Overall trade gains may be limited for India in FTA with UK: GTRI

Negotiations for the FTA are in the final stages, with both countries engaged in weekly discussions

The proposed free-trade agreement (FTA) between India and the United Kingdom (UK) may result in only ‘limited trade benefits’ for Delhi since many of its exports already enjoy low or zero tariffs, according to a report.

The average tariff on goods imported into India from the UK is 4.2 per cent.

Substantial growth in Indian exports to the UK will ultimately depend on product quality improvements, rather than the FTA alone. But labour-intensive sectors such as textiles, apparel, footwear, and agricultural products will benefit from tariff reductions, according to a report by think tank Global Trade Research Initiative (GTRI). 

Negotiations for an FTA between both the nations are in their last lap now. The duo is attempting to iron out the differences and the negotiations are going on a weekly basis now.

There is anticipation that both the countries will sign the trade agreement by the end of the month, during UK Prime Minister Rishi Sunak’s visit to India.

Products worth $6 billion, including items such as petroleum products, medicines, diamonds, machine parts, airplanes, and wooden furniture already see no tariffs in the UK, even without the FTA.

“However, there will be gains from reducing duties for Indian exports valued at $5 billion, such as textiles, apparel (shirts, trousers, women’s dresses and bed linen), footwear, carpets, cars, marine products, grapes, and mangoes. For example, tariffs on yarn and fabric are 4 per cent, while tariffs on shirts, trousers, women’s dresses, and bed linen range from 10-12 per cent,” the report said. It added that these products will benefit from the FTA tariff reductions by the UK.

On the other hand, UK products face higher tariffs in India. London is set to gain if India agrees to reduce tariffs on items such as petroleum products, whiskey, medicine and machinery, among other items.

Import duty is currently steep for items like automobiles, whiskey, and wines.

The FTA could lead to tariff reductions on these goods, potentially opening up new opportunities, the report said.

“India’s reluctance to reduce tariffs in certain sectors, like dairy, due to political sensitivities, highlights the need for selective import opening to enhance domestic quality. Flexible Rules of Origin may be imperative for the FTA’s success, especially in sectors reliant on imported inputs,” it said.