War strategist Sun Tzu had said, ‘In the midst of chaos, there is also opportunity.’ Perhaps this is what Indian and British negotiators had in mind amid the chaos of Donald Trump’s tariffs as they hastened to clinch a far-reaching free trade agreement. The deal is expected to boost bilateral trade between the two countries, which is currently at $56 billion, by another $34 billion by 2040.
With that promise, it gives both countries more options in dealing with the US’s tariff regime. The agreement should translate into substantial gains for Indian exporters as Britain will reduce its already-low tariffs, leaving 99 percent of Indian goods facing zero duties. Textiles and apparels, a huge employer in India, should be a big beneficiary, while gems and jewellery, marine products and auto parts would also receive a boost.
The India-UK deal also has a much-awaited ‘double contribution convention’. This will exempt temporary Indian workers in Britain from making social security contributions for 3 years. Britain’s commitments will also ease mobility of professionals, for both entry and placement. This comes as a shot in the arm for India’s information technology sector.
The UK said this was the “biggest and most economically significant” bilateral trade agreement it had signed since leaving the European Union in 2020. India, on its part, will reduce duties on 90 percent of British imports ranging from whisky and medical devices to machinery and lamb. The target is to make 85 percent of British goods tariff-free over the next decade.
Some of this is great news for middle class consumers. For car buyers, a fleet of British models will be far cheaper now with automotive tariffs going down to 10 percent for a punishing 100 percent. On the other hand, spirits manufacturers as well as car makers in India, who have benefited from a protected environment, will find the going tough.
There are other downsides, too. FTAs have often led to a higher growth in imports than in exports, creating a massive trade deficit. While it is time that tariff protections are removed from some industries, on the products of farms and smaller enterprises, which are still struggling to sustain their businesses, a phased tariff protection is still a necessity.