India-UK Free Trade Agreement (FTA)

The India-UK Free Trade Agreement (FTA) concluded on May 6 is a significant milestone in bilateral trade relations. It provides India with zero-duty access to all industrial goods and eliminates import tariffs on a wide range of products.

Key Provisions of the FTA

• The FTA eliminates tariffs on over 99.3% of animal products, 99.8% of vegetable/oil products, and 99.7% of processed foods.
• India's current share in the UK's imports is 1.8% ($15.3 billion) out of a total $815.5 billion, whereas the UK exports $512.9 billion in goods.
• The FTA sets a target to increase the trade partnership to $120 billion by 2030.

Opportunities and Challenges for India

The FTA offers significant opportunities for India's labor-intensive sectors such as footwear, toys, textiles, and apparel (T&A), a sector employing over 45 million people.

• India must address several issues in its T&A value chain, including its fragmented manufacturing base and disjointed value chain across states.
• India currently holds a 6% share in the UK's T&A market, with potential to increase due to the FTA's zero tariff entry.
• The FTA reduces tariffs on British whiskey from 150% to 75% and will further reduce to 40% over the next decade, while British cars' tariffs will drop from 100% to 10%.

Structural Challenges in India's T&A Sector

• The T&A sector faces a fragmented manufacturing base with MSMEs operating in silos.
• The geographical dispersion of processes raises logistics costs and delays, with order-to-delivery time being 63 days compared to Bangladesh's 50 days.
• India's policies on manmade fibers (MMF) are hindered by an inverted GST structure and restrictive quality norms.

Recommendations for Improvement

• Swift operationalization of PM MITRA parks in Gujarat and Tamil Nadu focused on exports.
• Streamlining and simplifying compliance-heavy processes for exporters and rationalizing the GST structure in MMF textiles.
• India should leverage the FTA momentum to negotiate trade deals with the EU and the US, aiming for zero-duty access to these high-value markets.

Future Directions

India must realign its T&A sector with global demands by improving policy, practices, and products.

• Focus on global fashion aesthetics and compliance with international standards like the EU's Corporate Sustainability Due Diligence Directive (CSDDD).
• Scale up production of value-added products such as activewear, athleisure, and technical textiles.
• Reflecting on historical irony, India, once affected by the UK's industrial revolution, now has the opportunity to become a major supplier of T&A to the UK.

The India-UK FTA is a blueprint for future trade negotiations with other major markets, but India must proactively refine its T&A sector's structure and strategies to fully capitalize on these opportunities.