Explain the significance of economic partnerships to India in the current global scenario in the light of recent developments.
The Prime Minister of India announced the conclusion of Free Trade Agreement (FTA) with the UK, along with a Double Contribution Convention Agreement (DCCA) which is expected to boost the economic performance of both countries and also as a predecessor to many of India’s upcoming economic partnerships.
India – UK Free Trade Agreement:
- A Free Trade Agreement is simply a deal between two or more nations on the goods traded between them. The idea behind it is to do away with or decrease customs duties on the overwhelming majority (90 to 95 per cent) of goods traded between them. An FTA also massively reduces non-trade barriers on a significant number of imports from partner nations.
- This is India’s 16th Free Trade Agreement.
- Under this agreement, 99 per cent of Indian exports to the UK will benefit from zero duty.
- This includes labour-intensive sectors such as textiles, marine products, leather, footwear, sports goods and toys, gems and jewellery, and other important sectors such as engineering goods, auto parts and engines, and organic chemicals.
- The deal will offer a massive boost to trade in services, such as IT/ITeS, financial services, professional services, other business services and educational services.
- It eases mobility for professionals such as contractual service suppliers, businessmen, investors, intra-corporate transferees, their partners and dependent children with the right to work, and independent professionals such as yoga instructors, musicians and chefs.
- India will cut customs duties on a number of UK products including whisky, medical devices, machinery and lamb. Whisky and gin tariffs will be cut by half – from 150 per cent to 75 per cent. By year 10 of the deal, the tariffs will be at just 40 per cent.
- India will also reduce automotive tariffs – currently at over 100 per cent – to 10 per cent.
- Tariffs will also be lowered on cosmetics, aerospace, lamb, medical devices, salmon, electrical machinery, soft drinks, chocolate and biscuits.
- Significance of the India-UK FTA:
- India-UK bilateral trade (both goods and services) stood at £40.9 billion in the four quarters to the end of Q3 2024 (up to September). India’s total imports from the UK amounted to £17.5 billion and India’s total exports amounted to £23.4 billion.
- India was the UK’s 11th largest trading partner in this period accounting for 2.4% of UK’s total trade.
- India retains the position of second-largest source of Foreign Direct Investment (FDI) in the UK, after the US. UK is the 6th largest investor in India.
- The UK has said it expects the FTA to boost bilateral trade by $34 billion per year from 2040.
- As per Business Standard, the FTA is expected to double or even triple bilateral trade over the next decade.
India – UK Double Contribution Convention Agreement (DCCA)
- A double contribution agreement is an international pact between nations. It can also be called social security totalisation agreement or bilateral social security treaty. Under such an agreement, the countries specify which nation’s social security regime applies. This offers both businesses and staff protection and allows them to save on costs. It also contributes to the free movement of labour.
- Under the Double Contribution Convention Agreement, Indian workers who are in the UK temporarily will be essentially be exempt from paying into the UK’s social security for a period of three years. It is also known as the social security pact.
- The idea behind it is to stop employers and employees from the burden of contributing to social security in multiple countries.
- It allows employees to benefit from keeping their pension, healthcare and other benefits in their home nation.
- If an employee is working in another country from two to five years, they may be exempt from contributing to social security in the foreign jurisdiction.
- India has previously reached Social Security Agreements (SSAs) with Belgium, Germany, Switzerland, France, Denmark, Korea, and the Netherlands. Indians working in the above countries are therefore not required to contribute towards social security schemes.
- They and their employers can continue with social security schemes run by the Employees’ Provident Fund Organisation (EPFO) in India while working abroad.
Significance of Economic Partnerships in current global scenario:
- With the USA’s new taxation regime expected to cause effects all across the International trade, it is significant for many countries to come together like these to what the WTO refer to as the ‘Regional Trade Agreements’.
- Following Brexit, the India-UK trade deal was in negotiation for more than two years and this would also serve as a catalyst for the upcoming India – EU deals, etc.
- Initiatives like the Double Contribution Convention Agreement (DCCA) will have a multiplier effect in both the economies.
Way forward:
- India is the only major economy not part of any regional grouping. In such a case, India should explore more and more such opportunities.
- India should use this development as a catalyst to strike deals with the US and EU.
- Trade agreements should be constantly monitored and reformed periodically since India has trade surplus with only one of its Free trading partners so far.
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