Syllabus:
GS2: Bilateral, Regional and Global Groupings and Agreements involving India and/or affecting India’s interests.
Context:
Recently, India and the United Kingdom have successfully concluded a historic Free Trade Agreement (FTA).
Key Highlights of the India-UK FTA
Strategic Alignment:
- Supporting India’s Viksit Bharat 2047 Vision: This forward looking Agreement aligns with India’s long-term development goals while fostering mutual economic growth between India and the UK.
- Diplomatic Foundations: The engagement follows discussions between both Prime Ministers during the G20 Summit in Rio de Janeiro (November 2024), leading to resumed FTA negotiations in February 2025.
Economic Impact & Trade Growth:
- Projected Bilateral Trade Expansion: The agreement is expected to increase annual trade by £25.5 billion from 2040, building on the existing £42.6 billion trade volume recorded in 2024.
Tariff Reductions & Market Access: It gives 99% of Indian exports like textiles, auto parts, IT services, pharmaceuticals, gems & jewellery and engineering goods, duty-free access to the UK.
- On the other hand, India has agreed to reduce tariffs on 90% of UK goods, with 85% of them dropping to zero within ten years.
- There are no tariff cuts on dairy, cheese, apples and other sensitive agricultural items in order to protect Indian farmers from cheap imports and unfair competition.
Key Sectoral Benefits
- Boost for Indian Exports: Labour-intensive sectors (textiles, leather, footwear) and key industries (engineering goods, auto parts, organic chemicals) will gain expanded export opportunities.
- Services Trade Expansion: IT/ITeS, financial services, professional services, and education will see significant growth, leveraging India’s expertise and the UK’s advanced service economy.
- UK Export Advantages: British cars, whisky, medical devices and manufacturing goods will now have smoother entry into India. Ex. Tariffs on British cars, for now will drop from over 100% to just 10%.
Consumer Benefits
- Affordable Goods for Indian Consumers: Import duty cuts will lower prices on cosmetics, aerospace products, medical devices, salmon, chocolates, and biscuits in the Indian market.
- Cost Savings for UK Shoppers: British consumers will benefit from cheaper Indian exports, including apparel, footwear, and food products like frozen prawns.
Employment & Social Security Provisions
- Opportunities for Indian Professionals: Skilled Indian youth will gain access to the UK’s digital services sector, supported by its robust financial and technological infrastructure.
Social Security Exemption: Under the Double Contribution Convention Agreement (DCCA), Indian workers temporarily in the UK and their employers will be exempt from paying social security contributions for three years. This would make Indian service providers more competitive.
- India already has similar social security agreements with countries including Belgium, Germany, Switzerland, France, Denmark, South Korea and the Netherlands.
Need for trade deal between India and the UK
- With duties removed, Indian textiles will gain an edge over products from countries like Bangladesh that don’t have similar FTAs with the UK.
- The pandemic-induced supply chain disruptions highlighted to Western companies the risks of excessive reliance on China, underscoring the importance of adopting a ‘China-plus one’ strategy.
- For the UK, India’s vast and growing market presented an opportunity to offset the loss of access to the European Single Market following Brexit.
- In 2019, India opted out of the China-led Regional Comprehensive Economic Partnership (RCEP), comprising several Southeast Asian nations, making it necessary to explore alternative trade partners.
Mains Practise Question:
Q. Why is a Free Trade Agreement (FTA) between India and the United Kingdom important for both nations? Discuss the strategic and economic rationale behind this agreement and highlight the key features of the recently concluded FTA.