India, UK Sign Landmark Free Trade Agreement

In a significant development for international trade, British Prime Minister Keir Starmer and Indian Prime Minister Narendra Modi have finalised a comprehensive free trade agreement during Modi's visit to the United Kingdom. The agreement, signed on Thursday, aims to reduce tariffs on a variety of goods including textiles, whisky, and automobiles, while also enhancing market access for businesses in both countries.

Negotiations for this trade pact, which began approximately three years ago, reached a successful conclusion earlier this year. The efforts to secure the deal gained urgency amid tariff fluctuations triggered by international trade tensions, particularly those involving the United States. 

This new agreement represents Britain’s largest trade deal since it departed from the European Union in 2020, although its anticipated economic impact is expected to be modest when compared to the effects of Brexit. It is also regarded as India’s most significant strategic partnership with a developed economy to date, potentially serving as a model for future agreements with the European Union and other regions.

The agreement is designed to increase bilateral trade between the two nations by an estimated £25.5 billion (approximately $34 billion) by the year 2040. Under the terms, 99% of Indian exports to the United Kingdom will benefit from zero tariffs, encompassing a wide range of goods including textiles. The UK is set to reduce tariffs on 90% of its tariff lines, with the average tariff rate faced by UK companies declining from 15% to 3%.

Prime Minister Keir Starmer emphasised the mutual advantages of the agreement, stating it will streamline trade processes, making them more efficient and cost-effective. “This is a historic moment that holds enormous promise for both our nations,” he stated. 

Prime Minister Modi termed the agreement a "blueprint for our shared prosperity," indicating that it will facilitate better market access for Indian goods ranging from textiles to seafood and jewellery.

As part of the trade negotiation outcomes, tariffs on Scotch whisky will be reduced from 150% to 75% immediately and will further decrease to 40% over the next decade. Import duties on spirits such as brandy and rum will be initially lowered to 110% before reaching a final rate of 75%. Moreover, the automotive sector will see reductions in duties, with India set to lower tariffs on certain vehicles to 10% within five years, down from current levels that can reach 110%.

In exchange, Indian manufacturers will gain greater access to the British market for electric and hybrid vehicles, also via a quota-system-based arrangement. 

The agreement encompasses more than just trade; it lays the foundation for enhanced collaboration in various fields, including defence and climate change. Both countries expressed a commitment to promote joint efforts in combatting crime and improving security collaboration.

Modi's visit included discussions with Prime Minister Starmer, lasting nearly three hours, and a meeting with King Charles at Sandringham Estate, underscoring the importance placed on this bilateral partnership. 

India’s Commerce Minister Piyush Goyal remarked to Reuters that both countries acknowledged and respected each other's priorities during negotiations. “We managed to sidestep contentious issues that could have derailed discussions,” he stated, reflecting optimism about further negotiations with the European Union and the United States. 

While the trade deal is poised to provide various benefits, not all issues were resolved. India was unable to negotiate an exemption from the UK's impending Carbon Border Adjustment Mechanism, which is set to impose taxes on polluting goods from 2027. Goyal acknowledged that some aspects of a bilateral investment treaty remained outstanding but reiterated that the trade agreement reflects India’s commitment to fostering ties with developed nations.

The Labour government, newly in power for a year, has actively re-engaged with the European Union to alleviate post-Brexit trade complications. Rain Newton-Smith, Chief Executive of the Confederation of British Industry, noted, “In an era of rising protectionism, today’s announcement sends a powerful signal about the benefits of international collaboration.”

The deal is also expected to simplify access for temporary business visitors between the two countries, although visa requirements remain unchanged. Furthermore, terms will allow for workers embarked on temporary postings to avoid dual social security contributions while in the respective countries.

This trade agreement is poised to contribute to the economic landscape of both Britain and India, with a projected boost to the British economy of around £4.8 billion annually by 2040. However, this figure represents only a small fraction of the UK's gross domestic product, estimated to be £2.6 trillion in 2024.

In conclusion, the newly established free trade agreement between the United Kingdom and India marks a notable step forward in strengthening economic and diplomatic ties, with potential long-term benefits for both nations.