Introduction
Despite their dented past, India and the United Kingdom recognise each other's economic and strategic importance. Talks for a Free Trade Agreement between the two nations began on January 17, 2022, when Prime Minister Modi and his counterpart, Boris Johnson, decided during a virtual summit in May 2021 to elevate their strategic partnership into a comprehensive trade agreement, removing a number of trade barriers and deepening cooperation. Since then, India and UK have been eager to engage with one another and work towards a mutually beneficial deal. About three reviews have taken place so far at the highest level in India, i.e., the Prime Minister's Office, and both countries are working on lingering disparities.
India-UK economic bilateral ties and Foreign Direct investment
Given that the two countries have shared interests and values, a shared vision for peace, stability, democracy and prosperity, and have been strategic partners since the early 2000s, there is a strong and steady commitment to increase their collaboration in foreign policy. Bilateral mechanisms like the India-UK Economic and Financial Dialogue (EFD), the India-UK Joint Economic and Trade Committee (JETCO), and the India-UK Economic and Financial Dialogue (EFD) clearly indicate a shift in efforts towards building economic cooperation and maintaining bilateral trade. The current conversations also show that India and the UK are dedicated to building a broad and mutually beneficial trading partnership. Notably, bilateral trade volume between the UK and India increased from $17.5 billion in FY 2021–2022 to $20.36 billion in FY 2022–2023. India is the fifth-largest investor in the UK, and there are about 700 Indian businesses, of which Tata is the largest private sector employer in the UK. Moreover, it is remarkable that the third-largest FDI investor in India is also Britain.
As per the UK government, over the course of the four quarters leading up to the end of Q1 2023, the aggregate trade value of goods and services, encompassing both exports and imports, stood at £36.3 billion between the UK and India. This marks a substantial increase of 34.2 percent, equivalent to £9.2 billion in current prices, compared to the four quarters ending Q1 2022. In terms of foreign direct investment (FDI), the UK's outward FDI stock in India was £19.1 billion in 2021, representing 1.1% of the total UK outward FDI stock. In contrast, the inward FDI stock in the UK from India in 2021 was £9.3 billion, accounting for 0.5% of total UK inward FDI. It is envisaged that India and the United Kingdom will be able to expand their bilateral commerce after signing their FTA. The objective is to increase bilateral trade in products and services to $100 billion by 2030. Around 70% of India-UK commerce is controlled by the services sector. The planned India-UK FTA will eventually encompass 90% of tariff lines.
The progress and challenges of Free Trade agreement talks
The 14th and ongoing dialogue on the India-UK FTA commenced on January 10, and both nations have huge ambitions and are clearly eager for further economic cooperation. The officials have also said that these negotiations will focus on complex issues, including goods, services, and investment. India expects greater access for its skilled professionals from sectors like IT and healthcare in the UK market. On the other hand, the UK is hoping to obtain a significant cut in import duties on goods while seeking more opportunities in telecommunications, legal and financial services. The concluding discussions are focused on business mobility, Scotch whiskey, automobiles, farm products, pharmaceuticals, and rules of origin, along with a separate agreement to enhance bilateral investments. This proves to be a difficult task, as the respective industries are integral to the UK's economy and bring several technical challenges.
Recently, India also surpassed France as the largest buyer of Scotch whiskey. The Scotch Whiskey Association states that 219 million bottles were exported to India in 2022, despite the imposition of a 150% import duty on each bottle, keeping in mind domestic distillers. This acts as a complication for the UK, as it wants these tariffs to be reduced to at least 75% and ideally even 30%. Moreover, the current British government demands a maturity age of 3 years for the spirit to be classified as whiskey, which again proves to be a bone of contention for domestic products. The FTA talks have been interrupted by differences over certain chapters and the terms of the agreement, namely scotch, apparel, immigration or increased professional visas, IPR, medicines, and services. Additionally, the upcoming elections have created political sensitivities in this process, and India is eager to wrap up negotiations before commencing its general elections in April 2024.
The original aim was to complete negotiations by Diwali in October. 2023 However, the Secretary of State for International Trade, Kemi Badenoch, announced a deviation from this timeline, emphasising the government's prioritisation of the deal's quality over its speed. Currently, Indian trade negotiators are in the United Kingdom for last-ditch efforts to secure a free trade agreement before election polls are activated. Secretary Sunil Barthwal has led a delegation from the Indian Commerce Department to London to address key issues concerning the proposed trade agreement. This was interestingly followed by a detailed review of the progress of trade pact talks by the Indian Prime Minister office on February 16, wherein Commerce and Industry Minister Piyush Goyal and Commerce Secretary Sunil Barthwal were also present.
Official discourse
If we look at the comments and indicators from government officials, Alex Ellis, the British High Commissioner to India, stated that ‘The two nations are trying to crack the toughest knots in the Free Trade Agreement negotiations, so it certainly won't be easy.’ Further, Dr. Jaishankar, the Indian External Affairs Minister, recently addressed criticisms about the slow-paced talks by questioning the naysayers. “Nobody says why isn't the UK quickly signing up with India?” but he also added that we should speed it up because every FTA and every open step is an achievement in itself. Therefore, it can be established that the responsibility of great understanding and communication awaits both parties, and while it may be no picnic, the reward will be equally gratifying.
The current key issues in FTA negotiations are not the only barriers that New Delhi and London have to cross; there has been a lot of discourse criticising the terms of the proposed agreement. According to a report by the House of Lords International Agreements Committee, although the deal has a large economic benefit, the initial deadline of Diwali last year, i.e., October 2023, was described as “arbitrary” and risked “giving up a good deal for a fast one." Further. The objectivity has been questioned as “vague and high-level," and some have even classified it as “particularly unattainable." The British government has said it is lacking information or elaboration on some sections. The Committee raised doubts about the feasibility of achieving a comprehensive trade agreement in the near future. This scepticism stemmed from India's reputation as a challenging negotiating partner and its track record of relatively limited trade agreements.
Concluding Remarks
It is quite apparent that, because of the gaining momentum of bilateral trade between New Delhi and London, both parties are determined to avoid a situation where either side incurs a loss. India is also demanding greater merchandise of apparel and is trying to push for more professional visas to the UK, which is troublesome because historically, immigration has never been an aspect of free trade agreements. Indian officials hope to tackle intellectual property rights and pharmaceuticals in such a way that Indian generic medicines do not increase in cost. They are looking at regulating agreements in regards to services in a way that does not interrupt the deal. It is imperative that both parties engage in deep dialogue and use their diplomatic resources to work towards building understanding and cooperation. Hopefully, the world can see India and Britain shaking hands on closing the deal and implementing the mutually beneficial terms.
(Purvi Agarwal is a research fellow at the Europe India Centre for Business and Industry.)
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