Labour-intensive Goods Made In India To Benefit From FTA With UK; Though Overall Gains Limited: GTRI

According to think tank GTRI, the planned free trade deal between the two nations will assist India’s high quality, labour-intensive products including clothing, footwear, carpets, and cars by eliminating import duties. According to the Global Trade Research Initiative (GTRI), India will only see modest overall gains because the majority of its products currently enter the UK with low or no tariffs (import or customs duties).

India’s exports of goods to the UK in 2022–23 were valued at USD 11.41 billion; of this, USD 6 billion worth of items—including pharmaceuticals, jewels, machine parts, aircraft, and wooden furniture—entered Britain duty-free.

“Because over half of Indian items currently enter the UK with low or no tariffs, the FTA is anticipated to have a minimal impact on growing these exports. According to GTRI Co-Founder Ajay Srivastava, the average tariff on items imported from India into the UK is 4.2%.

For Indian exports worth USD 5 billion, including textiles, clothes (shirts, trousers, women’s outfits, and bed linen), footwear, carpets, vehicles, marine products, grapes, and mangoes, there will be gains from lowering customs.

“These products face relatively low to moderate tariffs in the UK,” he stated.

The think tank gave examples, stating that tariffs on yarn and fabric are 4%, while those on shirts, pants, dresses for women, and bed linen are between 10% and 12%.

Similar to this, handbags and trunk cases are subject to 8% tariffs, while footwear is subject to charges ranging from 4% to 16%.

The UK’s tariff reductions under the FTA will benefit these products.

The treaty is being negotiated by the chief negotiators of the two nations in the national capital, and the negotiations are at a critical point because they are anticipated to be finished by the end of this month.

GTRI said that while the UK’s removal of duties may benefit Indian exports, considerable growth necessitates improvements in product quality, and concluding an FTA may not be sufficient to significantly boost exports of India’s labour-intensive goods.

For instance, according to Srivastava, the free trade agreement did not significantly increase India’s textile and garment exports to Japan.

India’s exports to Japan increased from USD 257.7 million to USD 368.6 million between 2007-09 and 2019-21, a cumulative growth of 43.1%, whereas India’s overall exports increased by almost 67.9% during the same time period.

In light of this, he said that natural development factors rather than the FTA may be responsible for the minor increase in exports to Japan.

Additionally, it stated that UK exporters would benefit immediately if India removes excessive tariffs on the majority of British items.

In 2022–2023, India imported goods worth USD 8.96 billion from the UK. According to statistics, 91% of all goods imported from the UK enter India with average to high customs and charges.

For instance, the tax on cars is 100% and the tax on Scotch whisky and wine is 15%.

It also stated that India’s basic average tariff on products imported from the UK is 14.6%.

According to GTRI, British products such as precious metals (silver, unwrought platinum and gold, diamonds), metal scrap (waste aluminium, copper), petroleum products, scotch and other alcohol, machinery (turbojet, taps, valves), medicine, and cosmetics will benefit from the FTA-led tariff reductions.

During 2022–2023, the UK shipped to India precious metals worth USD 2.7 billion as well as Scotch and other alcoholic beverages worth USD 374 million.

Regarding autos, it stated: “The UK might demand zero tariffs on luxury vehicles like those made by JLR, Bentley, Rolls-Royce, and Aston Martin, but India could decrease them from 100% to 50%. India might potentially think about imposing a 25% tariff on a small number of units.

In addition, it was mentioned that India may gradually lower tariffs from 150% to 50%, as it did with Australian wines.

Even more than agricultural items, several sectors in India have seen strong tariff protection. The Indian market will expand as a result of significant tariff reductions, particularly for wines.

GTRI stated that India tends to adopt more conservative regulations compared to most industrialised countries, which has resulted in extensive debates and negotiations in its FTA talks, particularly with the UK. Regulations of Origin is a crucial problem in the deal.

“However, India may need to be more flexible in its Rules of Origin framework, especially as its firms in sectors like chemicals, electronics, and synthetic textiles are increasingly using imported inputs,” said the report.

Rules of Origin guarantee that goods from other nations do not get FTA benefits until they are significantly changed in the exporting nation.