Chocolates, salmon or Scotch? A wide range of UK imports to get cheaper

Cheaper chocolates, salmon and Scotch whiskey from the UK are on the way, with New Delhi and London agreeing to slash tariffs on a wide range of items. The India-UK free trade agreement (FTA) that concluded on Tuesday after three years of tough negotiations also eases the movement of skilled workers, settles the contentious issue of carbon tax, and opens up a large market for Indian exporters.

Indian businesses expected to benefit the most from zero-duty access to the UK include textiles, footwear, carpets, cars, and marine products, which currently face tariffs of 4% to 16%. The FTA promises to unlock major economic gains for India by eliminating tariffs on 99% of Indian exports, covering nearly 100% of the trade value, as the two countries aim to double bilateral trade to $100 billion by 2030.

The deal is an early win for India, which is also pursuing similar trade pacts with the US and the EU. It opens the door to substantial export growth in labour-intensive sectors such as textiles, marine products, leather, sports goods, toys, and gems and jewellery, which employ millions and are crucial to India’s job creation efforts.

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"Beyond merchandise trade, the pact will provide a significant boost to India’s services sector, enhancing market access for IT and ITES sectors, financial and professional services, business consulting, and education-related services," a senior government official said, citing the FTA documents. The final papers of the agreement have not been released yet.

Phased cuts

UK said its tariffs on Indian whisky and gin will be reduced in phases—from the current 150% to 75% initially, and then further down to 40% by the tenth year of the agreement. Similarly, automotive tariffs will be brought down from over 100% to 10% under a defined quota system. Mint had first reported this on 14 August, 2024. It said London will drop barriers to trade under the FTA, with India agreeing to reduce tariffs on a wide range of products including whisky, medical devices, advanced machinery, and lamb, making British exports more competitive. Based on 2022 trade levels, this translates to tariff cuts worth over £400 million when the deal takes effect, rising to around £900 million over the next 10 years.

The FTA strengthens India’s economic and people-to-people ties with the UK, particularly by easing mobility for Indian professionals and skilled workers. A major win is a provision allowing Indian employees working in the UK to be exempt from social security payments for up to three years, easing cost burdens and encouraging cross-border talent exchange. Mint had first reported on this on 21 May, 2024.

The deal also includes commitments on transparent regulations, simplified procedures, and mutual recognition of standards—crucial steps to secure fair access for Indian exporters in the UK market.

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“These landmark agreements will further deepen our Comprehensive Strategic Partnership and catalyse trade, investment, growth, job creation, and innovation in (both) our economies," Prime Minister Narendra Modi posted on X. The FTA is “fantastic news for British business, British workers, and British shoppers," UK Prime Minister Keir Starmer said.

Easing mobility

India and the UK had been discussing the contours of the free trade agreement since January 2022.

According to the official cited earlier, the agreement eases mobility for a wide range of professionals, including contractual service suppliers, business visitors, investors, and intra-corporate transferees. It also extends work rights to partners and dependent children of such transferees.

Ajay Srivastava, founder of Global Trade Research Initiative (GTRI) said the litmus test of the India-UK FTA will be with the treatment of the UK’s Carbon Border Adjustment Mechanism (CBAM). “If Indian exports still face CBAM levies while UK goods enter India duty-free, it risks turning a balanced FTA into a one-sided bargain,” he said. The UK’s proposed carbon tax is set to roll out in 2027.

India's apparel sector stands to gain significantly. The UK imports about $19 billion worth of apparel annually, with China accounting for 21%, Bangladesh 18%, and India just 5-5.5%, or around $1 billion. “If India can double its share to 10%, that’s over $1 billion in additional exports. Even with current duty disadvantages, India is already a preferred sourcing hub for UK buyers. The duty concessions under the FTA will enhance our competitiveness—especially against Bangladesh—allowing us to capture a greater market share from both Bangladesh and China,” said Prabhu Dhamodharan, convenor of the Indian Texpreneurs Federation (ITF).

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The UK remains a pivotal market for India’s gems and jewellery sector, with exports reaching $941 million and imports from the UK at $2.7 billion in 2024. “This FTA would help in accelerating our export growth, with projections indicating a rise to $2.5 billion within the next two years. As a result, total bilateral trade in gems and jewellery is expected to double to $7 billion,” said Kirit Bhansali, chairman of the Gems & Jewellery Export Promotion Council (GJEPC).

Liquor sector

One sector was predictably gloomy.

“Though FTA details are still awaited, from what information we have gathered, it seems that the government has not fully heeded to the pleas of the Indian alcoholic beverage industry,” said Anant S. Iyer, director general of the Confederation of Indian Alcoholic Beverage Companies. “We have consistently called for a level playing field for Indian producers. We sincerely hope the agreement includes a minimum import price (MIP) to prevent dumping and under-invoicing, along with the removal of non-tariff barriers to ensure fair international market access for Indian alcoholic beverages,” he said.

The International Spirits and Wines Association of India (ISWAI) felt differently.

“ISWAI and its members welcome the UK-India Free Trade Agreement as a landmark development for the alcobev sector," CEO Sanjit Padhi said. "The reduction in tariffs offers significant strategic benefits for both countries. India’s increasingly aspirational and discerning consumers will now have access to premium international brands at more accessible prices," he said.

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“India has also secured strong commitments on digitally delivered services under the FTA, particularly benefiting Indian service suppliers in high-demand sectors like architecture, engineering, computer-related services, and telecommunications,” the official cited earlier said. India has also ensured that non-tariff barriers are addressed under the agreement to prevent unjustified restrictions on Indian exports.

‘Game-changer’

Union commerce minister Piyush Goyal said the India-UK FTA set a new benchmark for equitable and ambitious trade between two large economies. Commerce secretary Sunil Barthwal called it a "game-changer", adding it is the most comprehensive FTA India has ever entered into, and "will set the gold standard for our future trade engagements."

Under the FTA, several agricultural and processed food products will see duties reduced to zero. For animal products, which are currently subject to duties of up to 20%, 99.3% of tariff lines will be exempt from duties. Similarly, vegetable and oil products, which also face duties of up to 20%, will benefit from 99.8% of tariff lines being reduced to zero duty. Processed food products, which can face duties as high as 70%, will see 99.7% of tariff lines brought down to zero duty. This reduction is expected to significantly enhance India’s export competitiveness in these sectors.

There are several industrial goods that will benefit from zero duty. These include minerals, chemicals, and plastics, all previously subject to duties up to 8%, as well as leather and footwear (up to 16%), wood and paper (up to 10%), and textiles and clothing (up to 12%). Additionally, headgear, glass, ceramics, and gems and jewellery, previously facing duties up to 12% and 4%, respectively, will also enjoy zero duty.

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Other products like base metals, mechanical machinery, electrical machinery, and transport/auto goods, with duties up to 18%, will also see duty elimination. Zero duty applies to instruments, clocks, arms, ammunition, furniture, sports goods, and works of art as well.

The duty will be relaxed through a graded approach, meaning it will be brought down to zero in a phased manner, as per the government official cited earlier said.