Thoughts on the India-UK Trade Deal

The exciting news broke yesterday that the UK and India have settled on final terms for a bilateral free trade agreement. The deal was started under PM Boris Johnson and has finally come into fruition 3 years later under PM Starmer's administration, seemingly timed in response to US President Trump's increased global tariffs to offset a bit of their impact on key industries in these two countries. Whilst we await details, my understanding is there are several benefits for both sides:

1) Exports to India: Tariffs will be reduced on a gradual and growing basis for Indian consumers for a lot of the luxury items their growing market has demanded, such as whisky, gin, cosmetics, and cars. Other key exports like lamb, salmon, chocolate, biscuits, and soft drinks are also mentioned. This is incredible news for British luxury brands who have been hit hard since the termination of the tax-free shopping scheme during Covid. India is the largest whisky-drinking market in the world by volume, and before this announcement, Scottish whisky brands only made up about 2% of sales in the Indian market. The Indian market is a large one and this will open the door for significant international expansion for British consumer brands.

2) National Insurance Relief: The issue of hot debate is that the deal includes a new policy that Indian workers that are temporarily transferred to the UK by Indian companies will not be liable for the same UK National Insurance taxation as other workers for 3 years. The same applies to British workers in India. The purpose is to avoid workers being double taxed for benefits they will not receive in their entirety and is already in place in other bilateral agreements with other countries. This could potentially make more business exchange between the two countries a bit smoother and more affordable. I suspect there will also be a cultural exchange component to it too, as there could potentially be more workers transferred between the two countries. Perhaps this could be a great opportunity for Indian manufacturers to have secondments over here to learn more about the UK market and customer preferences. Likewise, for UK retailers to get more immersed in Indian commerce.

3) Imports to the UK: Last but not least, details have not been shared yet but it has been confirmed that there will be a reduction on tariffs for Indian goods imported into the UK - including clothes, footwear, and food items. This is exciting news for us at Rajani Baker as we are launching our clothing line next month! One of the biggest struggles we've had to face is the high cost component of actually bringing amazing Indian-made products to the UK. As a result, the combined cost of shipping, VAT, and Import Duties sometimes means that collectively the courier services and UK Government are getting paid more than our incredible artisans who are toiling away for hours or even days making each beautiful handmade product. I am hopeful this trade deal will positively impact some of the work we've been doing so we can put more of our budgets towards orders with these artisans and giving even more money directly back to those communities, preserving their incredible craftsmanship!

Up to this point you have probably seen product styles that were more traditionally made in India manufactured in Bangladesh because of the UK's Developing Countries Trading Scheme classifying Bangladesh as a country with "Comprehensive Preferences" which reduces import tariff rates to 0% on almost all goods. This is why you'll see a lot of "block print" style bags at some "bargain basement" prices across markets in the UK. Many of these products are not hand block printed but rather digitally printed to mimic block print designs and they are not made in the traditional home of block prints, Jaipur, India, but rather in Bangladesh. Hopefully the new policies will help in some way to continue to support the handmade aspect of this craft in India.

By The Numbers...

Many people ask why handmade products from India aren't as cheap as one might expect, especially if they've traveled to India and seen similar items at lower prices. So far, the answer has largely been taxation.

To give an example of what an order from India might look like today (before implementation of this new trade deal):

1. Buy a clothing item from a manufacturer for £10.00
   
   
2. The manufacturer will pay the Indian government GST (often around 5%) which is their version of VAT.
   
   
3. The UK retailer will pay for the item + shipping fees + some foreign bank transfer fee. Let's say that comes out to about £10.00 + £1.00 = £11.00.
   
   
4. If that item is shipped through a major courier like UPS, FedEx, or DHL the customs clearance process is automatically opted-in to be taken care of by that courier. The good news is that helps the parcel arrive faster. The bad news is that these couriers charge a hefty "disbursement" or administrative fee to do this. There is also often no easy way to opt out. So, the retailer would pay  12% customs duties + 20% VAT + an admin fee (up to 30% of the value of the customs and VAT). All calculations are based on the value of the goods + their shipping fee. So, the £10.00 item now has a customs duty of £1.32 + VAT of £2.20 + disbursement fee of £1.06 + the shipping fee of £1.00 or £5.58 in landing fees, which is more than half of the value of the item! So, the "landed cost" of the item then becomes £15.58.
   
   
5. Once an item is sold for let's say £30 (about 2x landed cost), there are then 3 more tax considerations for the retailer - the VAT on the upsold retail price, the corporation tax on all profits (minus expenses like marketing/overhead/salaries), and income tax for employee salaries or investor's dividends. 
   

* All numbers quoted above are rough estimates.

How will this impact businesses like Rajani Baker?

So, the next time you see a handmade item and think it looks "expensive" remember that in this scenario the artisan's business is receiving at best 33% of that price tag before their own tax and the remaining 67% is split between the retailer and couriers + government. Given that environment, every little bit helps. The new policy will reduce the 12% customs duty stated above, although we have yet to hear by how much,  and it is not likely to reduce any other costs. We are ultimately hopeful that this will mean better prices and selection for consumers, more money being sent back to the artisans to preserve their crafts, and a bit more money to keep our business operations going, to grow new customer bases and to create premium customer experiences. In the meantime we try our best to offer an exclusive selection of products you won't find anywhere else - unique designs, patterns, and scents.

Why the deep  interest in trade policy?

Aside from the obvious fact that our business largely focuses on imports from India to the UK, our founder Victoria also has strong ties to the world of International Trade. She previously held a Vice Consul position at UK's Department for International Trade and also previously worked in Business Development & Strategy at FedEx and as Head of the EMEA Market Expansion Team at TikTok Shop.