The global surge for trade partnerships with India has reached unprecedented levels. As India’s trade and commerce continue to grow, it has also gained a unique position in global geo-strategic affairs. The upcoming India-UK FTA (Free Trade Agreement) deal is expected to further bolster India’s standing on the global scale in numerous ways. Negotiators from both sides are working diligently to ensure that the deal is mutually beneficial for these economic powerhouses.
At this crucial stage, the FTA negotiations are entering the final phase. Both Indian and UK negotiators are putting in overtime to prepare themselves, conducting empirical impact assessments and factoring in last-minute contingent measures. The original deadline set by former British prime minister Boris Johnson for the FTA announcement was missed due to political turmoil in the UK and difficulties in finding consensus on contentious issues with conflicting interests.
However, the current ground situation appears to be quite different. There is a higher level of preparedness, with the entire Indian government machinery, from junior assistants to the prime minister himself, burning the midnight oil as a routine. The strong commitment and unprecedented mutual trust between Indian Prime Minister Narendra Modi and UK Prime Minister Rishi Sunak, despite divergent interests and contentious issues, will play a critical role in the timely conclusion of the deal.
Following the UK’s exit from the European Union, known as Brexit, in January 2020, British trade and investment have been affected. To address growing economic concerns, the British government is actively seeking alternatives to boost trade and the economy, as well as to politically save face. In the post-Brexit UK, the FTA with India is seen as a significant prize that would not only benefit trade but also provide strategic significance in countering China and strengthening relations with India, the world’s largest functional democracy.
As the FTA talks enter the final phase, trade negotiations are becoming increasingly complex and challenging for negotiators from both sides to reach a consensus. Contentious issues such as rules of origin, tariffs on alcoholic beverages and scotch whiskey, data localization, movement of people, visa regulations, services trade, patent laws, and climate change need to be carefully addressed.
Reaching consensus on rules of origin has become more difficult as today’s manufacturing is increasingly integrated with global supply chains in a more complex manner than ever before. Sectors with high import contents from multiple sourcing countries, such as electronics, chemicals, and synthetic textiles, require careful consideration of the sensitivities of both sides. Reciprocity in government procurement is another sensitive area that calls for due diligence in protecting the interests of domestic firms, as India currently does not have any commitments under government procurement under the WTO.
Non-trade issues, including labor, sustainability, climate change, and emissions, pose formidable challenges for Indian negotiators due to ground realities and the domestic legal framework. While India is committed to concluding the deal early, British negotiators should also appreciate these ground realities and move ahead to arrive at a mutually rewarding trade partnership.
The UK is one of India’s important trade partners, and since 2004, India has enjoyed a trade surplus with the UK. Textiles are India’s most important export product to the UK, where India has a significant trade surplus of $1.6 billion. This FTA holds enormous potential to enhance the competitiveness of the Indian textile industry in the UK market, as competing countries like Pakistan, Bangladesh, and Sri Lanka enjoy free access under the UK’s Generalised Scheme of Preference (GSP). These tariff concessions are not available to India. Indian textile products such as women’s apparel, shirts, trousers, and bed linens, on which the UK currently levies import duties of 10-12%, are expected to benefit.
The trade deal is also expected to benefit the UK industry by providing better access to its products in India, the world’s fastest-growing major economy and one of the largest markets with a population of 1.4 billion. British automobiles are likely to benefit from import duty reductions, possibly from 100% to 50% or even more in limited cases.
Given that India is the world’s largest consumer of whiskey, accounting for half of global whiskey consumption, the removal of import tariffs on scotch could make the British whiskey industry a major gainer from the India-UK trade agreement as well.
This comprehensive and ambitious trade deal encompasses non-trade issues such as digital trade, intellectual property rights (IPRs), government procurement, services trade, and labor. India and the UK are poised to unlock enormous opportunities not only in trade and investment but also in forging strategic international partnerships, making it a win-win deal.
