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Scotch, automobile tariffs key challenge to UK-India trade agreement post-Brexit

Informal talks on FTA have begun, though the formal process cannot start until Britain completes its exit from the European Union.

world Updated: Apr 13, 2017 20:51 IST
Prasun Sonwalkar
Scotch in India faces a 150% import tariff.
Scotch in India faces a 150% import tariff.(Getty Images/ iStock)

Reducing the high tariff in India on Scotch whisky and automobiles is one of the top challenges in the free trade agreement (FTA) that the Theresa May government hopes to sign with India after Brexit, as an official briefing estimates a 26% growth in bilateral trade.

Informal talks on the FTA have begun, though the formal process cannot start until Britain completes its exit from the European Union by March 2019. There is much hope in the Scotch whisky industry that the FTA talks will be an occasion to lower tariff in India – its long-standing demand.

According to a briefing by London-based Commonwealth Secretariat economist Rashmi Banga, the UK’s exports to India after Brexit will increase by 33% per annum, while the UK’s imports from India will increase by 12% per annum under the new FTA.

“India has always had much less trade and investment with the United Kingdom than with the European Union. Nevertheless, trade and investments between India and UK have been rising steadily since 2005,” the briefing said.

“A plausible reason for there being a higher increase in the number of exports from the UK to India than the number of imports to the UK from India is that India imposes higher tariffs than the UK does.”

London-based experts say the Commonwealth briefing projects the maximum potential – 26% increase in bilateral trade – under an FTA that reduces all tariff to zero, even if the reality is likely to be less optimistic.

Pratik Dattani, Ficci’s UK director, told HT: “The report confirms the potential for significant future growth in trade between India and the UK. This is especially as the most recent UK government figures show India has dropped out of the top 20 export markets for the UK.

“The potential for trade creation if tariffs between both countries are reduced to zero, the main assumption in the analysis, comes in the gems and jewellery, clothing, leather goods and handbags, and machinery and mechanical appliances sectors.

“In the services sector, there is a great potential to increase Indian exports to the UK in computer services transport services, construction and financial services… The coming months will no doubt see a need for continued robust analysis of the impact on trade in different sectors.”

Anuj Chande, South Asia head at consultants Grant Thornton, said: “There are some challenging sectors, including the IT outsourcing and alcohol industries. Whilst the UK-India trade is moving in the right direction, it is still relatively low given the historic connections.”

Banga’s analysis states that India’s imports from the UK are estimated to increase from $5.2 billion to $7.8 billion, an almost 50% rise per annum under the post-Brexit FTA, while the UK’s imports from India would rise by only 12% from 2015.

“One of the reasons for this is because many products from India are already subject to low UK tariffs. The value of the UK’s imports from India is estimated to increase from $9.1 billion to $10.2 billion (around 12% per annum),” the briefing stated.

Julie Hesketh-Laird of the Scotch Whisky Association (SWA) believes the FTA with India will provide a boost to Scotch in India, where it faces 150% import tariff. Latest SWA figures showed that the volume of 70cl bottles exported to India between January and June 2016 jumped to 41 million from 29.1 million in the same period in 2015, with value by 28% to £43 million.