In the Himalayan state Uttarakhand, a free trade agreement (FTA) signed last month between India and the UK has brought a smile on the face of resort owner Sunil. “I am very happy today”, he says. 

“I will be able to grab a bottle of scotch whisky without paying a fortune for it”. 

So, while Sunil celebrates his newfound joy of soon getting his hands on a bottle of scotch whisky, this historic FTA between India and the UK could reshape trade flows, create jobs, open new markets, and cause concern among certain sectors. But what exactly does it mean for India?

There are specific tariff reductions on major consumer goods imported from the UK under the new FTA. Here’s a breakdown of the key tariff changes on UK Imports:

1. Scotch Whisky & Alcoholic Beverages - The import duty on Scotch Whisky and other alcoholic beverages is expected to cut down from 150%  to 30% in the next three to five years.

2. Automobiles (Cars) - There will be a reduction of 50% in the import duty particularly on cars with larger engines like Jaguar Land Rover and Aston Martin and they will be more accessible to the Indian buyers.

3. Electric Vehicles (EVs) - The tariffs have been reduced to 60% from 100% in case of electric vehicles. This will make high-end British electric vehicles more accessible in the growing Indian EV market.

4. Processed Food Products -  A reduction in duty ranging from 5-15% is expected on processed foods such as cheese, chocolates and biscuits. The exact duty cut will vary product wise. With this, popular British food brands will be available in Indian supermarkets at affordable prices.

However, beyond these tariff reductions let's take a look at the bigger trade picture between the two countries.

In the financial year 2024, bilateral trade between India and the UK stood at approximately $56 billion. While the UK is not India’s largest trading partner, it still holds significance as the nation’s sixth largest export destination. The trade relationship is notably in India's favour. India's exports to the UK account for roughly 3% of India's total global exports whereas the imports roughly stand at 2%. 

This imbalance results in a healthy trade surplus for India, driven primarily by its powerhouse services sector, including IT, business process outsourcing (BPO), and financial services. Now the major goal of this India-UK FTA is to double bilateral trade to $100 billion by 2030, a win-win situation for both the nations.

As with every countrymen our primary concern is did we get a good bargain. And if you ask me, in a heartbeat I would say: 'yes, we have!' India wins big in both manufacturing and in the services sector. The FTA is a huge win for India. Under the agreement a new scheme has been created named ”Indian Young Professionals Scheme” under which the UK will grant 3000 visas annually for degree educated Indians (aged 18-30 years) to live and work in the UK for up to two years. 

This deal also provides a boost to the Indian IT and ITes sectors to further solidify their position in the market. Nasscom statement says, “​The inclusion of the Double Contributions Convention (DCC) a first in any trade agreement will allow Indian professionals deputed to the UK to retain Indian social security benefits.”

I can't end the article without giving my insights into whether our small enterprises would profit from this FTA or not. And my honest verdict is that the deal provides a significant advantage particularly for the labour intensive sectors like apparel and textiles. Now Indian exporters will have duty free access to the UK markets. This will create more job opportunities in the sector and will make Indian products more competitive and accessible in the global markets.. 

Nazim, owner of Rajdhani Textiles in Chandni Chowk, which supplies ladies’ suits and garments in bulk, is buoyed by the finalisation of the agreement. “This is a good opportunity for the apparel industry, as we’ll be able to export suits and garments without paying tariffs or import duties,” he says. “I’ll be applying for an Importer Exporter Code (IEC) soon and exploring opportunities to export to the UK.”

Other industries like automotive parts manufacturers, pharmaceuticals manufacturers, jewelry, leather goods, and producers of some agricultural products like rice and shrimp are set to benefit hugely from the signing of the deal.

Also, strategically, India will attract investment from UK companies and will provide a much needed boost to the government’s “Make In India” initiative. The agreement will further strengthen the strategic and diplomatic partnership between India and UK and will help India diversify its export markets and will provide a level playing field to its manufacturers and exporters.

A Voice of Caution

While all the industry associations have welcomed the FTA, there is some palpable anxiety among the agriculture community. The concern is echoed by farmers like Arshad from a small town in Uttar Pradesh . He says ”It is good that India is growing and we have signed a trade agreement with the UK. However, I am worried about the future. What will happen when products from the UK enter Indian markets? There should be a cap on the import.. If we do give duty free access to all agricultural products, we will face stiff competition and who will buy our products then”.

While the government has assured that the major agricultural products like wheat and dairy products are on the sensitive list and are protected from tariff cuts, Arshad worries that the FTA will set a precedent for future trade deals with other countries.

What the UK Gets in Return

Post Brexit, the agreement is a shot in the arm for the UK which was looking to forge new economic alliances. India is a vast and rapidly growing market and with the FTA, the UK will now have access to Indian markets which is crucial for high-value manufacturing and services sectors.

In addition to the celebrated scotch whisky duty cut, which will open up one of the world’s largest whisky markets for the UK, the agreement also delivers a major win for its automobile industry. With significant tariff cuts. its iconic British car brands will be more competitive and accessible to the Indian consumers.

Beyond goods, the agreement gives wings to the UK’s service dominated economy. UK companies providing financial, legal and insurance services can invest and operate in India. The agreement also allows them to bid on certain large-scale Indian government contracts, opening up a new frontier for British businesses looking to expand their global footprint.

A Balancing Act For a New Era

The India-UK Free Trade Agreement is more than a set of tariff reductions; it's a strategic pact designed for a new economic era, representing a calculated balancing act for New Delhi. For every consumer like Sunil in Uttarakhand raising a toast with cheaper whisky, there is a farmer like Arshad in Uttar Pradesh looking at the future with a mix of hope and apprehension.

As the provisions of the deal begin to roll out, the true test will lie in its implementation. The ultimate success of this historic agreement will be measured not merely by the ambition to double trade to $100 billion, but by its ability to ensure that the celebrated gains in technology and textiles lift the entire economy, without leaving its vast agricultural heartland behind.

The historic deal should be a success story for both Arshad and Nazim, otherwise it will be just another bilateral agreement.