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The Print
a day ago
- The Print
Modi govt has learned from past FTAs. Its priority now is building a manufacturing powerhouse
India and the US are currently holding talks over a trade agreement, with the sixth round expected to be held in August, when American trade officials will visit India. This shows India's importance as a trading partner for the US. Trump had announced a 90-day window for tariff negotiations, which ended on 9 July. He later extended the deadline to 1 August and sent letters to 14 countries informing them about new tariff rates. With the emergence of new geopolitical realities arising out of the unilateral announcement of reciprocal tariffs by President Donald Trump, the US cannot be considered a very reliable trade partner. And, even if a bilateral trade agreement with the US is concluded, uncertainty about the country's future actions remains. There are other ambiguities around Trump's administrative actions, and no one is sure of the outcome of US courts' and the Senate's interventions. Therefore, prudence demands that we go slow and wait for countries such as China, Japan, and Vietnam to negotiate with the US. India, meanwhile, can build strategic partnerships with other countries and blocs to prevent overdependence on the US market. The EU is expected to be stable and predictable in its approach, but India has to deftly negotiate the bloc's impulse to impose non-tariff barriers under the garb of human and labour rights, environment, climate change etc. The World Trade Organization is virtually defunct and rule–based trading order looks like a thing of the past. Every country, including India, is negotiating Free Trade Agreements (FTAs) with multiple other nations to protect its export market. In May, India concluded FTA negotiations with the United Kingdom, while talks with the EU and the US are in advanced stages. However, our approach to FTAs cannot be a simple replication of the old template and must be influenced by outcomes of the not-so-successful past trade agreements, such as the ASEAN-India FTA and the Regional Comprehensive Economic Partnership (RCEP) negotiations. Past mistakes The global trade and financial architecture that emerged in the post-World War 2 period supported a rule-based trading system. It allowed several poor countries to overcome the limitations of a small economy and tap into the export market. As a result, these countries — like South Korea, Taiwan, and China — were able to experience above–average growth rates for a long period of time. We missed riding the bus of free trade due to earlier policy misadventures like quota, license raj of Congress–led governments. Now our government is committed to make India a manufacturing powerhouse, but the bus of free trade has hit major road bumps. India is focusing on ensuring competitiveness of domestic industry right now, as there is absolutely no substitute for building the manufacturing sector. Past FTAs failed to yield much benefit because they exposed domestic industries to global competition without strengthening the manufacturing ecosystem through infrastructure development, availability of land and power, and ease of compliances. India needs structural reforms to reduce input costs. The Modi government's focus is on slashing costs of land, power, logistics, compliances, and raw material to enhance global competitiveness of our manufacturers. Several steps have been taken in the last 11 years by the Centre, but a lot remains to be done at the state–level, as most of these areas are basically dependent on state policies. Micro, small, and medium enterprises (MSME) is an important sector for employment generation and integrating our manufacturing into global and regional supply chains. Therefore, before entering into any agreement, the government is ensuring full support to MSMEs. The MSMEs also have a lot to do at their end, since they face difficulty meeting international standards, which limits their competitiveness. It is important for this sector to build institutional capacity and technical know-how to follow global trade standards. Quality Control Order (QCO) was brought with this intention, but it has emerged as another challenge for Indian industries. QCOs hinder the import of raw materials and intermediate products required for manufacturing, creating a negative impact on the domestic production of goods, and reducing India's export competitiveness. Therefore, there is a need for a more sector-specific approach to QCOs. Our recent experiences with custom duties have shown that there is a conflict between imposition of countervailing duties and the interests of MSMEs. Such duties tend to favour big domestic producer industries at the cost of MSMEs which are the users of products that are subject to countervailing duties. So FTAs provide an opportunity for strategic tariff reduction on intermediate goods for the betterment of Indian industries. India will take a data-driven approach in determining tariffs to ensure that they don't disrupt supply chains or discourage innovation and investment. Agriculture sector protection, intellectual property rights, and public procurement are critical and form an important part of tariff negotiation. Hence, their interest is non-negotiable. Any concession given in these areas will be carefully evaluated and bargain precisely measured. We know that if India gives concession to one country or region, others would demand similar treatment and privileges. India should not bend over backward to seek concessions for movement of its citizens across borders as service providers. The negotiating countries use this demand to get concessions from India. Indian talent is in huge demand globally and other countries would anyway need Indian expertise. Otherwise, India can harness its human resources and potential to its own advantage. Also read: India's infrastructure revolution is powering its rise in manufacturing An opportunity Major economic decisions are not made in the fog of uncertainty. Global economic uncertainties are not fully comprehensible and controllable, therefore India's focus is on reducing domestic policy uncertainties. It will surely boost private capital formation. India also has to attract massive foreign capital in export-oriented sectors. But this is easier said than done. The country's image as a destination for foreign capital faces challenges due to certain decisions of the past government, especially the Vodafone tax dispute. India still has significant work to do in areas like judicial reforms for contract enforcement. Trade considerations cannot be fully separated from strategic considerations. The China+1 and risk diversion strategy of global manufacturers are an opportunity for India to benefit from current geopolitical challenges, and therefore the country's focus in FTA negotiations is to counter China. Since China is a major challenge for India in multiple spheres, teaming up with countries at the receiving end of China's irredentist and mercantilist policies is a viable option. This also means that India should still work for multilateral trade deals because third-world countries get a level playing field as well as some preferential treatment under multilateral trade platforms such as WTO. Gopal Krishna Agarwal is the National Spokesperson of BJP. Views are personal. (Edited by Aamaan Alam Khan)
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First Post
a day ago
- First Post
PM Modi set to sign the India-UK FTA deal. Here's how India benefits
India and the United Kingdom are set to sign a free trade agreement (FTA) in the backdrop of Prime Minister Narendra Modi's visit to the UK. India and the UK have been negotiating this bilateral deal for years. India is also trying to negotiate a similar agreement with the United States. But what do we know about the India-UK FTA? What's in it? How do India and UK benefit? read more Follow us on Google News . The deal, which concluded in May, was hailed as 'historic' by Prime Minister Narendra Modi. India and the United Kingdom are set to sign a free trade agreement (FTA). The development comes in the backdrop of Prime Minister Narendra Modi's visit to the UK. India and the UK have been negotiating a deal for years. Modi will meet UK Prime Minister Keir Starmer and hold wide-ranging discussions with him. He will head to the Maldives next on July 25. STORY CONTINUES BELOW THIS AD India is also trying to negotiate a similar agreement with the United States. But what do we know about the India-UK FTA? What's in it? How do India and UK benefit? Let's take a closer look: What we know Negotiations for the deal began in January 2022 under the previous Conservative government. Then prime minister Boris Johnson had ordered negotiators 'to get it done by Diwali in October'. However, the talks over the deal have stretched on for years before concluding in May 2025. Modi in May hailed it as a 'historical deal'. This is India's first such agreement with another nation in over a decade. This is the UK's fourth trade agreement since Brexit. Bilateral trade between the two countries was at $55 billion in 2023/24. The deal includes a double contribution convention – also known as a social security pact – which will help Indian workers. This exempt Indian professionals and companies from social security contributions in the UK for three years — a move described by the Indian government as a 'huge win'. The idea behind it is to stop employers and employees from the burden of contributing to social security in multiple countries. The FTA is extremely detailed – comprising 26 chapters on goods, services, investment, and intellectual property rights. STORY CONTINUES BELOW THIS AD The deal will likely come into effect within a year. It is yet to be cleared by Britain's Parliament. India and the UK are negotiating a Bilateral Investment Treaty (BIT) on a parallel track. India has FTAs with Sri Lanka, Bhutan, Thailand, Singapore, Malaysia, Korea, Japan, Australia, UAE, Mauritius, the 10-nation bloc ASEAN (Association of Southeast Asian Nations), and four European nations' bloc EFTA (Iceland, Liechtenstein, Norway, and Switzerland). India is also currently negotiating FTAs with the US, Oman, the European Union (EU), Peru, and Israel. How India benefits The deal will allow 99 per cent of Indian exports to the UK to fall under zero-duty category. This will boost labour-intensive sectors such as textiles, leather, apparel and footwear, toys, marine product, gems and jewellery. Many of these currently face tariffs ranging from 4 per cent to 16 per cent. Engineering goods, auto components, electric and hybrid vehicles, and sports goods will also benefit. The double contribution pact will be of great help to Indian workers in the UK. It will exempt them from paying into social security for a period of three years. STORY CONTINUES BELOW THIS AD This will save them up to Rs 4,000 crore every year. Under such an agreement, an employee working in a foreign nation is exempt from paying into the social security programme of that nation. Representational Image/ Freepik. The deal will also give Indian yoga instructors, chefs, musicians, and other contractual workers temporary access to the UK. 'The UK is an important market for Indian exporters,' Ajay Sahai, director general of the Federation of Indian Export Organisation, said. It is expected to benefit firms such as Welspun India, Arvind Ltd, Bata India, Relaxo, Tata Motors, Mahindra Electric, and Bharat Forge. It will also increase the flow of investment to India. The UK is currently India's sixth-largest foreign investor. It has already invested $36 billion in India. British firms could partner with Indian companies under the FTA and receive benefits. 'This is a significant agreement,' Vikram Misri, India's foreign secretary, told reporters on Tuesday. Trade minister Piyush Goyal will accompany Modi for the formal signing, a commerce ministry official said. How UK benefits The UK has called this its 'biggest and most economically significant' deal since it signed a similar agreement with the EU. The government has called it a 'huge economic win for the UK' and a 'landmark trade deal'. India will eliminate tariffs on 90 per cent of UK goods. STORY CONTINUES BELOW THIS AD This includes cutting tariffs on Scotch whisky and gin to 75 per cent from 150 per cent. By year 10, this will be reduced to just 40 per cent. Cars being sent to India, which currently face 100 per cent tariffs, will be cut to just 10 per cent. Cosmetics, salmon, chocolates, medical devices, and biscuits will also see tariffs lowered under a quota. UK Prime Minister Keir Starmer The government has called it a 'huge economic win for the UK' and a 'landmark trade deal'. AP British consumers will get the benefits of these products becoming cheaper. Tariffs will also be cut on machinery and aerospace equipment. Firms such as Diageo and carmakers like Aston Martin and Jaguar Land Rover will get a boost. There are around 1,000 Indian companies operating in the UK who employ around 100,000 people. Indian businesses could further invest in healthcare, transport, and energy sectors under the FTA. Additionally, British firms investing in India could receive preferential treatment under the 'Make in India' policy. The Scotch Whisky Association has called the deal 'transformational' The deal is expected to boost the UK economy by $6.5 billion by 2040. STORY CONTINUES BELOW THIS AD Exports to India will increase by $21 billion by that year – around 69 per cent. UK firms will be allowed to bid for non-sensitive tenders in India above Rs 2 billion. The UK says it could allow access to around 40,000 tenders worth Rs 4.09 lakh crore every year.
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First Post
a day ago
- First Post
India-UK FTA: A bold new trade era set to take off
As Prime Minister Narendra Modi undertakes his fourth visit to the United Kingdom this week, the economic relationship that India has with the country has come into focus afresh. Both countries are going to sign a free trade agreement (FTA) during the PM's visit, which is his first since Keir Starmer came to power. The signing of the FTA will mark the culmination of three-year-long negotiations, a process that started in the year 2022 and saw both countries iron out significant differences to achieve a mutually beneficial deal. Once operational, this trading agreement is expected to boost India-UK bilateral trade from its current volume of $55 billion to $120 billion by 2030. STORY CONTINUES BELOW THIS AD The UK remains a key economic partner for India and is also the sixth-largest investor in India, with cumulative investments of around $36 billion. India itself is a key contributor to the British economy, with at least 1,000 Indian companies operating in the country, employing more than one lakh people, with a total investment of $20 billion. Inking an FTA with an emerging economic powerhouse like India is significant for the UK, and maybe this is why they have called it their 'biggest and economically most significant' bilateral agreement since exiting the European Union. For India, this FTA is equally important, as the country is an important market for Indian exports—one with which it also enjoys a modest trade surplus. The FTA is also crucial because it is one of those agreements that India has signed after overhauling its approach to trade liberalisation under the leadership of PM Modi. In 2014, when Modi came to power, one of the first things on his priority list was to review the existing trading arrangements that India had with countries across the world. Prior to this, the previous government had indiscriminately signed FTAs regardless of whether they were securing market access for Indian products or not. Within a decade, India had signed trade agreements with Singapore, ASEAN, Japan, South Korea, among others. This one-sided economic liberalism did provide the UPA coalition with an image of a progressive government that was doing a 'lot' for the country's economy, but by the time they went out of power, India's trade deficit with key countries—including China (with which there was no FTA but just ambitious bilateral trade targets)—had zoomed to unsustainable levels. The India-ASEAN FTA particularly faced a huge domestic backlash because it made India a dumping ground for cheap offerings, while Indian products struggled to survive. STORY CONTINUES BELOW THIS AD Naturally, the issue of the trade deficit and India's lack of capacity to compete in the global market was of grave concern to the Modi government, which preferred to adopt a strategic approach to FTAs—one that focused on securing market access for Indian products on a reciprocal basis. This was more than evident when his government put a pause on signing FTAs till 2021 and even withdrew from the China-dominated Regional Comprehensive Economic Partnership (RCEP). Though Modi faced a lot of flak from his detractors—who called him a socialist, a protectionist, and considered his move to not sign FTAs as adversarial to India's economic interest—he did not budge, as if he knew what was best to protect the country's economic interests. While a strategic pause was put on signing new trading agreements and a careful review of the existing ones was being undertaken, his government took concrete steps on one very important front—building India's indigenous manufacturing capacity so as to compete effectively at the global level. The spirit of Aatmanirbhar Bharat, the early launch of the 'Make in India' program, and the game-changing Production-Linked Incentive Scheme were some of the essential steps that were taken before actually boarding the FTA wagon again. STORY CONTINUES BELOW THIS AD Along with this, the government was also planning a new approach to integration with the global economy, where emphasis was on using this integration to boost India's economy and not just become a market open to exploitation by much more developed countries. When India signs the FTA with the United Kingdom this week during PM Modi's visit, the changed approach to bilateral trading arrangements would be more than visible. Because this time, it has literally put in unprecedented efforts to negotiate a favourable deal with a much-developed economy. The FTA with the UK is set to provide duty-free access to 99 per cent of Indian goods, with key sectors such as automobiles—including electric vehicles—engineering goods, sports goods, and even services benefiting. Most importantly, India, being a labour-intensive economy, will gain access to a wide market, particularly for its leather products, apparel and footwear, toys, marine products, and gems and jewellery. In the last decade, the Modi government's efforts to revive the electronics sector—making it a leading engine of the country's manufacturing story—will be suitably rewarded by this trade deal, as electronics exports from India to the UK have already surged from $450 million in 2020 to $1.7 billion in 2023. India's textiles sector will also benefit from the FTA, which already exports knit apparel and raw materials worth Rs 1.5 billion to the United Kingdom annually. The sheer scope of job creation due to a boost in these exports is going to be huge, with the country's large and cost-wise globally most competitive labour force finding meaningful avenues for employment. STORY CONTINUES BELOW THIS AD Interestingly, India has also allowed for liberalisation in the auto sector—but on a strictly reciprocal basis and that too with well-thought-out caution in place in the form of a quota-based easing of tariffs. This will definitely provide traction to Indian automakers in the UK market, unlocking newer opportunities for them. Another interesting aspect of the trade deal is India's access to the British public procurement market. This means Indian firms will be handed non-discriminatory treatment while applying to fulfil public procurement tenders floated by the UK government. While the exact figures for the UK's total procurement are not available, it is estimated to be an opportunity worth hundreds of billions of pounds that Indian suppliers can now readily tap into. In return, India has also allowed UK-based businesses to participate in public procurement contracts—but only in non-sensitive sectors, with a caveat that they must have at least 20 per cent Indian content. STORY CONTINUES BELOW THIS AD Along with other wins, a crucial victory for Indian negotiators is the provision for exemption from UK's social security contributions in the form of the Double Contributions Convention Agreement (DCCA). Due to this, Indian workers who are temporarily in the UK—and their employers—will not have to contribute anything towards social security in the country, thus leading to savings of around 20 per cent of their salaries. This will set a good precedent for other developed countries to follow with India. India's unexplored side as a tough negotiator has really come to the fore through this deal, as India has also secured exemption for sensitive agricultural products such as dairy products, apples, cheese, oats, etc., which would have collapsed due to fierce competition from British products in the category. Even sensitive industrial goods that need protection before they can compete globally—such as plastics, optical fibres, TV camera tubes, etc.—have also been excluded from the deal. On certain other goods, India has agreed to cut duties only on a gradual basis over a longer period of time. This also includes liquor, where duties will be reduced only over a period of ten years so as to protect the domestic market. STORY CONTINUES BELOW THIS AD This week, when PM Modi signs the FTA with the UK, it will not only signal India's new-found willingness to integrate with the global market, but it will also demonstrate its resolve to do it only on beneficial terms. The days of signing FTAs for the sake of appearing liberal and seeking validation from economists are over for India. This dispensation has shown that it is willing to walk the talk of trade liberalisation with the developed world—but only when it also boosts the country's own economy. The agreement is an example of India's growing assertiveness in the domain of foreign economic policy, and other developed countries who are looking to seal a deal with India must duly take note of it. The author is a New Delhi-based commentator on geopolitics and foreign policy. She holds a PhD from the Department of International Relations, South Asian University. She tweets @TrulyMonica. The views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost's views. STORY CONTINUES BELOW THIS AD
