India-UK Free Trade Agreement: Auto Duty Cuts Over 10-15 Years with Industry Safeguards

India has implemented protective measures in its free trade agreement with the UK to safeguard sensitive sectors. In the automobile sector, import duties will be gradually reduced over 10-15 years, according to a government official. The duty concessions for petrol and diesel vehicles from the UK are limited to a specific quota, ensuring controlled imports.

Representative image

Automobile Sector and Trade Quotas

The agreement includes a quota for British electric vehicles (EVs) at a reduced customs duty rate, restricted to a few thousand units. This landmark deal, finalised on Tuesday, aims to lower tariffs on 99% of Indian exports while facilitating British exports of whisky, cars, and other goods to India. The goal is to double bilateral trade by 2030 from the current USD 60 billion.

Tariffs on automotive imports will decrease from over 100% to 10% under specific quotas, benefiting companies like Tata-JLR. For cars, duties will be cut over 10-15 years with small import volumes. "We have not allowed futuristic cars EVs or low-cost cars," the official stated. India's car industry is projected to reach 50 lakh units soon and may hit one crore annually by the time duties are reduced.

India's Automotive Industry and Market Access

As the fourth-largest automobile producer globally, India is poised to become a leader in the automotive value chain. Access to the UK market for internal combustion engine (ICE) vehicles could boost India's auto and component exports. No out-of-quota duty reduction for EVs is planned. The sensitivity regarding EVs has been addressed, with ICE vehicle duties decreasing gradually over time.

Electric passenger vehicle sales in India surged by 56.87% in April this year, reaching 12,233 units compared to 7,798 units last year, according to Federation of Automotive Dealers Associations (FADA) data. Tata Motors led with 4,436 electric PVs sold last month, while JSW MG Motor India and Mahindra & Mahindra followed with 3,462 and 2,979 units respectively.

FTA Implementation Timeline and Legal Scrutiny

The FTA text requires additional time for finalisation. Legal scrubbing will take three months with joint lawyer vetting. After signing, the UK's parliament will need about a year for ratification before implementation. The double contribution convention agreement or social security pact will also become effective then.

Besides phased duty reductions to 10% from 100% and vehicle import quotas at concessional rates, tariffs will vary based on price and engine capacity. The India-UK FTA offers significant opportunities for India's services sector. Of the USD 56.76 billion trade between both countries in 2024, around 58% involves services.

Opportunities in Services Sector

India's goods exports to the UK in 2024 were USD 14.38 billion while services exports reached USD 19.57 billion. Goods imports from Britain totalled USD 9.32 billion and services imports were USD 13.45 billion. India aims to increase exports to USD 60 billion within five years and potentially reach USD 80-90 billion in a decade.

The UK has committed across 137 sub-sectors including IT services, financial services, professional services, business services, and education services in the FTA. It also offers an assured regime for temporary entry and stay for business visitors, intra-corporate transfers, contractual service providers, and independent professionals without visa quotas.

Social Security Savings and Procurement Opportunities

The Double Contribution Convention pact will save Indian service providers Rs 4,000 crore annually by exempting temporary Indian workers in the UK from social contributions for three years. This reduces service business costs and boosts competitiveness of Indian suppliers.

Currently, Indian workers and companies contribute 20% of workers' annual salary without benefits unless contributing for at least ten years. Temporary stays typically last only three to four years leading to forfeiture of Rs 4,000 crore annually in social security contributions.

India has opened government procurement for the UK under the FTA while the UK agreed to provide non-discriminatory treatment to Indian suppliers under its Social Value regime. In agriculture, Indian products like fresh grapes and processed foods will be more competitive in the UK market than those from Brazil, Thailand, the US, and China.

The agreement marks a significant step towards enhancing trade relations between India and the UK while protecting key domestic industries through strategic measures such as phased duty reductions and controlled import quotas.

With inputs from PTI