Free Trade Agreement (FTA) and Double Contribution Convention Agreement

Context: India and the U.K. have successfully concluded a Free Trade Agreement (FTA), along with a Double Contribution Convention.

What is a Free Trade Agreement (FTA)?

• A Free Trade Agreement (FTA) is a pact between two or more nations to lower or remove import tariffs on most traded goods.
• It also seeks to reduce non-tariff barriers, promote trade in services, and boost mutual investments.

Overview of India–UK Free Trade Agreement

• Tariff Reductions: India will reduce tariffs on 90% of British goods, including significant cuts on whisky (from 150% to 40% over a decade) and automobiles (from over 100% to 10%).
• Duty-Free Access: 99% of Indian exports to the UK, such as textiles, food, and jewellery, will become duty-free, providing a substantial boost to India’s export sectors.
• Double Contribution Convention: This exempts Indian workers temporarily posted in the UK from paying National Insurance contributions (or social security systems) for up to 3 years, and vice versa.
  • These professionals will remain covered under India’s EPFO (Employees’ Provident Fund Organisation) during their stay abroad.
  • India has similar pacts with countries like Germany, France, Belgium, South Korea, and the Netherlands.

Impact

Economic Impact:

• Trade Growth: The FTA is expected to increase bilateral trade by £25.5 billion ($34 billion) annually by 2040.
• Sectoral Benefits:
  • India: Enhanced access for textiles, apparel, marine products, leather, and auto parts.
  • UK: Improved market entry for whisky, automobiles, medical devices, and aerospace components

Geopolitical Impact:

• Strategic Partnership: The FTA strengthens the strategic partnership between India and the UK, enhancing cooperation in trade, investment, and mobility.
• Post-Brexit Strategy: For the UK, this deal represents the most significant trade agreement since Brexit, aiming to diversify trade relationships beyond the European Union
• Global Trade Positioning: India positions itself as a key global trade player, leveraging such agreements to expand its economic influence.

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