ProfitNama

ProfitNama

Duty Rebate on Scotch Whisky, EVs Likely to be Taken up with UK in Jan

An analysis of the current status of India-UK trade negotiations and implications for investors in 2023.

Source and Citation: Article from ET Bureau published on Dec 30, 2023 originally titled “Duty Rebate on Scotch Whisky, EVs Likely to be Taken up with UK in Jan”

Analysis of this news for a layman

The article discusses the current status of trade negotiations between India and the United Kingdom (UK). Key points:

Duty Rebate on Scotch Whisky, EVs Likely to be Taken up with UK in Jan

Ongoing Discussions

  • Discussions are ongoing regarding duty concessions (import tax reductions) on some UK exports to India like Scotch whisky and electric vehicles (EVs).
  • There is also discussion of easier visa rules to allow more mobility of skilled Indian workers to the UK.

Resolved Issues

  • Most issues around trade rules and intellectual property rights have been resolved, but some key areas like financial services, insurance, legal services access have not yet been agreed upon.

Tariff Rate Quotas

  • India is considering allowing some UK goods to have lower duties through tariff rate quotas (restricted import volumes at lower duties). This includes EVs.

Carbon Border Tax

  • The UK’s upcoming carbon border tax from 2027 is also being discussed. India wants longer transition periods and tax refunds for its exporters.

Future Agreements

  • Officials are hopeful to finalize agreements with the UK, Oman, and the European Free Trade Association in 2023.
  • In summary, important trade issues are still being negotiated between India and UK. But progress has been made, and a deal is expected to be signed this coming year if the remaining issues can be resolved.

Impact on Retail Investors

For retail investors in India, the potential India-UK trade agreement could influence certain stocks and sectors:

Automobiles

  • If import duties on EVs from UK are reduced, it could negatively impact EV manufacturers in India in the short term as they face more competitive imported models from UK brands like Jaguar, MG Motors etc. Stocks affected could include Tata Motors and Mahindra & Mahindra.
  • However, in the long run, the increased EV adoption could help grow the overall Indian EV industry. And Indian automakers could also explore export opportunities to UK’s growing EV market.

Consumer Goods

  • With likely duty reductions on imported alcohol like Scotch whisky, liquor companies in India could face more competition, especially in premium segments. This could negatively impact stocks like United Spirits, Radico Khaitan etc.
  • But lower duties could also grow the overall market for alcoholic beverages in India. And some liquor brands may gain from exporting Indian-made premium spirits to the UK.

Financial Services

  • If UK financial services firms gain more access to India, banks like HDFC Bank, ICICI Bank, Kotak Mahindra Bank could benefit from partnerships and investments from major UK banks. This could also support the growth of India’s insurance industry. Stocks like SBI Life and ICICI Prudential may benefit.
  • In summary – auto, liquor, and financial services stocks could see direct impacts from this trade deal. Investors need to watch sector-specific developments from these negotiations.

Impact on Industries

Some key Indian industries that could be impacted by the proposed India-UK trade agreement:

Automobiles

  • India’s expanding electric mobility industry could accelerate further if import duties on EVs from UK are reduced. More affordable Tesla, Jaguar, and MG Motors models could increase EV adoption. This would negatively impact the petrol vehicles industry in the short term but support the growth of domestic EV battery, charging infrastructure, and ancillary industries.

Consumer Goods

  • The spirits and alcoholic beverages industry in India could see a shift towards more premium imported liquor like Scotch if import duties are lowered. This would hurt local mid-priced brandy and whisky manufacturers. But the overall liquor market could expand benefiting large retailers like BigBazaar.

Technology Services

  • India’s software services industry could benefit if UK agrees to more flexible visa rules for movement of skilled technology professionals. IT service majors like TCS, Infosys, HCL, and Wipro could expand their operations in the UK.

Financial Services

  • Eased regulations could allow major UK banks like Barclays, HSBC, and Standard Chartered to expand their presence in India. This would stimulate investment and boost the banking and insurance industries’ growth.
  • So cheaper imports from the UK could disrupt some domestic industries like autos and liquor in the near term. But global trade would also boost technology services, EVs, financial services, and retail in India.

Long Term Benefits & Negatives

Potential long-term benefits of the India-UK trade deal:

  • Increased bilateral trade and foreign investments between India and UK. Access to UK’s capital, technology, and India’s huge consumer market and skilled talent.
  • Support for India’s electric mobility shift. In the long run, having more affordable EVs could accelerate mainstream adoption. This helps India’s environmental sustainability and energy security goals.
  • Growth for India’s services sector exports, especially in areas like fintech, IT, and professional services where India has skilled talent to offer.
  • Strategic benefits from stronger economic ties with UK, an influential G7 economy. Could support India’s trade relations with other major Western economies.

Potential long-term negatives:

  • Increased trade deficits for India as cheap imports from the UK flood Indian markets. Could hurt domestic manufacturing if India only exports services rather than ‘Make In India’ goods.
  • Risk of economic dependence on the UK and losing policy control. Binding commitments to UK’s regulations around environment, labor could reduce India’s legislative flexibility.
  • Challenges in safeguarding farmers’ incomes and food security with more British agricultural imports allowed. Could distort India’s rural economy which supports the majority of the population.
  • So while boosting strategic alignments, services, investments in the long run, India needs to carefully balance the trade-offs around economic sovereignty, manufacturing competitiveness, and equitable growth in its UK trade deal negotiations.

Short Term Benefits & Negatives

Short term benefits of the potential India-UK trade agreement:

  • Improved consumer access and choice from higher imports of UK’s globally renowned brands in segments like automobiles, liquor, cosmetics.
  • Increased UK investments into fast growing Indian startups and emerging tech companies, especially fintech, e-commerce, logistics, and supply chain ventures.
  • More highly paid employment opportunities for Indian services professionals in UK’s technology and financial sectors due to easier visa norms and migration.

Some short term negatives:

  • Revenue losses for the Indian government due to lower import duties from influx of UK goods. Could widen fiscal deficit if not offset by increased economic activity.
  • Sudden disruption for domestic companies unable to compete with imports from more advanced UK manufacturers in sectors like EVs, liquor, and packaged foods in the short run.
  • Trade agreement may face opposition from farmer lobbies in India fearing cheaper agricultural imports from the UK hurting rural incomes. Protests by farmer unions could worsen.
  • So while some consumer benefits should accrue quickly along with higher UK investments, the Indian government needs to carefully balance short term economic risks from potential revenue losses and industrial unrest emerging from displaced lobbies. Managing expectations around long term gains will also be key.

Potential Impact of India-UK Trade Talks on Companies:

Indian Companies Likely to Gain:

  • Diageo India: As a leading importer of Scotch whisky, Diageo stands to benefit from duty concessions. Increased affordability could boost sales and market share, potentially impacting their stock price positively.
  • Hero Electric Vehicles, Bajaj Auto, Tata Motors: Reduced tariffs on EVs could intensify competition with foreign players but also open up the UK market for Indian EV manufacturers. Improved export opportunities could drive growth and potentially attract investor interest.
  • Havells, Crompton Greaves: If easier value addition norms for UK EVs are implemented, Indian electrical component manufacturers might witness increased demand for their products, potentially impacting their stock prices positively.
  • IT Services Companies (Infosys, TCS, Wipro): Liberalization in the services sector, particularly IT, could lead to greater access to the UK market for Indian companies, boosting revenue and potentially driving stock prices higher.

Indian Companies at Risk:

  • Indian Whisky Manufacturers (Radico Khaitan, United Spirits): Increased affordability of Scotch whisky through duty concessions could pose a threat to domestic demand for Indian whisky brands, potentially affecting their sales and stock prices.
  • Oil Marketing Companies (Indian Oil, Bharat Petroleum): If electric vehicles gain traction due to easier imports and tax breaks, it could lead to reduced demand for fuel in the long term, potentially impacting the revenue and stock prices of oil companies.
  • Textile Companies: Easier access for UK apparel brands to the Indian market could intensify competition for domestic players, potentially affecting their market share and profitability.

Global Companies Likely to Gain:

  • Diageo PLC (parent company of Diageo India): Increased sales of Scotch whisky in India would benefit Diageo globally, potentially impacting their stock price positively.
  • Tesla, General Motors, Ford: Easier market access for their EVs in India could boost their international sales and market share, potentially driving their stock prices higher.
  • UK Service Providers: Liberalization in the services sector could open up new opportunities for UK companies like banks, insurance firms, and law firms in India, potentially leading to increased revenue and stock price growth.

Global Companies at Risk:

  • Scotch Whisky Producers (Pernod Ricard, Brown-Forman): If India grants significant duty concessions to Scotch whisky, it could impact the competitiveness of other imported alcoholic beverages, potentially affecting their sales and stock prices.
  • European and Japanese EV Manufacturers: Increased Indian focus on UK EVs could pose a competitive threat to established players in the Indian market, potentially impacting their market share and profitability.

Market Sentiment:

  • The news could lead to positive sentiment for companies likely to benefit from the trade pact, especially in sectors like Scotch whisky, EVs, and IT services.
  • Companies potentially facing increased competition might see negative sentiment, particularly in the domestic whiskey and textile sectors.
  • Overall market sentiment will depend on the final terms of the agreement and its potential impact on various industries.

Important Note:

This is an analysis based on the limited information provided and should not be considered financial advice. Please consult with a professional financial advisor before making any investment decisions.

I hope this organized analysis in 100 words for each point provides a clear picture of how the potential India-UK trade deal could impact various companies.

error: Content is protected !!
Scroll to Top

Subscribe to Profitnama to access all articles, explanations, stock analysis
Already a member? Sign In Here