India-UK trade deal: a silver lining of Trump's tariffs
After three long years of negotiations, Britain and India finally struck a free trade deal today, which UK ministers are labelling "the biggest and most economically significant" bilateral trade agreement to be signed since Brexit.
Keir Starmer, who is expected to travel to India soon to meet his counterpart Narendra Modi, insists this “landmark deal” will add £4.8bn a year to the economy by 2040. Modi, meanwhile, says the “ambitious and mutually beneficial free trade agreement” will “catalyse trade, investment, growth, job creation, and innovation in both our economies”.
Last year, trade between the UK and India already totalled £41bn but, under this new agreement - which could take up to a year to come into force - that figure is expected to rise by an extra £25.5bn a year by 2040.
India has agreed to cut tariffs across 90% of British product lines. The UK in turn will cut taxes on India’s clothing, jewellery and footwear exports, alongside various food products, and it will meet a key demand from Delhi by exempting Indian workers temporarily living in the UK from paying national insurance contributions for three years. The NI concession has prompted a backlash in Britain, amid reports that the Home Office was not consulted.
Imrpoved trade terms is a win for Britain given India’s size, growth rate, and the high existing barriers to accessing its market. India is the world’s fastest growing economy, forecast to overtake Japan and Germany in the next few years to become the third biggest economy on the globe. And the average tariff Delhi whacks on imports is 17 per cent.
India is also the world’s largest export market for whisky. Under this agreement, Indian tariffs on British whisky and gin are set to be halved from a whopping 150% to 75%, before reducing to 40% by the 10th year of the deal. The Scotch Whisky Association has said these lower import taxes will be “transformational for the industry”.
The deal offers a much-needed boost to Britain’s automobile industry, which is suffering from the impact of Trump’s steep import taxes on metals. Indian tariffs on British cars are set to be reduced from 100% to 10%, albeit with quotas set on the number of British cars that can be exported to India and vice-versa.
The finalisation of an agreement will be a relief too for Delhi which is concerned not only by direct US tariffs but also by the indirect impact of Washington’s trade war with Beijing, namely the risk of cheap Chinese goods flooding the Indian market and killing off domestic industries.
Indian textile makers say they are already feeling the knock-on effects of Trump’s 145 per cent tariff on Beijing, as Chinese producers seek out alternative markets and dump yarn in key production hubs in southern India. Some small spinning mills in the textile hubs of Pallipalayam, Karur and Tirupur told The BBC’s Archana Shukla that orders of yarn from local factories have dropped nearly 40% in the last month, complaining they cannot compete with Chinese rates.
Aside from offsetting some of the recent damage Trump’s tariffs have inflicted on UK and Indian industries, the long-awaited sealing of today’s deal points to a potential silver lining of the US President’s decision to throw the global trading order into chaos: it has concentrated minds.
A succession of Conservative prime ministers coveted a free trade agreement with Delhi but, until now, it has remained tantalisingly out-of-reach. Both Boris Johnson and Liz Truss set Diwali deadlines to get a deal over the line but were ultimately unsuccessful. Rishi Sunak’s decision to call an early election put paid to his efforts to finish off the job.
Now, the uncertainty created by Trump’s chaotic trade policies has given both nations the impetus to go further and faster to reach an agreement. The CBI has welcomed its conclusion as “a beacon of hope amidst the spectre of protectionism".
As for Starmer’s familiar promise that a free trade agreement with Delhi “will grow the economy”, we’ll believe it when we see it.
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