India and the United Kingdom (UK) have officially concluded negotiations on a comprehensive Free Trade Agreement (FTA), marking a historic milestone in their long-standing economic and strategic relationship. This FTA, which has been in the works for over three and a half years, promises to be a game-changer for trade between the two nations, enhancing market access, reducing tariffs, and fostering deeper economic integration.

The agreement is expected to boost India’s export competitiveness by eliminating UK tariffs on around 99% of Indian goods. These goods span several sectors, including textiles, leather, toys, marine products, gems & jewellery, and footwear. By improving India’s access to the UK market, the FTA provides a substantial opportunity to expand Indian exports in these high-value areas.

Key Highlights of the India-UK FTA

• Tariff Reductions: As part of the agreement, the UK will reduce tariffs on 90% of Indian goods, with 85% of these goods becoming completely duty-free within 10 years. This marks a significant gain for Indian exporters, as it increases their competitiveness in the global market. The agreement also targets key products like whisky and gin, with tariffs on these items being slashed from 150% to 75% initially, and then further reduced to 40% within the next decade.

• Automobile Sector: One of the most important sectors benefiting from the FTA is the automobile sector, where tariffs have been reduced from over 100% to 10% based on a quota system. This will make Indian automobile exports more attractive to the UK market, creating new avenues for growth.

• Exclusions and Sensitive Sectors: The FTA has been negotiated with careful consideration of India’s domestic interests. Sensitive sectors like dairy products, apples, and cheese are excluded from tariff cuts, protecting the interests of Indian farmers and preventing undue pressure from foreign competition.

The Bilateral Investment Treaty (BIT), which is part of the broader trade negotiations, remains unresolved. The disagreement primarily revolves around dispute resolution timelines and the tax inclusion provisions. Nevertheless, the FTA itself is viewed as a major victory for India in the context of trade diplomacy.

Social Security Agreement: A Major Win for Indian IT Workers

One of the most significant features of the FTA is the inclusion of a Social Security Agreement between India and the UK. This agreement is a long-standing demand from India and is expected to benefit more than 60,000 Indian IT professionals working in the UK.

Under the terms of the agreement, Indian professionals will be granted a three-year exemption from contributing to the UK’s social security system. This is a substantial benefit for Indian workers, as it will save them approximately 20% of their salaries, translating to **savings of over Rs. 4,000 crore (approximately US$ 473.09 million). This exemption will provide a much-needed boost to the earnings of Indian Information Technology (IT) professionals, especially those employed in the UK, and incentivize further talent mobility.

Additionally, the agreement is expected to provide improved market access for Indian service professionals across various sectors like IT-enabled services, finance, education, and business services. This opens new opportunities for Indian companies to expand their reach in the UK market, driving growth in the service export sector.

Impact on Bilateral Trade and Economic Ties

In FY23, India-UK bilateral trade was valued at Rs. 1,80,345 crore (US$ 21.33 billion). India’s exports to the UK saw a 13.3% increase, amounting to Rs. 1,09,069 crore (US$ 12.9 billion), while imports from the UK fell by 6.1% to Rs. 71,022 crore (US$ 8.4 billion). The FTA is expected to significantly boost India’s exports by making Indian goods more competitive in the UK market.

The trade agreement aligns with India’s broader objective of integrating more deeply into global value chains and further diversifying its export destinations. For the UK, the deal is seen as a step towards enhancing its trade relations with India, one of the world’s fastest-growing economies.

Strategic and Diplomatic Implications

The signing of the FTA comes at a time when India is pursuing a more active role in global trade negotiations. By securing favorable terms in this deal, India strengthens its position in international trade forums. The agreement also provides a strategic advantage, as both nations seek to deepen their economic cooperation in areas like defence, technology, and education.

The deal underscores the close political and economic ties between the two countries and is viewed as a critical step in ensuring future economic stability. It is expected to create thousands of jobs in both countries, especially in the service sector, which remains a major contributor to India’s GDP.

Looking Ahead: Future Prospects and Challenges

While the India-UK FTA marks a significant milestone in trade relations, there remain several challenges to navigate in the coming years. The unresolved Bilateral Investment Treaty could delay future foreign direct investments (FDI) between the two nations. Additionally, there may be resistance from certain sectors in both countries to the broader trade liberalization agenda.

Nonetheless, the agreement represents a strong foundation for continued economic cooperation, particularly in services, technology, and consumer goods. Both countries are expected to work closely to overcome any remaining obstacles and ensure the full implementation of the deal.

Conclusion

The India-UK Free Trade Agreement is a landmark deal that promises to drive substantial growth in bilateral trade, particularly in the sectors of exports, services, and investment. By eliminating tariffs on a wide range of goods and granting critical social security exemptions to Indian professionals, the FTA lays the groundwork for deeper cooperation between the two countries. With the trade deal set to be fully implemented in the coming years, India’s global economic position is likely to strengthen significantly.

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