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Context:

India and the United Kingdom have signed a Free Trade Agreement (FTA), a significant step forward for the world's fifth and sixth largest economies amid persistent global trade instability and tariff uncertainty.

What are the Key Highlights of the India-UK FTA? 

• About India-UK Trade: The UK is India's fourth major export destination, while India is the UK's eleventh largest trading partner. The bilateral commerce of approximately USD 60 billion is expected to quadruple by 2030.
• It is India's 16th free trade agreement and the UK's most significant bilateral trade accord since Brexit.
• The FTA eliminates tariffs on 99% of Indian exports to the UK, which include textiles, apparel, leather, footwear, marine products, sports goods, toys, gems and jewellery, auto parts, engineering items, and organic chemicals.
• Automobile tariffs reduced to 10% within a quota, down from more than 100%.
• It also increases employee mobility. About 100 more annual visas for Indian professionals, especially in IT and healthcare.
• One of the important parts of the agreement between India and the United Kingdom was the signing of a Double Contribution Convention Agreement (also known as a Social Security Agreement).
• It will ensure that professionals from either country are not required to pay national insurance or social security contributions in both nations.
  

Double Contribution Convention Agreement This agreement aims to avoid double taxation by ensuring that income is taxed only once, either in the country of origin or the country of residence. It promotes international trade and investment by providing tax relief for individuals and companies operating across borders.

Significance of the UK-India Free Trade Deal

Bilateral trade increase	£25.5 billion expected increase in trade
UK GDP boost	£4.8 billion annually
Wages rise	£2.2 billion annually
Tariff cuts	Reduced tariffs on whisky, gin, cosmetics, lamb, salmon, chocolate, and medical devices

Significance of FTAs for India

Enhanced Market Access	FTAs allow Indian exporters to access new markets with preferential terms, increasing trade volumes and competitiveness. Example: FTA with UAE boosted exports by 11.8% to USD 31.3 billion in FY23, providing preferential access to 97% of UAE's tariff lines.
Investment Inflows	FTAs foster investor confidence and regulatory certainty, attracting sustained foreign direct investment into India. Example: The EFTA agreement promises USD 100 billion in investments over 15 years, supporting the Make in India initiative and job creation.
Supply Chain Resilience	FTAs help diversify sourcing channels and secure vital inputs for strategic sectors. Example: Australia-India ECTA improves access to critical minerals for green tech and EV manufacturing, strengthening India's position in global supply chains.
Technology Access and Innovation	FTAs enhance economic integration, enabling India to collaborate on advanced technologies. Example: India-Japan CEPA supports advanced manufacturing technologies, and EFTA promotes cooperation on green tech and digital innovation.
Services Sector Growth and Professional Mobility	FTAs provide new opportunities for Indian professionals and service providers through liberalized entry norms and mutual recognition. Example: UAE CEPA and Australia ECTA improve access for Indian services, with easier visa access for professionals and provisions for IT/ITeS growth.

FTA- Free Trade Agreement An FTA is a pact between countries to reduce or eliminate trade barriers, such as tariffs and quotas, to encourage the free flow of goods and services. It aims to increase trade between the participating countries by enhancing market access and economic cooperation.

Key Concerns Associated with India's FTAs

• Rising Trade Deficits
  FTAs have often resulted in a higher growth rate of imports compared to exports, raising concerns about long-term economic sustainability.
  From 2017 to 2022, exports to FTA partners grew by 31%, while imports surged by 82%, leading to an unsustainable trade imbalance.
  
  
• Low FTA Utilization
  India's FTA utilization rate is only 25%, much lower than the 70-80% observed in developed nations, suggesting that the country is not fully exploiting the benefits of FTAs.
  The slow progress in FTA negotiations with the EU and Canada further results in missed trade opportunities, limiting India’s growth and competitiveness.
  
  
• Competitiveness Challenges
  India faces significant competition from partner countries in key sectors, owing to their advantages in innovation and cost efficiency.
  For example, ASEAN countries and South Korea have surpassed India in industries such as electronics and textiles due to superior innovation and cost-efficiency.
  Additionally, India struggles with an inverted duty structure, where raw material imports are taxed higher than finished goods.
  
  
• Non-Tariff Barriers
  Despite reduced tariffs, non-tariff barriers, such as technical standards and regulations, continue to obstruct India’s access to export markets.
  The EU’s Carbon Border Adjustment could impact Indian exports worth USD 8 billion, while labor standards could further affect sectors like textiles and leather.
  
  
• Complex Certification
  The certification processes and rules of origin requirements under FTAs have increased compliance costs for Indian exporters, adding complexity to trade.
  
  
• IPR Tensions
  FTAs with Western countries often pressure India to adopt stricter Intellectual Property Rights (IPR) regimes.
  Agreements with the EU, UK, and US, for example, create conflicts with India's domestic policies, particularly regarding pharmaceutical patents and data exclusivity, which could negatively affect the generic drug industry.
  

Carbon Border Adjustment This policy is designed to impose tariffs or taxes on carbon-intensive imports, encouraging foreign producers to adopt cleaner production methods. It helps prevent "carbon leakage" and supports countries in meeting climate change goals by leveling the playing field between domestic and international industries.

Intellectual Property Rights (IPR) IPR refers to legal protections granted to creators, inventors, and businesses for their innovations, inventions, and creations. These rights help ensure that creators can benefit financially from their work while promoting creativity and innovation within industries.

Way Forward

• Form bilateral committees to ensure the timely implementation of FTA terms.
• Identify and reduce non-tariff barriers to trade, such as different standards and regulatory requirements.
• Promote digital trade by creating frameworks that support e-commerce and digital services while maintaining data privacy and cybersecurity standards.
• Capacity-building programs provide training and resources to support SMEs in leveraging FTA opportunities, including managing export procedures and complying with requirements.
• Implement social security agreements to minimise double taxation on temporary workers and increase labour mobility.
• Ensure trade expansion corresponds with environmental sustainability goals by supporting green technologies and practices.
• Expand India's worldwide trade network by pursuing comprehensive agreements like the India-UK FTA.

Practice Questions: Critically evaluate the impact of Free Trade Agreements on India’s trade balance and industrial competitiveness.