India secures strategic trade agreement with the UK

Morning Mischief

India secures strategic trade agreement with the UK

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Morning, my friends. War chatter continues to rule the roost as tensions between India and Pakistan escalate further following Wednesday's airstrikes in Pakistan over last month's horrendous militant attack in Pahalgam. Pakistan's Prime Minister, Shehbaz Sharif, has made it clear he's ready to avenge every drop of blood and gave the green light for his forces to strike when they see fit [1]. Yesterday, both nations claimed to have shot down several enemy drones [2], adding fuel to the fire.

Wednesday's operation was India's largest military action against Pakistan in decades. The international community is begging for a de-escalation as the threat of nuclear weapons hanging over both nations could lead to catastrophic consequences. While the public in India seems to favor military action, a prolonged conflict will have a significant impact on the country's psyche and economy. For now, we anxiously await the outcome.

This week, we've got some intriguing tidbits for you:

Once Bitten, Twice Shy

India and the UK have finally sealed a trade deal after three years of intense negotiations [6]. The two nations agreed to terms and announced the deal, causing quite the celebration on both sides. India's commerce ministry announced that 99% of Indian exports will face zero duties in the UK. In exchange, Britain's exports to India will see a 90% reduction in duties, with most goods becoming completely tariff-free within the next decade.

India has opened its market to a variety of consumer goods, including chocolate, biscuits, meats, and cosmetics. In return, they'll export textiles, footwear, sports goods, and toys, among other items. Let's not make this into a shopping list, but it's worth noting that...

First, India has reduced tariffs on automotive goods from 100% to just 10% (with further details to be revealed later). This is a significant boon for Tata Motors, which owns Jaguar Land Rover in the UK. The company's shares have soared more than 7% since the announcement. However, other automotive suppliers in India are concerned that this new policy might open the door for increased competition from Chinese cars that could make their way into India via the UK.

Second, Indian companies operating in the UK won't have to pay national insurance for up to three years for employees moving from India. This will make it easier for Indian IT companies and other service providers to shift staff to on-site projects. However, some UK groups are opposed to this policy, arguing that it will pave the way for more immigration. Overall, it's estimated that the UK government will lose tens of millions per year in revenue as a result of this provision.

Prima facie, it appears that India has expertly negotiated this deal with a strategic plan to expand new markets for sectors that may lose business in the US, such as gems and jewelry. For example, the FTA removed tariffs on India's exports of apparel, putting them on the same level as Bangladesh, while China incurs 12% taxes [11]. These sectors will face challenges exporting to the US, even if tariffs are reduced.

This week, finance minister Nirmala Sitharaman also said that India is aiming to conclude its deal with the EU before the end of the year. The first tranche of the bilateral trade agreement with the US is expected by October. (We hoped to be the first to seal a deal, but the UK beat us to it.) India has been making swift moves to get these trade talks on track, hoping to mitigate losses in one region through gains in others. Cheers to that!

Elsewhere in the world

1. Chinese officials are set to meet with US counterparts in Switzerland for the first round of trade talks this weekend. Will they strike a deal and ease tensions between the two superpowers? Time will tell.
2. Alphabet shares have taken a hit following Apple's announcement that it's considering alternatives to Google search for AI. Is the tech giant trying to cut ties and go it alone, or is this just another round in the Silicon Valley rivalry?
3. Bill Gates is pledging to donate a staggering $200 billion to address global poverty and health challenges. But can his ambitious plans survive in the Trump era?
4. In a surprising move, Trump has proposed increased income taxes for wealthy Americans. Is this a desperate attempt to bolster government revenue, or a bold new approach to wealth redistribution?
5. An investor is targeting the family behind Omega and Longines, looking to shake up the Swiss watch industry. Will this be a game-changer or a publicity stunt?
6. Tiny cocktails are all the rage in the bar world right now. Who knew downsizing drinks could make such a splash?

Skill vs Luck

The burning question in the Indian gaming industry is whether popular card games like rummy rely on skill or luck. This debate could have far-reaching implications for the industry as a whole [7].

Over 70 online gaming companies are contesting a tax notice of Rs1.2 trillion ($14 billion) in penalties and additional goods and service tax, arguing that their business does not involve gambling. The definition is crucial: if these companies provide a "service," they will be taxed at 18%, but if it falls under betting or gambling, the tax burden goes up to 28%. The goods and service tax authority argues that these games are gambling because they involve wagering money without knowing the outcome in advance.

The companies argue that it depends on how much skill a game like rummy involves. They claim that if it is "substantially" or "predominantly" based on skill, betting on it doesn't count as gambling. The outcome of this case will significantly impact the industry. So far, several gaming companies have moved their headquarters outside India due to what they perceive as an excessive tax structure. In 2023, the government made it mandatory for even offshore companies to register in India if they were doing business there.

A higher tax structure could potentially offer some protection for middle and lower-income players in the face of financial losses from gaming. In the past, there have been instances of people, particularly young men, suffering financial ruin due to gambling on these games. The government views the higher tax as a win-win, providing revenue while keeping gaming under control.

Let us know what you think about the rummy debate. Are these games based on skill or chance? Share your thoughts by responding or emailing us at indiabrief@our website.

What's the scene in the EU? India and the EU are nearing the conclusion of their free trade agreement. Catch up on the latest progress here.

Go Figure

The Federal Reserve recently kept US interest rates steady for the third straight meeting, concerned that Trump's tariffs could trigger inflation and weaken the jobs market. Here are some highlights:

• Benchmark rates: 4.25 - 4.5%
• Rise in consumption price index: 2.3%
• Unemployment rate: 4.2%
• The business world is keeping a keen eye on the escalating tensions between India and Pakistan, with Wednesday's airstrikes in Pakistan causing worry for the international community due to the potential threat of nuclear weapons.
• Amidst this situation, India and the UK have finalized a long-awaited trade deal, with 99% of Indian exports facing zero duties in the UK and UK exports seeing a 90% reduction in duties.
• India's automotive sector, including Tata Motors, is expected to benefit from the reduced tariffs on automotive goods, though other automotive suppliers are concerned about increased competition from Chinese cars.
• Indian companies operating in the UK may also benefit from a provision that allows them to not pay national insurance for up to three years for employees moving from India.
• Several online gaming companies in India are disputing a tax notice of Rs1.2 trillion ($14 billion), arguing that games like rummy are based on skill rather than gambling.
• The Federal Reserve in the US has kept interest rates steady, expressing concern about potential inflation and weakening of the jobs market due to Trump's tariffs.
• The EU and India are nearing the conclusion of their free trade agreement, offering opportunities for businesses in both regions.
• In technology, Alphabet shares have taken a hit following Apple's announcement of considering alternatives to Google search for AI.
• The UK government may face a significant revenue loss due to the provision that allows Indian IT companies to not pay national insurance for up to three years for employees moving from India.
• The Swiss watch industry could be shaken up by an investor targeting the family behind Omega and Longines.
• In the world of personal finance and investing, Bill Gates has pledged to donate $200 billion to address global poverty and health challenges, but the success of his plans remains uncertain in the Trump era.

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