China and India signed a trade agreement significantly reducing tariffs, with companies like Jaguar Land Rover and Diageo plc Sponsored ADR (DEO.US) potentially benefiting.

As part of a comprehensive trade agreement, India has decided to reduce tariffs on products such as cars and whiskey manufactured in the UK, a move that will benefit companies like Jaguar Land Rover and Diageo plc Sponsored ADR. After three years of negotiations, the two countries announced on Tuesday that the free trade agreement will lower the cost for UK businesses to sell whiskey, cars, car parts, cosmetics, biscuits, clothing, and electric motors in the country with the world's largest population. India will also benefit from lower tariffs on 99% of products and services exported from the UK. The agreement opens up some previously highly protected industries in India, such as the automotive sector. It also sets a precedent for other trade agreements being discussed, such as those with the EU and the USA, providing a buffer against the impact of tariffs imposed by US President Donald Trump. Economist Radhika Rao of DBS Bank Ltd. stated in a report on May 7 that the trade agreement could come into effect within a year. She wrote that bilateral trade volumes are expected to almost double over the next few years, reaching $21 billion annually by March 2024. While exporters and businesses await the details of the agreement, potential winners and losers are emerging. Overall, the automotive industry is likely to benefit as India's tariffs on cars will drop from 110% to 10%, starting with petrol cars and gradually covering electric and hybrid vehicles over ten years. The agreement will also provide opportunities for Indian car manufacturers to export related technologies to the UK under similar conditions. Beneficiary companies may include Jaguar Land Rover, as well as UK-based factories for Bentley, Aston Martin, Vauxhall, and Mini. However, local car manufacturers like Mahindra & Mahindra Ltd. and Maruti Suzuki India Ltd., who have investments in the electric vehicle sector, may face challenges due to the tariff cuts. The implementation details of these tariff benefits and the price thresholds for low-tariff imported cars are still unclear. Although this is India's first step in opening up its emerging electric vehicle market, the country has not immediately allowed UK car manufacturers to enter at lower costs, providing some room for development for local companies. The agreement will also boost spirit manufacturers. Under the terms of the agreement, tariffs on whiskey and gin will be halved to 75% and reduced to 40% in the tenth year of the agreement coming into effect. In 2022, India imported over 200 million (US$266 million) worth of whiskey from the UK with a tariff rate of 150%. Companies like Diageo plc Sponsored ADR, which produces Johnnie Walker whiskey and Tanqueray gin, are likely to benefit. The share price of its Indian subsidiary, United Spirits Ltd., rose by 2.8% on Wednesday. Pravin Someshwar, Managing Director of Diageo plc Sponsored ADR in India, stated in a release that the treaty will make it easier for Indian consumers to access and choose Scotch whiskey. Karan Taurani of Elara Capital believes that the tariff cuts will result in a 15%-20% decrease in the prices of these spirit products, making high-end spirits more accessible to Indian buyers. Taurani suggests that the tariff reductions could have a slight negative impact on local spirit brands like Royal Ranthambore under Radico Khaitan Ltd., as the company's share price dropped by 3.6%. He said, "Local brands focused on the high-end and above markets may experience growth fluctuations in the short term." Other industries affected include textile manufacturers, the medical device industry, and financial services. The Federation of Indian Export Organisations stated that the elimination of tariffs will enhance the competitiveness of Indian clothing when competing with countries like Bangladesh and Vietnam. Clothing is India's second-largest export category to the UK, with 900 million worth of clothing exported in 2024. After the tariff adjustments, Indian exporters will be able to sell medical devices to the UK at lower costs. Additionally, the UK government stated on its website, "This agreement will ensure UK companies have the ability to provide financial services to Indian clients."