India-UK FTA kicks in: What changes for consumers, industry

Changes for consumers

For the first time, India has given major concessions to imported cars and alcoholic beverages in an FTA, reducing tariffs for British cars from up to 110% to 30% in year one. The duty will go down to 10% by year five of the deal coming into effect. The annual quota for British cars starts at 20,000 vehicles and peaks at 37,000 by year five.

India has also given major concessions to British alcoholic beverages by reducing tariff from 150% to 75% initially and then to 40% by year 10. According to Delhi-based think tank Global Trade Research Initiative (GTRI), this is a major concession as India is one of the world’s largest and fastest-growing spirits markets and the UK is the world’s largest whisky exporter.

Tariffs for British beauty and cosmetics and sports equipment have also been removed or reduced.

Indian textile exports currently face tariffs of up to 10% in the UK. The trade deal could place India on a more level playing field with competitors such as Bangladesh, thereby boosting exports. India’s gems & jewellery exports, along with footwear exports, will also get a boost as duty in the UK has been eliminated from up to 12% and 16% respectively.

Customs changes for the first time

For the first time in an FTA, India has allowed a system of self-declaration of origin by exporters or producers in the United Kingdom, replacing the conventional system of certificates issued by designated authorities, which often causes delays and hurdles. Experts said this could become the custom norm for exporters in developed countries such as the EU and US, making it comparatively easier for them to ship goods to India.

This customs change comes as India is also aiming to reduce its dependence on Chinese and Association of Southeast Asian Nations (ASEAN) exporters.

India’s dependence on Chinese medical devices has been a concern. Now, New Delhi has removed up to 14% tariffs on the UK’s medical devices, with phased tariff reductions for some sensitive items.

Quota on steel exports

Commerce Secretary Rajesh Agarwal at a press briefing said quotas allocated by the UK will ensure that India’s iron and steel exports go up. A government official said India’s iron and steel exports will grow from around $850 million to over $1 billion.

The curbs on steel imports announced by the UK after the trade negotiations had become a major flash point before the deal came into effect.

Concessions for Indian professionals

The Commerce and Industry Ministry said that the deal on social security contributions would benefit 75,000 Indian Professionals and around 900 firms by providing exemption from contribution to UK National Insurance for five years. It covers the most important element of avoiding double contribution, exempting employees of Indian companies in the UK from contributing to the UK system.

The challenges

A commerce and industry ministry official said the labour and environment chapter of the India-UK agreement is not binding. Experts said this is a big win for India, as western countries have strong labour and environment norms that tend to act as a non-tariff barrier for exports from developing nations.

However, India did not get an exemption from the UK’s proposed Carbon Border Adjustment Mechanism (a pricing framework to ensure imported carbon‑intensive goods face a carbon cost to comparable to domestic products), set to come into effect from January 1 next year.