India-UK FTA unlikely to hurt domestic consumer brands, industry says

New Delhi: Domestic consumer products makers and retailers shrugged off concerns over increased competition anticipated after the implementation of the free trade agreement (FTA) with the UK, saying the pact would instead spur innovation. The India-UK Comprehensive Economic and Trade Agreement (CETA), which came into effect from July 15, is unlikely to spell “serious competition” for domestic brands, they said. The agreement, which either eliminates or reduces tariffs on 99% of Indian products exported to the UK and 90% of British imports into India, is expected to make a range of British-made products, ranging from Scotch whiskey to chocolates, biscuits and cosmetics, more affordable for Indian shoppers. “Tariffs are not the only way to look at competitiveness. We are not at all worried as we have a very significant advantage of sourcing cocoa beans locally.

The UK does not produce cocoa beans,” said Jayen Mehta, managing director at Amul, which makes chocolates and a host of dairy products such as cheese and yoghurts.

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Rakshit Hargave, managing director at Britannia Industries, said, “The FTA is unlikely to create a significant impact on consumer prices, though we have to study the fine print closely.”

Britannia, along with other packaged foods makers including ITC and Nestle, has been stepping up premiumisation across categories to bring in tier-1 consumers and frequent overseas travellers into its fold.

For alcoholic drinks, the pact resulted in reduction of customs duties on Scotch whiskey to 75% from 150% with immediate effect. Duties will gradually decline to 40% over a 10-year period.

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“While consumers will benefit, the impact on retail prices is likely to be more measured as the duty savings will be shared across the value chain,” said Sam Mahandru, founder of Goa-based IndoBevs, which makes BroCode and Glen Eden alcobev drinks. “The FTA will push producers to invest more thoughtfully, innovate faster and build brands that can compete on quality, not protection.” Depending on the categories, customs duties are expected to be reduced progressively over 10 years.

Stating that for most domestic food companies, the impact of the FTA is likely to be “evolutionary rather than disruptive”, Karan Ahuja, spokesperson at DS Group-owned premium gourmet retailer Le Marche, said, “The India-UK CETA is unlikely to have a significant impact on the broader Indian food manufacturing sector, as the agreement primarily benefits UK-origin premium food products, which cater to niche consumers.”

Le Marche, Nature’s Basket and Modern Bazaar are among those that retail primarily premium and luxury gourmet foods imported from a host of countries including the UK, Switzerland and Spain.

Premium Competition
“Companies operating in premium categories such as biscuits, chocolates, sauces, breakfast cereals and gourmet packaged foods may face increased competition over time, but rather than a pricing threat, the agreement will encourage Indian manufacturers to focus on innovation, quality enhancement and premiumisation,” said Ahuja of Le Marche.

While 99% of India’s exports by value are expected to benefit from duty-free access to the UK, India is set to progressively reduce tariffs on 90% of tariff lines, covering 92% of UK imports, over a transition period of up to 10 years, EY said in a Policy Alert report released on Wednesday.

“FMCG (fast-moving consumer goods) stakeholders may align procurement, pricing and portfolio strategies with phased tariff reductions while assessing the competitive implications of increased UK market access.

A robust review of product classification, rules of origin, certification and customs documentation would be critical to secure preferential benefits and mitigate compliance risks,” Suresh Nair, partner, indirect tax at EY India, said in the report.

The FTA will also impact beauty e-retailers such as Nykaa and Tira, which sell imported beauty and grooming products imported from the UK. A Nykaa spokesperson declined to comment.