After three years of talks, the UK and India have agreed to a free trade agreement that by 2030, it would double bilateral trade between the world’s fifth and sixth largest economies.
However, it is not without controversy over changes to the rules on Indian workers, particularly supported by the UK, and the UK government’s outline of the agreement stated that work is still needed to “solve the last issue” such as automatic quotas and carbon border tax.
Trade experts said the government said that the overall transaction, which increases UK GDP by 0.1% per year over the long term, focuses on goods rather than services, reflects long-standing resistance to opening markets in those areas.
How important is the National Insurance Exemption?
The most controversial part of the UK transaction is that under the double contribution treaty, both Indian employers and employees will be allowed for short-term transfers to avoid paying national insurance contributions in the UK.
Indian Internal Transfer (ICT) workers and their employers will enjoy the benefits of three years, a welcome allowance that has been welcomed by the Indian government.
The UK did not mention the exemption in its initial announcement of the contract, but later defended it after criticism from the opposition, pointing to similar double taxation agreements between London and 50 other countries.
But a spokesman for conservative leader Kemi Badenok on Wednesday said the UK’s existing agreement was with a country that has roughly the same standard of living and wage structure as the UK.
The spokesperson asked the minister to publish an impact assessment on both the lost income and the number of Indian workers likely to be supported by the UK.
Data from government advisors on migration suggests that India is already one of the UK’s leading ICT countries, particularly between large IT services and consulting groups.
A 2021 paper by the Immigration Advisory Committee (MAC) shows that two-thirds of ICT workers are defined as contractors. This means you can perform work for third-party companies.
The paper included 2019 data showing that 97% of UK ICT contractors were Indian citizens.
Of the 26,700 Indian ICT contractors in the UK, the same data showed that the same data employed in just four Indian-related companies are employed by TATA Consultancy Services, Cognizant Worldwide Ltd, Wipro Ltd and Infosys Ltd.
In contrast, the UK will send a small number of workers to India with ICT relocation, but the government has argued that this could rise due to the transaction.
Will the UK be hit financially by the exemption?
One Indian official suggested that ICT contractors’ savings for Indian companies would be around 20% of their payroll costs.
A Badenoch spokesperson said when the government proposed to dispose of national insurance for ICT workers from India, Tory’s own rough calculations cost between £100 million and £200 million each year.
The government has said that Indian companies will still pay social security for Indian employee salaries, and that Indian contractors will not acquire UK state pensions and will have to pay additional fees to access the NHS.
However, Indian IT workers often earn less salaries than their British peers. In 2021, MAC said the average salary for ICT contractors is around £41,500, clustering at the level necessary to meet the UK’s then-minimum salary threshold for ICT.
Employers can meet pay thresholds by including housing allowances. This means that your actual salary could be lower.
What does trading say about trade in goods?
It will be reduced under contract tax on more than 90% of exports to the UK to the UK, and cosmetics, clothing and drink products will be gradually progressively over a decade, registering some of the biggest cuts.
The UK, which has far lower tariffs, eliminates taxation on almost all Indian imports.
The UK Big winners are whiskey and gin producers. This will quickly cut the tariffs to 75% and drop to 40% by the tenth year of the transaction.
Karen Betts, chief executive of the lobby group Food and Drink Federation, welcomed the deal as a “significant opportunity” to increase UK food exports to India, which won around £300 million in 2024.
However, the benefits of contracts in other sectors were less clear. The UK said it had set a “allocation” to reduce duties on UK automobile exports from over 100% to 10%, but did not specify a quota size.
The association’s Automobile Manufacturers and Traders Association said the transaction was “the first partial liberalization of the Indian automotive market,” but it was “highly likely to be characterized by compromise.”
The UK transaction documents also do not mention Pharmaceuticals, a sector that was subject to a large line in 2022, which showed London wanted changes to India’s intellectual property laws to protect manufacturers of branded drugs.
How will your services be affected?
According to British documents, the transaction promises improved access to UK professional services companies to India.
Trade agencies are encouraged to agree to acknowledge mutual qualifications, and the “non-discrimination rules” ensure that UK services companies are “treated fairly” when operating in India.
Indian officials said that dispute resolution by investors states depends on it.
Companies including Big Four accounting firms, as well as consulting giants such as Accenture, rely on India’s vast offshore businesses to serve UK businesses at low cost.
Regarding the overall liberalization, trade experts said the balance of agreements appears to support India.
David Henig of Ecipe, a think tank, said: “India talks about benefiting from the ‘most ambitious’ UK services, while the UK simply talks about the ‘market certainty’ of companies.
“We need to check the details, which means that the UK has offered India something beyond the commitment of the world trade organisation, but India has not provided it as well.”
