India-UK Free Trade Agreement: A Lesson for Global Economic Prosperity

India and the UK have taken a progressive and striving step to successively
remove trade barriers and pursue sustained economic growth through their
historic Free Trade Agreement. The upcoming FTA, regarded as ambitious yet
achievable, is a measure towards mutual economic growth, technological
innovation, and collaboration on global challenges, including climate change.
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The FTA is not just unprecedented, but also exemplary of trade relations in the
changing global realities. The new world order is characterised by dynamism,
transcending power centres, and rising importance of the North-South
coordination.

Looking through the lens of global interconnectedness, the deal has something
for everyone, not just the two stakeholders. For the UK, the deal is a step to
diversify its market and enhance its intensive margins in trade; for India, to
multiply job opportunities, cheaper imports and greater access to wester markets, and for the World, it is a push to work progressively towards such synergistic deals.

For instance, the UK-India FTA acts as pull factor for other nations/
economic blocs like the European Union and India (like India-EU FTA, which is
under negotiation for a long time) to work around such deals.

A crucial aspect of the trade deal efficient utilisation of comparative advantage
through enhanced access to the markets on each side. For London, certain sectors
like beverages, automotive, medical devices, and advanced manufacturing will
witness 90% of reduced tariffs. This would include products in which the UK
specializes like whisky, gin, aerospace components, lamb, salmon, electrical
machinery, soft drinks, chocolate, and biscuits, among others. On the other hand,
for New Delhi, the deal opens the doors for the UK market by eliminating tariffs
on 99% of its tariff lines. This is expected to benefit sectors pertaining to textiles, marine products, leather, engineering goods, footwear, sports goods, toys, gems, jewelry, auto parts, engines, and organic chemicals.
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This is where the principle of comparative advantage is at full play, with the
Indian side of the agreement focused on leveraging its labour-intensive sectors to
boost exports. The India-UK FTA 2025 is projected to enhance the UK’s GDP by
£3.3 billion by 2035. As per some estimates, it involves doubling of the bilateral
trade from USD 60 billion in 2024 to USD 100 billion by 2030. Through
drastically reduced tariffs, the FTA aims to boost employment generation in India,
particularly in labour-intensive sectors like textiles and leather.
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Freer labour mobility, which is an important aspect of barrier-free globalisation,
acquires a crucial position in this FTA. The provisions in the deal allow for the
mobility of Indian professionals in IT, financial services, architecture,
engineering, among others, which would help them gain a competitive edge.

Touching on the soft power exchanges, the deal also encourages mobility of
business visitors, investors, yoga instructors, musicians, chefs, and the like.
Moreover, the Double Contribution Convention (DCC) is a much welcome move.
As per the provision, the Indian workers will be temporarily exempted from
making social security contributions for three years in the UK. These provisions
already exist between the UK and Switzerland, Norway, and Canada, and now
India is joining the league. This is a significant aspect of the deal which will
enhance the competitiveness of Indian workers in the UK and create financial
gains for both Indian workers and their UK-based employers.

However, more than the nitty-gritty of the deal, what is essential is to understand
the goals and commitments of the contracting parties. The deal envisages the
UK’s “Plan for Change” to be achieved by the “mission-oriented government and its ambition to deliver change”.

The trade deal is a part of the larger agenda of rebuilding Britain and delivering sustained economic growth. To achieve that, boosting trade and securing business opportunities is fundamental for delivering a strong domestic economy. By “securing the best deal that any country has ever agreed with India”, the UK aims to increase its GDP by £4.8 billion and wages by £2.2 billion, and the bilateral trade is expected to increase by £25.5 billion, through this ambitious and comprehensive deal.

On the other hand, India stands as one of the largest, most dynamic, and robust economies in the world, with the highest growth rates, vast technological
advancements, and a huge market. Thus, the UK sees India as a market with the
potential to absorb large amounts of imports from the UK. Out of £25.5 billion,
£15.7 billion is expected to be accrued to rising exports from UK businesses into
India. UK’s service sector, particularly telecoms and construction services also
expects to take advantage of India’s rapidly growing economy.

For the Indian side, it is an opportunity to expand trade, utilise its demographic
dividend by providing them more opportunities, and focus on job creation
through trade. Thus, the current deal is an opportunity to bypass the pre-existing
hindrances in terms of trade and tariff restrictions. UK and India have decided to
strengthen their partnership, by successively and drastically reducing barriers and
encouraging business stability in both countries. This would be made possible
through faster processing at customs, reductions in technical barriers to trade,
agreements to recognise and facilitate digital systems and paperless trade, and
reaffirmations of standards in areas like sanitary and phytosanitary.

This is an opportunity for the UK and India to unleash regional growth through
region-specific trades. Thus, Indians stand a chance to get tariff-free sip of their
favourite scotch (as Scotland's current largest export to India is beverages), and
enjoy relatively cheaper services from Northern Ireland, automotive and
electrical parts from North West, West Midlands, Yorkshire, and London, among
others. At the same time, the British will have tariff-free access to textiles and
leather from various parts of India, frozen seafood from the coasts, and IT
services, to name a few.

This deal is a reminder for picking up other trade negotiations and ensuring their
implementation, as that doesn’t help the economy in any manner. The India-EU
Free Trade Agreement, known as (Trade and Economic Partnership Agreement
(TEPA), is one such example. It is an opportunity, rather a calling, to accelerate
their negotiations and achieve a deal to boost trade and investment between India
and the European Union. This deal is also expected to reap favourable economic
benefits for both the EU and India, through increased trade and investment, with
India gaining greater access to the EU market and vice versa. Such deals will
unleash vast cross-sector economies of scale and build resilient supply chains for
both economies, as well as reduce the non-tariff barriers, along with the goal of
robust economic growth and partnership for both.