A positive outcome of the tariff saga started by the US is that countries are getting together to sign deals with one another. The Free Trade Agreement (FTA) with the United Kingdom was finalised in May and has been consummated by the signing of the deal. This would be India’s biggest deal signed in 10 years and UK’s fourth since its exit from the EU. India has signed, with alacrity, a deal with the UK which will raise the total volume of trade to around $34 billion per annum from the present levels of around $2-25 billion. More importantly, it represents the first of many steps undertaken to sign deals with other nations to leverage mutual benefits.
The India-UK FTA would eliminate duties on 99 per cent of Indian exports to England. India will gain mainly through higher exports in fish products, chemicals, jewellery, leather products, readymade garments and electronics, which are largely labour-intensive, and will in turn benefit the small and medium enterprises (SMEs) specialising in these products. Intuitively, this will be a boost for not just the SME group per se but also for employment, as such treaties are signed with other countries, too. Units in Tirupur, Surat, Ludhiana, Chennai, and cities in Assam and elsewhere would stand to gain. The present deal seeks to eliminate tariffs on a majority of products that previously faced duties ranging from 4 to 16 per cent. Exports could rise potentially by 20-40 per cent, depending on the responses of the concerned industries.
From the UK’s point of view, there would be free flow of goods such as automobiles, whisky and gin, among others, which will also help push up employment, thus bringing about symbiotic benefits to both countries. There would be easier access to around 64 per cent of UK’s exports to India. Further, as Indian companies invest more as part of the expansion plans in the UK — it can go up to £6 billion — there would be more jobs created which can cross the 20,000 mark. The effective tariff rate for goods from the UK would come down from 15 per cent to 3 per cent, which includes duty on whisky coming down from 150 per cent to 75 per cent immediately and to 40 per cent over a period of 10 years.
One area that will work well for India is agriculture, covering various crops as well as fisheries. This includes spices, vegetables, fruits and pulses. As India works to leverage the strength of its agriculture, this FTA provides space for expansion and will take us closer to the target of $100 billion which has been targeted by 2030. At the ground level, there would be streamlining of the sanitary and phytosanitary regulations in the UK, which has hitherto been a major hurdle in the export of farm products.
The other significant benefit for us would be in textiles where duty-free exports would be permitted. This is significant as countries like Bangladesh, Pakistan and Cambodia have had the advantage of similar structure, making it tough for our exports, presently in the region of just $1.5 billion. This comes at an opportune time when there could be other pressures on our textile exports to the US.
A similar gain can be seen in the case of engineering, where our exports were just $3.7 billion to the UK, which imports as much as $195-200 billion from the world. With the free trade agreement in place, it should be possible to double our exports to the UK. Similar benefits can be seen in pharma, electronics, software, jewellery, etc. In fact, the NHS would start to use generics manufactured by India — a big boost to the industry.
At the individual level, there has also been a deal on allowing Indians to work in the UK on a temporary basis with fewer pressures on paying for social security being one of the main gains. Indians would gain from cheaper import of higher-end cars as well as chocolates and whisky, with the duties coming down substantially, thus making them more affordable.
How can this deal be viewed? First, it is something which provides a thrust to our exports and hence employment. Second, furthering relations with the UK opens the door to negotiate with other nations and the EU should be next on the radar. Third, such a deal also provides a template to be followed when it comes to negotiating one with the US, already in the discussion stage. Fourth, the deal has focused on an entire array of goods and while manufacturing always looked to be on the cards, the fact that agriculture has a lot to gain is significant as we are harnessing the strength built in this sector. This will help to make the sector more commercial and farming more remunerative as such deals are struck with other nations. Finally, this deal reflects the government’s strong commitment to boosting exports as part of its broader effort to integrate the Indian economy into global supply chains.
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