India’s trade surplus with UK remained flat during past decade; FTA to improve overall trade: ICRA

India’s trade surplus with the UK has grown marginally over the past decade and it is anticipated that the tariff concessions under recently agreed upon Free Trade Agreement are expected to improve overall trade, according to a report by ratinga agency ICRA.

Merchandise trade between India and the UK increased at a CAGR of 1 per cent between 2014-15 and 2023-24, with imports increasing at a CAGR of 6 per cent compared to exports at a CAGR of 4 per cent.

The trade surplus has increased marginally to USD 4.5 billion in 2023-24 from USD 4.3 billion in 2014-15.

UK’s share in the total Indian merchandise imports was 1 per cent for the past decade, whereas its share in the total Indian merchandise exports was 3 per cent for the past decade.

“Tariff concessions on imports as well as exports are expected to improve the bilateral trade between the countries,” ICRA noted.

UK’s imports are significant for India in as many as 13 categories. ICRA believes that more categories may be added as cost advantages benefit Indian consumers under the recent FTA.UK’s imports are significant for India for many sectors like precious and other metals, automobiles, pharmaceuticals, textiles, alcoholic beverages and cosmetics, among some others.With the FTA, 99 per cent of Indian exports are expected to face zero duty, thereby enhancing export opportunities across various sectors, including textiles, metals, agricultural products, electrical and electronic products, sports goods and leather. Additionally, under the FTA, 90 per cent of Indian imports will benefit from reduced or zero tariffs, providing cost advantages to Indian consumers.

In the realm of services trade, India stands to gain from the UK’s commitments under the FTA in sectors such as IT/ITeS, financial services, professional services, other business services, and educational services.

Regarding financial flows, the UK contributes significantly to India’s Foreign Direct Investment (FDI) equity inflows, Foreign Portfolio Investors – Assets Under Custody (FPI-AUC), and remittances.

“The FTA is expected to ease professional mobility and exempt Indian workers from social security payments for three years – this will further boost these remittances,” said ICRA.

There is also a notable presence of corporate entities in each other’s countries, and ICRA believes that the FTA is anticipated to bring considerable benefits to Indian corporates operating in the UK and vice versa.