- The deal marked a ‘strategic win’ for New Delhi’s trade diplomacy, economists say.
- As much as 99% of Indian goods shipped to Britain will be exempt from tariffs.
- The U.K. government estimated its exports to India would see a reduction in weighted average tariff to 3% from 15%.
The presidents of the United Kingdom and India have referred to their free trade agreement as a “historic” pact, which is expected to raise bilateral trade between the two nations by more than $34 billion annually over the long run.
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In front of Indian Prime Minister Narendra Modi and his UK counterpart Keir Starmer, the free trade agreement (FTA) was signed Thursday. It reduces levies on a variety of items, including textiles, alcohol, and cars.
After three years of arduous discussions involving difficult subjects like tax incentives, tariff reductions, and visas, the two parties finally finalized the trade agreement in May. As the world was rocked by U.S. President Donald Trump’s tariff threats, negotiations gathered steam and both governments sped up to finalize the agreement.
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By 2040, it is anticipated that the deal between the fifth and sixth largest economies in the world will increase bilateral commerce by 25.5 billion pounds annually. In 2024, trade in goods and services totaled more than 40 billion pounds.
According to Starmer, the agreement offers “huge benefits to both of our countries,” including increased incomes, improved living conditions, and lower consumer prices.
Modi, the prime minister of India, praised the deal as “a blueprint for our shared prosperity,” emphasizing the advantages of improved access to the U.K. market for Indian commodities such as jewelry, textiles, agricultural products, and engineering equipment.
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Up to 99% of Indian goods delivered to Britain would be free from tariffs as part of the agreement, while 92% of commodities sold by the United Kingdom to India will have levies eliminated or reduced.
According to Dhiraj Nim, an economist at ANZ Bank, the U.K.-India trade agreement was a “strategic win” for New Delhi’s trade diplomacy since it provides specific advantages to Indian exports that were previously subject to high tariffs or regulatory obstacles.
According to the U.K. government, weighted average tariffs on UK exports to India will drop from 15% to 3%. The parliaments of both nations must yet ratify the pact, which may take several months.
The deal exempts Indian temporary workers and their employers from paying social security contributions for three years in the United Kingdom, in addition to lowering tariff rates on a variety of goods.
While brandy and rum duties will be reduced from 110% to 75% initially, U.K. scotch and gin tariffs will be halved from 150% to 75% and then further reduced to 40% over the next ten years.
Under a quota system, auto sector tariffs will be reduced from their current level of up to 110% to 10% within five years.
Samiran Chakraborty, an economist at Citi Bank, estimated that prior to the agreement, the average duty on Indian goods was 4.2%, while the levy on U.K. goods was 14.6%.
According to Chakraborty, this is one of the first trade agreements India has signed with a developed economy. He also mentioned that last year, the United Kingdom made up 3% of India’s total goods trade, with the majority of those commodities being machinery and equipment, followed by textiles and footwear.
According to Nim, the agreement will assist employment and industrial growth in India while also bolstering Indian industries including textiles, gems, and jewelry.
According to Nim, India’s trade surplus with the United Kingdom has increased dramatically over the last two years and may increase even more in the near future as market access improves. The deficit may eventually close with the gradual removal of U.K. export restrictions, especially those pertaining to machinery, cars, and alcoholic beverages.
Despite the fact that overall trade volume is expected to increase, Nim stated that it is difficult to predict exactly which way the surplus will go.
According to commentators, the trade deal would improve both nations’ standing in their current discussions with trading partners, such as the United States.
“The U.K.-India agreement gave them significant “leverage versus the U.S.,” according to Alicia Garcia Herrero, chief economist at Natixis Bank.
Ahead of a possible meeting between Starmer and Trump on Friday, when the U.S. president is on a personal trip to Scotland, London is still working to strengthen the trade agreement it signed with the United States in May.
According to projections, the agreement with India will increase British economic output by an additional 4.8 billion pounds ($6.5 billion) annually, increasing the country’s gross domestic product, which was 2.85 trillion pounds in 2024.
Experts predicted that Modi would use the trade agreement to further his efforts to establish his nation as a competitive trading partner and as a launching pad for his ongoing discussions with other wealthy nations.
We are prepared to trade on our terms, and the agreement with the UK will “set a tone to all the Western powers.” The BRICS Chamber of Commerce and Industry’s vice-president, Sameep Shastri, told CNBC’s Inside India on Friday that the deal came with a lot of support and a lot of voice.
Before higher U.S. tariffs of 26% go into effect on August 1, New Delhi is rushing to reach an agreement with Washington.
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