India, UK seal historic trade deal – Economy News

India and the United Kingdom (UK) on Thursday entered into a landmark Comprehensive Economic and Trade Agreement (CETA) that will at once ease India’s access to the island nation’s merchandise market, spur investments flows over the next few years, and pave the way for greater exchange of technology between the two countries.

The pact, the most prominent one among major non-US economies after a Washington-driven tariff war have unsettled the terms of global trade, could benefit assorted Indian industries – from apparel, footwear and engineering goods to processed foods and marine products.

India-UK FTA

Nearly 99% of the UK tariff lines, representing nearly the whole of India’s goods exports to the UK, would not attract any duty with immediate effect. This includes items that were already under zero tariff.

India will reduce or eliminate duties on 90% of the tariff lines that account for 92% of its imports from the UK.

The benefits to Indian people and industry from the deal will be diverse and significant, with farmers and MSMEs among potential gainers, while the Indian youth could take advantage of better mobility access under the CETA for professionals.

The deal could enable the two countries to double their annual bilateral trade – goods and services combined – to nearly $112 billion by 2030, officials here said. Annual bilateral trade in goods – about $23.5 billion at present – could rise by a fourth over three years thanks to the incremental growth to be created, analysts said.

According to a statement issued by the UK government on Thursday, the CETA will “increase UK exports to India by nearly 60% in the long run – this is equivalent to an additional 15.7 billion pounds–when applied to projections of future trade in 2040.” It also projected bilateral trade growth of nearly 39% in the long run, “equivalent to 25.5 billion pounds ($34 billion) a year, when compared to 2040 projected levels of trade in the absence of an agreement.”  India-UK overall bilateral trade was around $57 billion in FY25.

At the same time, Indian markets will see a growing presence of goods from the UK, ranging from cosmetics, perfumes and whiskey to cars. India will immediately slash  the tariff on UK automobiles from 100% to 30-50%, subject to quantitative curbs, and halve the tariff on whiskey from 150% to 75%. In return, Indian manufacturers will get easier access to the UK market for electric and hybrid vehicles, also under a quota system.

Products covered

The tariff elimination by the UK will also cover products where the duties are currently high, like most processed foods (70%), edible oils (20%) ad leather (16%) and textiles (12%). While India imports 56% of the edible oils consumed in the country, speciality oils like mustard and coconut could now be exported to the UK sans tariffs, given the demand for these among the Indian diaspora. Shipments of shrimp and other seafood to the UK could see a big jump, benefitting the marine products sector, and the coastal states.

The talks for the agreement began in January 2022 and were concluded on May 6 this year. Initially the agreement was to cover 26 chapters or policy areas but by the end of talks their number has gone up to 30.

The agreement was signed by commerce and industry minister Piyush Goyal and UK’s secretary of state for business and trade Jonathan Reynolds in the presence of Prime Minister Narendra Modi and UK’s premier Keir Starmer.

“Exquisite Indian textile products, footwear, gems and jewellery and engineering gods will gain market access to UK, The opportunities for agricultural products and processed foods will also get an impetus All of this will benefit our people, especially farmers, women, youngsters, fishermen and Micro Small and Medium Enterprises and professionals,” Modi said after the signing of the agreement.

The sharp duty cuts on Indian exports to the UK can lead to creation of 100,000 additional jobs as trade is expected to double in five years, president of Federation of Indian Export Organisations (FIEO) S C Ralhan said. “As importers will be getting Indian products cheaper, more orders will flow and additional capacities will have to be added to cater to the demand,” he added.

For the UK, India’s average tariff on its products will drop from 15% to 3% which means British companies selling products to India from soft drinks and cosmetics to cars and medical devices will find it easier to sell to the Indian market, Starmer said in a statement.

With the deal, $6.5 billion—or 45%—of Indian exports like textiles, footwear, carpets, automobiles, seafood, and fresh fruits such as grapes and mangoes, will now enter the UK duty-free, down from earlier tariffs of 4% to 16%, according to trade policy think tank GTRI. The remaining $8 billion—covering petroleum, pharmaceuticals, diamonds, and aircraft components—already had zero duty access The UK has agreed to eliminate tariffs on all Indian goods, with only a few agricultural items like rice excluded.

India’s duty reduction for electric vehicles will come into force from the sixth year of the agreement. The EVs costing below 40,000 pounds will have no duties and quotas. For vehicles costing more than that the import duties and quotas will apply.

The agreement also provides greater market access in IT and IT-enabled services, financial, professional and educational services, and digital trade, but legal services are excluded from the deal.

India has also secured an agreement on the Double Contribution Convention. This will exempt Indian professionals and their employers from social security payments in the UK for up to three years, improving the cost competitiveness of Indian talent. This will ensure savings of around 20% of salary and is expected to benefit more than 60,000 employees from the IT sector alone. Benefits to Indian companies and employees are to exceed Rs 4,000 crore.