Taking a break from the Look East Policy for trade deals, the Indian government is now counting on economic integration with Western and African nations to fuel export growth.
Under this domain, India is in talks with the United Kingdom for a Free Trade Agreement. When signed, this FTA will serve as a template for an agreement with India’s second-largest trade partner, the European Union.
This agreement is also fuelled by the supply chain disruptions during the pandemic which brought the Western companies to look at the risks of the overdependence on China and the need for a China+1 policy.
Even for the United Kingdom, this trade deal with India is crucial as the ruling Conservatives in the UK face a tough election in early 2025.
India’s labor-intensive sectors such as apparel and gems and jewelry which have seen a steep decline in market share over the last five years and the textile exports which face tariffs as high as 10% in the UK could benefit from this FTA as it could bring India on par with competition such as Bangladesh, and revive the textile exports.
India could utilize tthis agreement to eliminate non-tariff barriers (NTBs) that have been a concern for exporters, especially for agri exports. NTBs often come in the form of regulations, standards, testing, certification, or pre-shipment inspection that are directed towards protecting human, animal, or plant health, and the environment.
From this FTA agreement, the United Kingdom is likely to benefit more as many Indian exports to the UK already enjoy low or zero tariffs while British exports to India such as cars, Scotch whiskey, and wines face considerable tariffs of 100-150%. Tariff reductions on these goods will potentially offer them deeper access to Indian markets.
The average tariff on goods imported from India to the UK is 4.2% but the average tariff in India on goods imported from the UK is 14.6%.
Another issue for India is that the UK is looking to impose a levy on metal imports based on carbon emissions. The UK’s carbon tax could be harsh as one of its aims is to reduce dependence on Russian energy imports.
Till now, 13 rounds of negotiations have concluded on the issue, and chief negotiators of India and the UK are expected to soon hold the next round of talks to iron out remaining issues, including concessions for electric vehicles (EVs) and greater market access in services, among others.
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