The recently signed India-UK Free Trade Agreement (FTA) is expected to provide a significant boost for multinational corporations (MNCs) looking to diversify their supply chains with a "China+1" strategy. This landmark deal, formalized during Prime Minister Narendra Modi's visit to the UK, aims to significantly enhance bilateral trade and create new opportunities for businesses in both countries.

Key Benefits for MNCs:

• Duty-Free Access: The FTA grants 99% of Indian exports duty-free access to the UK market. This includes key sectors like textiles, leather, engineering goods, and pharmaceuticals, making Indian products more competitive. For UK exports to India, 90% of tariff lines will see reductions, with 85% becoming completely tariff-free within ten years.
• Reduced Tariffs: India will reduce tariffs on 90% of its tariff lines, with the average levy on UK products dropping from 15% to 3%. This will make British products like whisky, cars, medical devices, and cosmetics more affordable in India.
• Increased Investment Flows: Experts anticipate that the FTA will lead to a surge in investment inflows into India as MNCs seek to diversify their supply chains away from China. The zero-duty access to the UK market for key sectors is expected to encourage both domestic and foreign companies to expand their production capacity in India.
• Boost to Key Sectors: The FTA is expected to boost key sectors such as textiles, leather, footwear, sports goods, marine products, gems and jewelry, engineering goods, auto parts, and organic chemicals. For example, India's chemical exports to the UK may rise by 30-40%, reaching $650-750 million in 2025-26.
• Streamlined Customs Procedures: The FTA commits both countries to fair and transparent customs processes, including simplifications for eligible traders and a 48-hour timeframe for the discharge of goods from customs. This will boost exporters' confidence and make it easier for new enterprises to enter the Indian market.
• Professional Mobility: The agreement includes provisions for the temporary stay of Indian business visitors and contractual service providers, yoga instructors, chefs, and musicians. It also exempts 75,000 Indian workers from UK social security payments for three years.
• Services Sector Growth: The FTA is expected to boost India's participation in IT, finance, and digital trade services through commitments on services and professional mobility. Indian professionals will have easier access to the UK's high-value markets.

India as a China+1 Destination:

With the China+1 policy gaining traction, India has emerged as a viable alternative for companies looking to diversify their supply chains. The FTA with the UK further strengthens India's position by providing preferential access to a major global market.

Harshal Dassani, Business Head, INVasset PMS, noted that the zero-duty access to UK markets for key sectors comes at a crucial time when global supply chains are actively seeking China+1 partners.

Specific Sectoral Benefits:

• Textiles: The FTA eliminates tariffs on textile imports from India, enhancing their competitiveness. India is expected to gain at least 5% additional market share in the UK within 1 to 2 years.
• Gems and Jewelry: Tariff relaxations under the FTA are projected to double India's gems and jewelry exports to the UK within the next 2-3 years.
• Leather and Footwear: Tariffs on India's leather and footwear exports have been eliminated, which is expected to add 5% to the UK market share within 1-2 years.
• Engineering Goods: Engineering exports to the UK could nearly double in the next five years, reaching over USD 7.5 billion by 2029-30, due to tariff elimination.

Overall Impact:

The India-UK FTA is projected to boost annual bilateral trade by nearly USD 34 billion. The UK government anticipates that the FTA will add £4.8 billion to its GDP annually, while India is estimated to gain between 0.07% to 0.16% of GDP. This agreement is expected to create jobs, promote technology transfer, and drive economic growth in both countries.

In conclusion, the India-UK FTA presents a compelling opportunity for MNCs looking to diversify their supply chains and reduce their reliance on China. By providing duty-free access to a major global market, reducing tariffs, and streamlining customs procedures, the FTA makes India an even more attractive destination for investment and manufacturing.