Explainer: India-UK free trade agreement -- all you need to know

India and the UK earlier this week announced that they have concluded the negotiations for a free trade agreement to boost economic ties between the two countries. The talks commenced in January 2022. It is aimed at doubling the bilateral trade in goods and services from USD 60 billion at present to USD 120 billion by 2030.

The trade pact will provide enhanced market access for a wide range of Indian goods and services in the UK. Similarly, British firms will also enjoy comparable benefits in the Indian market.

Here are a few questions and answers (Q&A) explaining the benefits of the FTA.

What are the major benefits for Indian industry?

The FTA ensures comprehensive market access for goods in all sectors, aligning with India's export interests. India will benefit from import duty elimination on around 99 per cent of tariff lines (or product categories), covering nearly 100 per cent of trade value. It offers huge opportunities to increase bilateral trade between India and the UK.

Which sectors will enter the UK market at nil import duty?

India has gained market access in all industrial goods at 'Zero duty' on entry into force. It covers sectors like leather, footwear, textile and clothing, gems and jewellery, base metals, furniture, sports goods, transport/auto components, chemicals, wood/paper, mechanical/electrical machinery, minerals. At present, these sectors attract duty in the range of 4-16 per cent in the UK.

Has India safeguarded its sensitive sectors in the FTA?

Yes. Sensitive agri-products like dairy products, apples, cheese, oats, animals and vegetable oils are on the exclusion list, which means no duty benefits are provided by India to the UK on these items.

Sensitive industrial goods like plastics, diamond, silver, base stations, smartphones, television camera tubes, optical fibres, optical fibre bundles and cables are also under that list.

To further safeguard certain areas, India has agreed to cut or remove duties gradually over a longer period. These goods include ceramics, petroleum products, chemicals like carbon, red phosphorus, chlorosulphuric acid, sulphuric acid, boric acid, noble metalutions of platinum, aircraft engines, and engineering equipment.

What duty concessions has it given to the UK in the pact?

Import of Scotch whisky and gin from the UK will be halved to 75 per cent initially and 40 per cent by the 10th year. At present, it is 150 per cent.

Scotch whisky constitutes only 2.5 per cent of the total whisky market. The tariff reduction is over a longer period of time (10 years). The incremental increase in imports would not significantly affect the domestic market.

Tariffs on UK autos will be reduced from over 100 per cent to 10 per cent under quotas on both sides, benefiting companies like Tata-JLR. The duty cut may lead to lower prices for vehicles like Jaguar Land Rover (JLR), Rolls-Royce, Aston Martin, and Bentley in India.

The quota to import EVs at a concessional rate of duty is limited only to a few thousand. No out-of-quota duty reduction for EVs. The sensitivity related to EVs has been taken care of.

Further, the out-of-quota duty on ICE (internal combustion engine) vehicles will be reduced gradually over a longer period of time, thereby helping our industries to absorb the incremental increase of imports from the UK.

What are the major benefits for the Indian services sector?

The UK has provided an assured regime for temporary entry and stay requirements for various categories of natural persons like business visitors, intra-corporate transferees, contractual service suppliers, independent professionals, investors and partner and dependent children of Intra-Corporate Transferees (with right to work).

It has also offered mobility commitments in 36 sub-sectors under Contractual Service Suppliers (which also includes Yoga instructors, classical musicians and Chef de cuisine up to a combined total of 1,800 per year) and 16 sub-sectors in Independent Professionals (which includes computer and related services, research and development services).

Britain has also agreed not to impose numerical restrictions or Economic Needs Test requirements for the temporary entry of natural persons to their territory.

How will India gain from signing the Double Contributions Convention agreement with the UK?

According to the commerce ministry, Indian workers who are temporarily in the UK and their employers are exempted from paying social security contributions in the UK for three years.

The agreement will lead to savings of around 20 per cent of salary, and it is expected to benefit more than 60,000 employees from the IT sector alone. The benefits to Indian companies and employees would exceed Rs 4,000 crore.

Has India opened the government procurement sector for UK firms?

Yes. But the market access would be limited to the non-sensitive central level entities only, and access for sub-central (state/local government) level entities is excluded. UK suppliers would be allowed to bid for domestic tenders above the agreed threshold (above Rs 200 crore) as deemed Class-II local suppliers under the public procurement.

When will the FTA be implemented?

It will take about three months for legal scrubbing of the text. After that, the agreement will be signed, followed by approval from the Union Cabinet in India and the UK Parliament (which may take up to a year). It will be implemented on a mutually agreed-upon date.