The United Kingdom and India have formalized a trade agreement aimed at streamlining the exchange of goods and services between the two nations.
The accord is projected to stimulate economic growth in both countries.
The agreement was jointly endorsed by Sir Keir Starmer and Indian Prime Minister Narendra Modi, with the UK Prime Minister hailing it as “a landmark moment” for both nations.
Here is an overview of the key provisions and potential implications of the agreement.
The UK has reduced tariffs on select imports from India, including:
India has reciprocated by lowering taxes on specific goods imported from the UK, such as:
Furthermore, the deal expands opportunities for British companies to bid on service contracts within India.
The trade agreement is slated to take effect within a year, with immediate impacts not anticipated.
Over time, the UK government anticipates that the reduction of tariffs on items like clothing, jewelry, and frozen prawns “could” translate to more competitive prices and a wider range of consumer choices.
The agreement may also yield significant benefits for UK businesses involved in the manufacturing of goods subject to tariff reductions, such as automotive manufacturers and whisky distilleries.
For instance, tariffs on whisky and gin imported into India from the UK are set to be halved from 150% to 75%, with a further reduction to 40% planned by the tenth year of the agreement.
Automobile tariffs will decrease from over 100% to 10%.
This will benefit these industries, as Indian companies importing these products will incur lower import charges.
Increased exports and profitability for businesses could lead to greater investment in staffing, infrastructure, and tax contributions.
Indian consumers may experience a greater variety of available goods covered under the agreement. Moreover, clothing manufacturers and jewelers will gain enhanced access to the UK market, potentially improving their profit margins.
This deal has been in development for an extended period, with intermittent negotiations spanning approximately three years.
It is believed that the implementation of tariffs on goods entering the United States by former President Donald Trump has spurred other global leaders to pursue free-trade agreements.
The UK’s agreement with India represents its third-largest trade deal, following those with Australia and Japan. To provide context, the UK has finalized trade deals and agreements in principle with approximately 70 countries, in addition to its agreement with the EU.
The EU remains the foremost trade partner for both the UK and India. Consequently, a free trade agreement between India and the EU would hold greater significance than the UK agreement. Both India and the EU have expressed their intent to finalize such an agreement by the close of 2025.
In the past year, trade between the UK and India amounted to £42 billion. The UK government projects that the new agreement could augment this trade volume by an additional £25.5 billion annually by 2040.
In its Impact Assessment of the free trade agreement with India, the government estimates that the agreement will contribute £4.8 billion to the UK economy over time. This represents a small fraction of the overall UK economy, which was valued at £2.8 trillion in the previous year.
However, India is projected to become the world’s third-largest economy in the coming years. With a population of 1.45 billion, approximately 20 times that of the UK, it presents a substantial consumer base.
The UK is a priority trading partner for India, which has set an ambitious goal of expanding exports by $1 trillion (£750 billion) by 2030.
One factor contributing to the length of negotiations for the UK-India free trade deal was India’s demands concerning visas for Indian professionals and students seeking to work and study abroad.
The British government has stated that the agreement does not include any changes to immigration policy, including policies pertaining to Indian students in the UK.
However, it includes a three-year exemption on social security contributions for Indian employees working in the UK on short-term visas. These employees will only be required to make social security contributions in their country of origin.
This agreement, known as the Double Contribution Convention (DCC), is intended to prevent social security contributions from being made in multiple countries.
The UK has similar reciprocal DCC agreements with 17 other nations, including EU member states, the United States, and South Korea.
Business Secretary Jonathan Reynolds has stated that the agreement will not result in Indian workers being cheaper to hire than British staff.
“There is no tax advantage for hiring an Indian worker over a British worker,” he told the BBC.
He added that additional costs associated with visas and the NHS surcharge would mean “you’d actually pay more for an Indian worker,” and that “no-one is being undercut.”
Economists suggest that the president’s import taxes could drive up prices for various products in the US.
Trump’s trade policy has been a source of instability for the global economy and has led to price increases for some goods in the US.
While the US has seen increased revenue from tariffs, there are indications that some countries are redirecting their trade flows.
The de minimis exemption had previously allowed goods valued at $800 or less to enter the US without incurring tariffs.
The US president finalized a major trade agreement while engaged in golfing activities in his ancestral homeland.