LONDON/NEW DELHI – Britain and India signed a free trade agreement on July 24 during a visit by Indian Prime Minister Narendra Modi, sealing a deal to
cut tariffs on goods
from textiles to whisky and cars and allow more market access for businesses.
Talks on the trade pact were concluded in May after three years of stop-start negotiations, with both sides hastening efforts to clinch a deal in the shadow of tariff turmoil unleashed by US President Donald Trump.
The agreement between the world’s fifth and sixth largest economies aims to increase bilateral trade by a further £25.5 billion (S$44 billion) by 2040.
It is Britain’s biggest trade deal since it left the European Union in 2020 but its impact will be a fraction of the effect of leaving the orbit of its closest trading partner.
It is India’s biggest strategic partnership with an advanced economy, and it could provide a template for a long-mooted deal with the EU and for talks with other regions.
Both sides hailed as historic a deal which will take effect following a ratification process, likely within a year, after which firms such as whisky distiller Diageo and carmakers including BMW, Nissan, Aston Martin and Tata-owned Jaguar Land Rover could benefit from lower duties.
At his Chequers country residence, British Prime Minister Keir Starmer said there would be huge benefits for both countries, making trade cheaper, quicker and easier in a new global era for trade.
Mr Modi called the agreement “a blueprint for our shared prosperity,” highlighting how Indian goods from textiles to jewellery and seafood would secure better market access.
The countries also agreed a partnership covering areas such as defence and climate, and aim to strengthen co-operation on tackling crime. Mr Modi spent nearly three hours with Mr Starmer before going to meet King Charles at his Sandringham Estate.
The trade deal came about quickly after Britain’s new Labour government restarted negotiations in February.
“We were able to recognise and respect each other’s sensitivities, so that contentious issues were not allowed to break the success of the negotiations,” India’s Commerce Minister Piyush Goyal told Reuters in an interview.
Under the trade agreement, tariffs on Scotch whisky will drop to 75 per cent from 150 per cent immediately, and slide to 40 per cent over the next decade. Tariffs on drinks such as brandy and rum will be cut to 110 per cent initially and end up at 75 per cent.
On cars, India will cut duties to 10 per cent within five years from current levels of up to 110 per cent under a quota system that will be gradually liberalised.
In return, Indian manufacturers will gain access to the British market for electric and hybrid vehicles, also under a quota system.
Under the deal, 99 per cent of Indian exports to Britain will benefit from zero duties, including textiles, and Britain will have reductions on 90 per cent of its tariff lines, with the average tariff UK firms face dropping to 3 per cent from 15 per cent.
But the projected boost to British economic output, of 4.8 billion pounds a year by 2040, is small compared to Britain’s gross domestic product of 2.6 trillion pounds in 2024.
Britain’s Labour government, in power for a year, has launched a reset of ties with the EU to smooth post-Brexit trade friction and won some tariff relief from the United States.
“In an era of rising protectionism, today’s announcement sends a powerful signal,” said Mr Rain Newton-Smith, chief executive of the Confederation of British Industry.
The deal will facilitate easier access for temporary business visitors although visas are not covered. The sides also agreed that workers will no longer have to make social security contributions in both India and Britain while on temporary postings to the other.
British firms will be able to access India’s procurement market for projects in sectors such as clean energy, and the trade deal also covers services sectors such as insurance.
India did not manage to secure an exemption from Britain’s Carbon Border Adjustment Mechanism – which could levy higher taxes on polluters from 2027 – as part of the deal.
Mr Goyal said that there were a “few pending issues” which had held up a bilateral investment treaty, but the trade deal showed that India was serious about negotiations with the European Union and the United States too.
“No agreement becomes necessarily a base for another agreement (but) what it does do is demonstrates how serious India is about engaging with the developed world,” he said. REUTERS
