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Critical Topics and Their Significance for the UPSC CSE Examination on May 12, 2025

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What will be impact of India-U.K. trade deal?

For Preliminary Examination:  Current events of national and international Significance

For Mains Examination: GS II & III - International relations & Trade agreements

Context:

After nearly three-and-half years, India and the U.K. finally gave their nod to a Free Trade Agreement (FTA) this week. Commerce Minister Piyush Goyal said the pact would set a new benchmark for “equitable and ambitious trade between the two large economies”. 

Read about:

Free Trade Agreement (FTA)

Bilateral Agreements

Key takeaways:

• After more than three years of negotiations, India and the United Kingdom have finally agreed to a Free Trade Agreement (FTA) this week. Commerce Minister Piyush Goyal described the agreement as a milestone that would establish a new standard for fair and ambitious trade relations between the two major economies.
• While the final details of the agreement have yet to be released, the Indian business community has generally welcomed the development, although concerns remain regarding its possible effects on agriculture and micro, small, and medium enterprises (MSMEs).
• The deal is expected to be formally signed in about three months and will likely take over a year to be fully implemented.
• India currently ranks as the U.K.’s 11th largest trading partner, while the U.K. is India’s 16th. Their bilateral trade stands at approximately $60 billion, with India maintaining a trade surplus. According to the Indian government, this volume could double by 2030.
• Meanwhile, the U.K. government estimates that the new FTA could further increase trade by $34 billion. The agreement has been finalized against a backdrop of global trade instability, partly triggered by former U.S. President Donald Trump's protectionist policies.
• Although the official text of the agreement is not yet available, the U.K. has stated that India will reduce tariffs on 90% of its exports, with 85% becoming tariff-free over the next ten years.
• The estimated tariff savings under the agreement, based on 2022 figures, are around $534 million. On India’s side, tariffs will be eliminated on 99% of export categories, potentially boosting sectors such as textiles, footwear, engineering goods, auto components, and gems and jewellery. The U.K. also highlighted reductions in tariffs on vehicles, whisky, and gin—sectors impacted by Trump-era tariffs. For instance, the tariff on U.K. alcoholic beverages will drop from 150% to 75%, and eventually to 40% over a decade. Car import duties will be lowered from over 100% to 10%, though this will be subject to quotas depending on vehicle type and engine category.
• In the services sector, India secured an important concession: Indian workers in the U.K. and their employers will be exempt from social security contributions for up to three years, under the Double Contribution Convention.
• Immigration rules, a sticking point during talks with the previous Conservative government, are also expected to be eased, with commitments to transparency and minimal barriers for professional mobility.
• India’s automotive sector has responded positively to the deal. C.S. Vigneshwar, head of the Federation of Automobile Dealers Associatio