A free trade agreement with the UK is unlikely to boost India's exports

- Low taxes are levied in Britain on most Indian products

After signing free trade agreements (FTAs) with UAE and Australia in the last one and a half years, India is now preparing to sign FTAs ​​with the United Kingdom (UK). Keeping in mind the sensitivities of both the countries regarding trade, the differences on the FTA issue have almost been removed. And both countries are eager to wrap up the FTA talks as soon as possible. A trade agreement with any country provides an easy market for Indian goods in that country, so the respective country also gets a market for their goods in India. As most of the world's countries are smaller in terms of population compared to India and India has become the country with the largest population, trade agreements with India are likely to benefit the other side. A similar situation is also seen in the agreement with the UK, but in a different way.

A free trade agreement with the UK will benefit India's high-quality labor-oriented goods such as apparel, cars, carpets, etc., the Global Trade Research Initiative said recently. This benefit will be limited due to the elimination of import duties by the UK. However, the agreement is likely to benefit the UK more than India. As most Indian goods entering the UK are charged low or zero import duties, the free trade agreement will allow India to enter the UK. Exporters at will see limited benefit.

India's exports of goods to the UK stood at $11.41 billion in the last financial year, with exports of petroleum products, pharmaceuticals, diamonds, machine parts and wooden furniture worth $6 billion, on which zero duty is levied. Keeping this fact in mind, a free trade agreement with the UK is unlikely to benefit India on the export front. The average duty figure on goods going from India to the UK is 4.20 percent. UK products are likely to benefit more than India. Last financial year, India's imports from the UK stood at $8.96 billion, of which 91 percent were goods with high duty. Heavy duty is levied especially on Scotch whiskey and wines.

Now that India has become hasty in entering into foreign trade agreements, it is not out of place to look at how much we have benefited or lost from the countries with which we have signed FTAs ​​in the past. The countries with which India has signed trade agreements include Japan, South Korea and the ten-nation Association of Southeast Asian Nations (ASEAN). A report earlier stated that the trade deficit with the countries that have done FTA has increased sharply.

With the reduction in import duties in India after the FTA, the door has been opened for exporters from FTA partner countries to sell goods in India at cheaper rates than their competitor countries, but Indian companies have not been able to get any significant benefit as the duties are high in the countries with which India has agreements. was at a low or zero level. Thus India has no chance to compete with its rival countries. Due to this, India's imports have started to increase and exports have not grown significantly, resulting in a steady increase in the trade deficit with these countries.

Now India is preparing to do FTA with other countries besides UK. Due to Corona, displeasure towards China has spread in the countries of the world and these countries have started turning towards India as an alternative to China for trade. India's share in the global export market of 22 trillion dollars is less than two percent with approximately 450 billion dollars. Keeping this fact in mind, India will have to be aggressive in reaping the benefits of FTA. On the one hand, while India is lagging behind in expanding its export market, the measures to put restrictions on the export of products like rice and wheat have reduced the country's exports. As for the FTA with the UK, there were recent reports that the UK was pushing for a wider tie-up in India for electric vehicles. The report said that the UK government has demanded to allow export of limited quantities of fully assembled electric vehicles to India without customs duty. The UK has also proposed a 100 percent reduction in duty on electric vehicles priced above $40,000. Cars costing more than $40,000 are charged 100 percent while others are charged 70 percent import duty. As electric vehicles are an emerging sector, India is hesitant to provide any relief to them. Not only that, electric vehicle manufacturers in India are also opposing it.

If relief is provided on UK cars, similar demands may arise from other countries. This may affect the electric vehicle industry in India.

FTAs can be a way to boost exports, but this way can only prove successful if export growth is higher than imports under a free trade agreement.