UK FTA: 'Best part of India-UK deal is getting almost 99% tariff lines...', says senior government official

The signing of a free-trade agreement (FTA) between India and the United Kingdom, following discussions that began in 2022, marks a significant milestone. PM Narendra Modi hailed the agreement as a historic moment, while Commerce Minister Piyush Goyal noted that the trade deal establishes a new standard for fair and ambitious trade.

Officials from both countries highlighted the agreement's comprehensive nature compared to previous Indian trade deals. Indian businesses will enjoy nearly tariff-free access to British markets, and Indian consumers can expect a gradual decrease in tariffs on imports from the UK.

A senior government official told Business Today the most significant advantage of the India-UK Free Trade Agreement (FTA) is that it provides zero-duty access to nearly 99% of tariff lines and nearly 100% of bilateral trade value, representing a major breakthrough in India’s trade diplomacy.

This change will have a significant impact on the accessibility of premium engineering products such as automobiles, as well as food items like Scotch whisky, gin, and lamb. Furthermore, it will create opportunities for cross-border procurement, potentially resulting in cost savings and improved efficiency in government expenditures.

He added the FTA also encompasses commitments regarding digitally delivered services and addresses non-tariff barriers. Additionally, there is a provision for a limited but extended transition period for electric vehicles (EVs). 

In a free trade agreement, participating countries agree to reduce or eliminate customs duties on most traded goods, as well as to decrease non-tariff barriers on important imports from each other. Additionally, these agreements involve simplifying regulations to facilitate services trade and cross-border investments.

Free Trade Agreements (FTA) provide various strategic advantages for countries involved. They allow for duty-free access to partner markets, enabling exporters to diversify and expand their export destinations. By receiving preferential treatment compared to non-FTA members, domestic exporters are able to compete on a level playing field, particularly in markets where similar agreements are already in place.

Highlights of India-UK FTA 

> The trade agreement guarantees duty-free access to UK markets for 99 percent of Indian exports, providing significant benefits to India. 

> Nearly all tariff lines, covering almost all trade value, will see tariffs eliminated, offering substantial advantages. 

> India will experience notable reductions in import duties, affecting 90 percent of tariff lines. Over the next decade, 85 percent of these items will become completely tariff-free. 

> Additionally, India will benefit from the UK's Free Trade Agreement commitments in various service sectors, including IT/ITeS, financial, professional, and educational services. 

> By agreeing to lower tariffs on products such as whisky, medical devices, advanced machinery, and lamb, India will help eliminate trade barriers and enhance the competitiveness of UK exports.

> Automotive tariffs are set to decrease from over 100 percent to 10 percent through a quota system. Import duties on whisky and gin will also see a reduction from 150 per cent to 75 per cent initially, with a further decrease to 40 per cent over ten years.
> The FTA will lead to lower import duties on various products such as cosmetics, aerospace components, lamb, medical equipment, salmon, electrical machinery, soft drinks, chocolate, and biscuits, benefitting businesses and consumers in India.

> An important milestone is the three-year waiver on social security contributions for Indian workers employed in the UK. This waiver, under the Double Contribution Convention, will result in significant cost savings for Indian service providers sending workers to the UK, enhancing their competitive edge in the market.

The UK expects the trade agreement to increase bilateral trade by £25.5 billion annually starting in 2040. Trade between the two countries reached £42.6 billion in 2024. Whitehall predicts that the Free Trade Agreement (FTA) will contribute an additional 10 basis points to the UK's GDP growth rate each year.

In 2024, the UK exported £17.1 billion to India and imported £25.5 billion. India ranked as Britain's 11th-largest trading partner. The UK described the agreement as its most significant bilateral trade deal since Brexit in 2020.