FTA: UK to Remove 99% of Tariffs on Indian Goods; India to Cut Duties on Whiskey, Autos

New Delhi: India and the UK on Tuesday (May 6) announced the conclusion of a free-trade agreement (FTA) through which the latter will remove nearly all its tariffs on Indian imports and where Britain stands to gain from steep tariff reductions in areas such as whiskey and automotives.

The agreement marks the culmination of a process that spanned over 14 rounds of negotiations between both sides over the last few years.

It also comes amid the Donald Trump administration's decision to levy increased tariffs on all its trading partners and on certain goods, as well as higher ‘reciprocal’ tariffs that have been put on hold thus far except in the case of China.

Modi hailed the FTA on Tuesday, calling it a “historic milestone”. Starmer said it was a “landmark” pact deal signed in a “new era for trade and the economy”. His government called the deal “the biggest and most economically significant bilateral trade deal the UK has done since leaving the EU” in 2020.

Although both sides have touted the ways in which the deal will benefit their respective economies, London offered more detailed estimates, including a projection of how much the FTA will affect bilateral trade and contribute to the GDP and wages.

In a press release issued on Tuesday evening, the Union commerce and industry ministry said that through the deal, India will benefit from a “tariff elimination on about 99% of the tariff lines covering almost 100% of the trade value”.

Indian sectors that will benefit from the lack of tariffs imposed by London include textiles, leather, footwear, gems and jewellery, marine products, and sports goods and toys, the ministry said.

The UK government announced that Indian tariffs on whiskey and gin will go down from 150% to 75% when the deal kicks in and further to 40% in its tenth year.

Indian tariffs on automotives will be slashed from more than 100% to 10% with a quota system in place, the British business and trade department said.

Overall, more than 90% of tariff lines applying to British imports will see reductions amounting to more than 400 million pounds when the deal comes into force, it also said.

Other goods that will benefit include “cosmetics, aerospace, lamb, medical devices, salmon, electrical machinery, soft drinks, chocolate and biscuits”.

Annual bilateral trade between India and the UK amounted to 40 billion pounds or Rs 46.17 lakh crore between September 2023 and 2024.

According to the UK business and trade department’s ‘technical note’ forecasting the deal’s impact on the British economy, the UK’s exports to India will grow by 59.4% by 2040, while India’s exports to India will go up by 25%. Total trade between the two sides could increase by 38%, it said.

Each year the deal is in effect will see an increase in the UK GDP of 4.8 billion pounds (Rs 5.4 lakh crore) and wages by 2.2 billion pounds (Rs 2.48 lakh crore), the department predicted.

New Delhi has said that the deal “eases mobility for professionals including contractual service suppliers; business visitors; investors; intra-corporate transferees; partners and dependent children of intra-corporate transferees with right to work; and independent professionals like yoga instructors, musicians and chefs”.

However, Britain said that among the deal’s victories is that it ensures the country’s “points-based immigration system is not affected”. This means the deal will not change London’s visa system, but The Times cited ministers as saying that “businesses would benefit from a clearer and simplified approval process”.

This marks a major concession from India, which had sought visa relaxations for students and professionals as a key part of the deal. This sticking point was a reason why the deal was stalled, UK officials had complained over the years.

During Rishi Sunak’s Conservative government, several ministers had strongly opposed offering additional visas to Indian nationals in exchange for a trade agreement.

With the Reform Party gaining momentum on the back of a hardline anti-immigration platform, it would have been politically untenable – and potentially disastrous – for Starmer to offer significant concessions on visas.

New Delhi, in turn, is highlighting the inclusion of the Double Contribution Convention as a win. The provision enables companies employing Indian professionals on short-stay visas (up to three years) to recover contributions made to the UK's public pension system.

Besides, it is spotlighting that India will gain from services that do not require movement. Its press release said that the deal “… secured significant commitments on digitally delivered services for Indian service suppliers, specially in professional services such as architecture and engineering, computer related services and telecommunication services”.

Following more than 14 rounds of negotiations spanning the last three years, talks for the deal were paused as both countries went to the polls last year.

They were revived in February after Modi and Starmer agreed to resume negotiations upon meeting on the sidelines of the G20 summit in Rio in November.

Since February, Union commerce and industry minister Piyush Goyal and UK secretary of state Jonathan Reynolds and their teams have made “several engagements”, Goyal’s ministry said.

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