Britain and India sign free trade pact during Modi visit
Alistair Smout
and
Manoj Kuma
, Reuters
Indian Prime Minister Narendra Modi. (File photo)
Photo:
Kabir Jhangiani / NurPhoto / NurPhoto via AFP
Britain and India signed a free trade agreement on Thursday 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 pounds 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.
British Prime Minister Keir Starmer said there would be huge benefits for both countries, making trade cheaper, quicker and easier.
British Prime Minister Keir Starmer.
Photo:
STEPHANIE LECOCQ / AFP
"We've entered a new global era, and that is one that requires us to step up, not to stand aside... by building deeper partnerships and alliances," Starmer said in a statement next to Modi at his Chequers country residence.
Modi called the agreement "a blueprint for our shared prosperity," highlighting how Indian goods from textiles to jewelry 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. Modi spent nearly three hours with Starmer before going to meet King Charles at his Sandringham Estate.
Under the trade agreement, tariffs on Scotch whisky will drop to 75 percent from 150 percent immediately, and slide to 40 percent over the next decade. Tariffs on drinks such as brandy and rum will be cut to 110 percent initially and end up at 75 percent.
On cars, India will cut duties to 10 percent within five years from current levels of up to 11 percent 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 percent of Indian exports to Britain will benefit from zero duties, including textiles, and Britain will have reductions on 90 percent of its tariff lines, with the average tariff UK firms face dropping to 3 percent from 15 percent.
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.
The Office for Budget Responsibility (OBR) has forecast that UK exports and imports will be about 15 percent lower in the long run than if Britain had stayed in the EU.
Britain's Labour government, in power for a year, has launched a reset of ties with the EU to smooth 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 Rain Newton-Smith, chief executive of the Confederation of British Industry.
The Confederation of Indian Industry called it a "strong foundation for deeper market access."
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.
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