IAS/UPSC Coaching Institute  

09 May 2025 : Caution and optimism

Editorial 2: ​Caution and optimism

Context

The FTA with the United Kingdom should not negatively affect India's farmers.

 

Introduction

The India-UK Free Trade Agreement (FTA) represents a significant step in strengthening bilateral trade ties between the two nations. This agreement aims to eliminate duties on 99% of Indian exports, benefiting key sectors such as engineering, apparel, and gems and jewellery. With future trade growth expectations, it also opens opportunities for easier movement of professionals and investors.

 

Key Highlights for India

  • Duty-Free Exports:
    • 99% of Indian exports to the UK will be duty-free, benefiting sectors like engineering goods, apparel, and gems and jewellery.
  • Industry Optimism:
    • Engineering exports expected to nearly double to $7.55 billion by 2029-30 (Engineering Exports Promotion Council of India).
    • Bilateral trade is expected to double to $120 billion by 2030.
  • Worker and Professional Benefits:
    • Indian workers temporarily employed in the UK will be exempt from social security contributions for three years.
    • Easier movement of professionals and investors, which may help revive foreign direct investment (FDI) in India.

 

Tariff Changes and Impact

  • Tariff Reductions:
    • India will reduce tariffs on 90% of UK imports, with 85% of these tariffs set to be zero within a decade.
  • Impact on Consumer Behavior:
    • Automotive tariffs are unlikely to significantly affect Indian consumer behavior.
    • Reduced import duties on whiskey and gin will increase competition and could slow the premiumisation trend in India.

 

Challenges and Criticism

  • Previous FTA Issues:
    • Despite criticism of the UPA's FTAs, the Modi government has faced similar challenges in agreements like the India-UAE CEPA (2022), which has worsened India’s trade balance.
  • Concerns from Indian Farmers:
    • Indian farmers oppose the FTA due to reduced tariffs on agricultural products like lamb and salmon, fearing it could harm their low-margin industry.

 

Future Considerations for India

  • Template for Future Trade Agreements:
    • The India-UK FTA will serve as a model for future agreements with the EU and U.S., countries with much larger trade volumes.
  • Caution in Negotiations:
    • India has already reduced import duties in response to U.S. demands for food products and automobiles.
    • India must protect its manufacturing sector, which contributes less than 2% to global exports, ensuring it’s not undermined in future agreements.
  • This FTA presents significant opportunities for India’s trade relations but also presents challenges that must be managed carefully for sustainable benefits.

 

Conclusion

The India-UK FTA marks a promising chapter in enhancing economic ties between the two countries. While it offers substantial benefits, such as duty-free exports, improved access for Indian professionals, and increased trade growth, it also brings challenges, particularly for Indian farmers and manufacturing sectors. With careful management, the agreement has the potential to boost India’s global trade influence and economic prosperity.