In a series of high-level meetings this week, External Affairs Minister S Jaishankar engaged with British Prime Minister Rishi Sunak and Foreign Secretary David Cameron to discuss the progress on the India-UK Free Trade Agreement (FTA). The FTA, which is currently under negotiation, has become the focal point of bilateral discussions between the two nations.

Jaishankar emphasized the importance of finding a mutually beneficial agreement, stating that “the FTA was very much the focus of what the Indian and British systems are negotiating, and we hope that we will find a landing point that works for both…” Once signed, the India-UK FTA is expected to serve as a model for a similar agreement with the European Union (EU), India’s second-largest trade partner.

The global disruption caused by the pandemic highlighted the risks associated with over-reliance on China in supply chains. As a result, Western countries are increasingly exploring alternative trade partners, with India emerging as a favorable candidate. Australia’s ongoing tensions with China, coupled with the complementarities between the Indian and British economies, have further facilitated the negotiation of a trade deal between India and the UK.

For the UK, a trade agreement with India is critical, as it seeks to compensate for the loss of access to the European Single Market brought about by Brexit. While the ruling Conservative party faces a challenging election in early 2025, the prospect of accessing the vast Indian market offers a potential solution to the insecurities plaguing the UK.

The FTA presents opportunities for both countries. Indian sectors such as apparel and gems and jewelry, which have witnessed a decline in market share over the past five years, could regain their competitiveness through tariff reductions and improved market access. Meanwhile, the UK aims to penetrate deeper into the Indian market by seeking tariff reductions on products such as cars, Scotch whisky, and wines, which currently face substantial import duties.

However, tariff reduction is not the only focus of modern FTAs. Negotiations between India and the UK also present an opportunity to address non-tariff barriers—regulations, standards, testing, and certification, which have historically hindered exports. The removal of such barriers, particularly in the agri and manufacturing sectors, is crucial for Indian exporters.

Additionally, India’s exports to the UK may face challenges related to a proposed carbon border adjustment mechanism (CBAM). The UK, following the EU’s lead, plans to impose a levy on metal imports based on carbon emissions. This move could adversely affect India’s exports, even if significant tariff reductions are secured.

As negotiations continue, India and the UK strive to establish a comprehensive FTA that addresses various trade-related concerns. While the potential benefits for both countries are immense, there is a need to carefully navigate issues such as non-tariff barriers and the impact of carbon taxes on specific industries.