India-UK FTA: Trade Relations, Challenges, Advantages, & How to Promote

As India-UK is close to concluding negotiations for a proposed India-UK FTA, chief negotiators of both countries will hold the 12th round of talks from August 7, 2023. Both parties hope to wrap up the negotiations before the year is through.

According to the official, the investment treaty, tariffs on whiskey and cars, and concerns relating to services are the primary topics that might be discussed at this round.

Past Economic and Commercial Relations Between India-UK

• India-UK bilateral trade: from April 2021 to March 2022 was £25.7 billion, showing a 35.2% increase from the previous year.
• India imported £8.8 billion from the UK, but it exported £16.9 billion to the country.
• India accounted for 1.9% of all commerce with the UK during this time, placing it as its 12th-largest trading partner.
• Total bilateral trade in goods (merchandise) was £14.4 billion, with India exporting £9.1 billion and importing £5.3 billion from the UK.
• Total bilateral trade in services was £11.3 billion, with India exporting £7.8 billion and importing £3.5 billion from the UK.
• From April to November 2022, total bilateral trade in goods was £13.15 billion, with India exporting £7.10 billion and importing £6.05 billion from the UK.
• Indian investment in the UK included 107 projects and created 8,664 new jobs, making India the second-largest source of foreign direct investment after the US.
• As per the CIl-Grant Thornton India Meets UK Report 2022, there were 900 Indian companies operating in the UK, with combined revenues of almost £54.4 billion, employing 141,005 people and contributing over £304.6 million in corporate tax.
• The UK is the 6th largest inward investor in India, with a cumulative equity investment of US $82 billion (April 2000 – September 2022), accounting for approximately 5.3% of all foreign direct investment into India.

What is FTA?

A Free Trade Agreement (FTA) is a formal pact between two or more countries aimed at reducing barriers to imports and exports, promoting the exchange of goods and services across international borders. It allows for trade without government tariffs, quotas, subsidies, or prohibitions, fostering economic cooperation.

• FTAs facilitate trade by lowering or eliminating barriers between nations.
• Free trade opposes trade protectionism or economic isolationism.

How will the India-UK FTA Work:

FTAs are typically established through mutual agreements between nations. However, a free-trade policy can also mean the absence of trade restrictions, known as “laissez-faire trade” or trade liberalization.

Governments implementing free-trade policies may still maintain some control over imports and exports, and not all FTAs lead to completely unrestricted trade. For instance, some exceptions may apply to certain products, like specific drugs not approved by regulators or goods that fail to meet quality standards.

The concept of free trade and its benefits were initially outlined by economist David Ricardo in his work “On the Principles of Political Economy and Taxation” in 1817.

Challenges During the Negotiations of India-UK FTA

Bitter Past and Political Negativity:
– The historical impact of Partition, anti-colonial resentment, and perceived biases of Britain towards Pakistan have complicated India-UK engagement.
– India faces challenges due to the growing political negativity towards India within Britain.

WTO-related issues: Interim FTAs may face challenges at the WTO if they don’t convert into full FTAs and have preferential treatment only for countries with bilateral agreements.

Engagement with EU and Intellectual Property Rights:
– The UK needs to resolve its internal deliberations on its trajectory with the EU.
– India is unwilling to compromise on producing life-saving generics in Intellectual Property Rights (IPR).

Global Value Chains and Digital Trade:
– Discussions are ongoing to address complexities related to global value chains, aiming for favorable outcomes for India.
– India is yet to finalize domestic laws on digital trade and data protection, leading to caution in making commitments.

Rules of Origin and Labour & Environment in India-UK FTA
1. Rules of Origin (ROO) have been a contentious issue in the FTA talks, as they determine the national source of products.
2. India wants strict ROO to prevent third countries from unfairly benefiting from the FTA.
3. Labor and environmental commitments are being introduced for the first time, and India aims to ensure they are not unfavorable.
4. The UK seeks more stringent IPRs, free cross-border data flow, liberal ROOs, and commitments in labor and environment areas.

What are the Advantages of the India-UK FTA?

The advantages of India signing an India-UK FTA with the UK include:

• Increased Trade: The India-UK FTA would lead to reduced tariffs and trade barriers, promoting more significant bilateral trade between India and the UK. This can result in increased export opportunities for Indian businesses and potentially higher economic growth.
• Access to Markets: The India-UK FTA would provide Indian exporters with better access to the UK market, giving them a competitive advantage over non-FTA countries. It can open up new avenues for Indian goods and services in the UK market.
• Investment Opportunities: The FTA can attract more foreign direct investment (FDI) between the two countries. It may encourage UK companies to invest in India and vice versa, leading to economic growth and job creation.
• Enhanced Economic Ties: The India-UK FTA would strengthen economic ties between India and the UK, fostering better cooperation in various sectors like manufacturing, services, technology, and agriculture.
• Geopolitical Significance: The India-UK FTA can demonstrate closer economic and political cooperation between India and the UK, which may have positive implications for their global standing and geopolitical influence.
• Consumer Benefits: Lower tariffs and reduced trade barriers can result in cheaper imported goods and services for consumers in both countries, contributing to improved living standards.
• Competitive Edge: Indian companies may gain a competitive edge in the UK market through cost-effective production and access to a broader customer base.
• Strategic Partnership: Signing an India-UK FTA can further strengthen the strategic partnership between India and the UK, fostering collaboration on various global issues and shared interests.

How to Promote India-UK FTA?

Promoting the India-UK FTA requires active efforts from both countries to create awareness, build support, and address potential challenges. Here are some strategies to promote the FTA:

• Diplomatic Engagement: High-level diplomatic engagement between India and the UK is essential to show commitment and foster mutual understanding of each other’s priorities and concerns.
• Public Awareness Campaigns: Both countries should conduct public awareness campaigns to educate businesses, industries, and the general public about the benefits of the FTA and how it can enhance economic cooperation.
• Addressing Concerns: Identify and address concerns raised by various stakeholders and industries to ensure that the FTA benefits are well-distributed and inclusive.
• Sector-Specific Working Groups: Establish sector-specific working groups to focus on areas with significant potential for growth and cooperation. These groups can identify and address specific trade-related issues.
• Trade Missions and Delegations: Arrange trade missions and delegations from both countries to visit each other to explore business opportunities and build personal relationships.
• Regulatory Cooperation: Facilitate regulatory cooperation to align standards, certifications, and regulations between India and the UK, reducing trade barriers and improving market access.
• Capacity Building: Invest in capacity building and skill development programs to equip businesses with the knowledge and resources to take advantage of the FTA.
• Engaging the Indian Diaspora: Leverage the Indian diaspora in the UK to promote the FTA and build connections between businesses in both countries.
• Media Outreach: Engage media outlets to highlight the potential benefits of the FTA, creating positive narratives and dispelling misconceptions.
• Political Support: Secure strong political support in both countries to overcome any domestic opposition and expedite the FTA’s negotiation and implementation.
• Clear Timelines: Establish clear timelines for negotiation rounds and implementation to demonstrate commitment and avoid unnecessary delays.

Conclusion

An India-UK FTA can provide numerous economic and strategic advantages for India, promoting growth, trade, investment, and cooperation between the two countries.

By maintaining a collaborative approach, India and the UK can effectively promote and successfully implement the FTA, leading to enhanced economic cooperation and mutual benefits.

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