UK deal sets cautious tone on trade

India's trade deal with Britain - the first to emerge from bilateral discussions with several large trading partners including the U.S. and the EU - has signalled a cautious approach to opening up its markets. What will this mean for Asia's third-largest economy and its negotiations over Trump's threat of "reciprocal" tariffs? That's our focus this week.

The European Union's latest round of sanctions against Russia was a major blow to Russian-backed Indian refiner Nayara Energy. Scroll down for more on that.

When New Delhi's policymakers talk trade, Donald Trump isn't the only game in town.

India has been in negotiations for years with several big trading partners, including Britain, the EU and Australia as well as the U.S., about bringing down import tariffs. Analysts say this could bring India's biggest trade policy revamp since the liberalisation of 1991, and as it turns out, Britain was the first to cut a deal.

But the fine print of that agreement, signed last week, signals Prime Minister Narendra Modi's government is holding to a cautious and calculated approach to opening up India's economy to foreign goods and services, a template that could be followed in other deals including with the U.S., Reuters journalist Manoj Kumar wrote in this piece.

India has pledged to bring down the average tariff on goods manufactured in Britain to 3% from 15%, although economically vulnerable and politically sensitive sectors such as agriculture and dairy have been left out.

Even in sectors where India has ceded ground, such as autos, the targeted segments have been cherry-picked, while duty reductions will be spread out over several years and quotas will limit the volume of eligible goods.

Tariff reductions on autos, for example, have mostly been limited to high-end passenger cars costing more than 40,000 pounds or 4.6 million rupees, several times the average selling price of 1.2 million rupees for cars in India.

The reductions will be substantial, to 10% from more than 100%, but will be implemented gradually over 15 years and subject to a quota.

These caveats will protect domestic automakers, including M&M and Tata Motors, which earn most of their revenue in the mass market and premium car segments, brokerage ICICI Direct said in a research note.

This factbox lays out key sectors affected in the trade deal.

Given the measures' limited scope and India's relatively low trading volume with Britain, the new free trade agreement is not expected to move the needle much for India's economy.

"As the UK is India's seventh-largest trading partner, accounting for 3.5% of India's total merchandise exports, the FTA is unlikely to alter the current account balance meaningfully," Aastha Gudwani, chief India economist at Barclays, wrote in a note.

But a pipeline of bilateral trade agreements represent a "prudent policy choice" since India is yet to sign a deal with the U.S., India's biggest export market with a 23% share in the April-June 2025 quarter, she said.

A deal with Washington remains under discussion and "fantastic" progress has been made, India's trade minister Piyush Goyal said on the sidelines of the signing of the UK agreement. A failure to strike a deal by the current deadline of August 1 would mean 26% tariffs on Indian imports into the U.S.

Of India's top 10 exports, which make up 72% of the total, the U.S. is the largest buyer for eight, Barclays data showed.

While reducing tariffs on foreign goods, India is also trying to negotiate better access for its own exports.

As part of the agreement with Britain, Indian exports of textiles, leather and engineering goods will face lower tariffs, which could encourage a steady increase in shipments.

Service sector exports, which grew a robust 13% to $385 billion in the latest financial year, might see more immediate benefits.

Britain has agreed to exempt Indian workers from social security contributions for up to 36 months, although this is already on offer to many other countries.

Close to 60,000 IT professionals could benefit from the provision, while on-site costs would be lowered for IT services firms, ICICI Direct Research said. Britain has a 17% share of Indian IT exports.

The deal also improves market access for Indian firms across a number of other service sectors.

"With 137 services sub-sectors opened up by the UK - including IT, consulting, engineering, and telecoms - the deal provides Indian firms broader access to high-value contracts and clients in the UK," ICICI said.

How significant is the India-UK trade deal? Write to me at ira.dugal@thomsonreuters.com.

A new round of EU sanctions against Russia has disrupted operations at Russia-backed Indian refiner Nayara Energy - one of India's two major private sector refiners - and even compelled its chief executive to resign.

Over the past two weeks, a tanker carrying Russian Urals crude was diverted away from Nayara's Vadinar port in western India and had to unload its cargo at another nearby port, while two other tankers skipped their scheduled loading of refined products from Vadinar.

Nayara has also started legal proceedings against Microsoft, citing the suspension of critical services by the U.S.-headquartered software giant. 

Shares of Tata Consultancy Services fell after the company said it would cut 2% of its workforce, affecting 12,000 jobs.

The company said the job cuts were a consequence of AI and other new technologies, along with an uncertain outlook for demand.

Earlier this month, Tata Consultancy announced results that missed analyst estimates of quarterly revenue growth for the April-June quarter.

Thousands of Bengali muslims in the eastern Indian state of Assam have seen their houses bulldozed in the past few weeks by authorities who accuse them of illegally staying on government land.

The demolitions in Assam, where Prime Minister Narendra Modi's Hindu nationalist party will seek reelection early next year, have coincided with a national clampdown on Bengali-speaking Muslims, who have been accused by Indian authorities of being "illegal infiltrators" from Bangladesh, since the August 2024 ouster of a pro-India premier in Dhaka.

This newsletter was edited by Edmund Klamann, Deputy Head, Asia Desk in Singapore

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