Vidya Ram

UK-India FTA may pump up trade by 26% a year: report

Vidya Ram London | Updated on January 15, 2018

Rashmi Banga, Advisor & Head of the Trade Competitiveness, Commonwealth Secretariat

Rashmi Banga, Advisor & Head of the Trade Competitiveness, Commonwealth Secretariat

India’s trade with the UK has risen from $5.3 billion in 2000 to $14.2 b in 2015

A UK India Free Trade Agreement could increase bilateral trade by 26 per cent a year, according to recent analysis published by the Commonwealth Secretariat.

Driven by a growth of UK exports to India, which could rise by an estimated 33 per cent per annum, a free trade agreement (FTA) could give a fundamental boost to bilateral relations, Rashmi Banga, advisor and head of the trade competitiveness section of the Secretariat, argues in a report presented to the government last year, but published last month.

“India has always had much less trade and investment with the UK than with the European Union…Nevertheless, trade and investments between India and the UK has been rising steadily since 2005,” says the report, which notes that India’s trade with the UK has risen from $5.3 billion in 2000 to $14.2 billion in 2015.

High tariffs

The failure of the EU and India to conclude an FTA has meant that tariffs facing India and the UK in each other’s markets were high.

“Tariffs on UK exports into India are estimated to be around 14.8 per cent on average, while Indian exports into the UK face tariffs of around 8.4 per cent on average,” the report notes, pointing to the 113 per cent tariff on spirits and beverages of UK exports to India, and the 36.6 per cent tariff on Indian dairy exports to the UK.

Indian exports to the UK were likely to rise by a smaller amount (12 per cent a year) because tariffs were higher on the Indian side. Among the sectors that could benefit the most from a trade agreement are Indian exports of clothing to the UK, as well as mechanical appliances such as turbo jets and transmission shafts.

The report also highlighted the opportunity for increase in the exports of services to the UK, in sectors such as computers, transport, construction, and financial services, and identifies potential new exports to the UK such as non-industrial diamonds, clothing, and handbags.

Indian imports of British goods such as natural and cultured pearls, unwrought silver, motor vehicles, and drinks could be the biggest gainers from an FTA, it estimates.

The future of an India-UK FTA remains an open question: while senior figures within both governments have signalled their eagerness to push for one, India has also pushed for a shift on Britain’s stance relating to visas, particularly relating to students, and temporary personnel in the services sector, while Britain is eager to see India shift its position on issues such as the auto sector.

“An India-UK FTA may have some sensitivities that are similar to the India-EU FTA but for an FTA to be concluded successfully high flexibility on both sides is needed,” the report concludes.

Published on April 11, 2017

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