Wednesday, 09 Oct, 2024
By: Anshul Vipat
The agreement between the fifth- and sixth-largest economies in the world is more substantive and will be seen as a benchmark and a template for future negotiations, and given India’s ambitions on the world stage there will be more to come.
After a decade of eschewing free trade deals, India has embarked on an FTA-signing spree that is quickly transforming the country into one of the most FTA-engaged countries in the world. While trade agreements with Australia and UAE are already signed, New Delhi is in the race to conclude bilateral trade agreements with United Kingdom, Australia, Canada, Israel, and the European Union. Amidst this, the final round of India-UK FTA negotiation is due.
Britain’s International Trade Secretary Kemi Badenoch is in India in December for the sixth round of FTA talks. An agreement is good news for both countries. India has traditionally shied away from free trade deals but has recently signed agreements with the United Arab Emirates and Australia.
The agreement between the fifth- and sixth-largest economies in the world is more substantive and will be seen as a benchmark and a template for future negotiations, and given India’s ambitions on the world stage there will be more to come. While there has been some instability in UK politics and government, with Prime Minister Boris Johnson stepping down in July, followed by a party leadership contest to replace him with Liz Truss, the India-UK trade talks continued undeterred. It was Truss in her former job as Foreign Secretary who had initiated the process with her counterpart Union Commerce Minister Piyush Goyal.
Win-win FTA for both
Bilateral trade between the two countries (export and imports together) increased from US$1.7 billion FY2009–2010 to US$17.47 billion in FY2021-22. India enjoys a trade surplus with former colonial power. In the last decade trade in goods between the UK and India increased by about 30 percent making India UK's seventh-largest trading partner, accounting for 1.3 percent of UK's total trade. This relatively small share of overall EU trade in goods points to a large untapped potential.
Apart than trade, India is amongst the top two source markets for FDI into the UK. Over 800 Indian companies play a significant role in UK’s economy by creating jobs and contributing to taxes. The UK is the largest European source of remittances to India and is the sixth-largest FDI source with a cumulative equity investment of US$29.6 billion during April 2000 and September 2020, accounting for around 6 percent of total FDI into India during this period.
Areas of concern
For UK, the economic rationale for the FTA is access for UK firms to a market of over a billion people, which could be a means to escape long-term economic malaise. During the talks the UK will likely push for lower tariffs to gain greater access to Indian markets for its cars, alcoholic drinks and agro-food products such as cheese. This may hurt the domestic companies and the “Make in India” campaign. It was on this issue that London and New Delhi went into snooze mode with UK frustratedly lambasting India for protectionism.
India wants greater market access in financial services and mobility for professionals. India is unlikely to provide imports concessions. It may face tough resistance during negotiations and be a stumbling block.
India has already signed two important free trade agreements this year – with the United Arab Emirates (UAE) and Australia – and is negotiating a comprehensive trade deal with the European Union, which saw UK's exit in 2020.
