Economy News

India-UK Free Trade Agreement: Progress and Challenges

India and the UK are set to resume Free Trade Agreement (FTA) talks under the new British government, with leaders expressing strong political will to finalize the deal and enhance economic ties. Despite significant progress, challenges remain regarding market access, visa provisions, and sustainability requirements.

With a new government in Britain, senior officials from India and the UK are set to resume discussions this month on the proposed Free Trade Agreement (FTA), aiming to resolve pending issues and finalize the negotiations.

The talks, which started in January 2022, slowed down due to elections in both nations. However, the newly-elected British Prime Minister Keir Starmer has expressed readiness to conclude an FTA that benefits both nations, as he communicated to Prime Minister Narendra Modi.

Historical Context and Current Status

The bilateral trade between India and the UK saw a significant increase, reaching USD 21.34 billion in 2023-24 from 20.36 billion in the previous fiscal year. The Labour Party, led by Starmer, has made a commitment in its election manifesto to clinch the deal. The new Foreign Secretary, David Lammy, has also emphasized the importance of concluding the FTA, with plans to visit India within his first month in office.

The Global Trade Research Initiative (GTRI) has reported that the agreement is nearly finalized, with only a few adjustments needed, such as limiting the number of visas for Indian professionals. The GTRI suggests that India should focus on issues like the Carbon Border Adjustment Measure (CBAM) and non-traditional subjects such as labor, environment, gender, and intellectual property rights in the pact.

Key Issues in Negotiation

Several critical issues need to be resolved before the FTA can be finalized:

Market Access for Services and Goods:

India’s Demands:
 Greater access for skilled professionals in sectors like IT and healthcare, and market access for various goods with zero customs duty.

UK’s Demands: Reduction in import duties on products such as scotch whiskey, electric vehicles, lamb meat, chocolates, and other confectionery items.

Opportunities for UK Services in India:

 The UK seeks more opportunities in the Indian market for services in telecommunications, legal, and financial sectors (banking and insurance).

Bilateral Investment Treaty (BIT):
   – The two nations are also negotiating a BIT, with the agreement covering 26 chapters, including goods, services, investments, and intellectual property rights.

Statements from Leaders

Prime Minister Modi expressed his commitment to deepening the strategic partnership and enhancing economic ties between India and the UK. In a statement, Modi said, “We remain committed to deepening comprehensive strategic partnership and robust India-UK economic ties for the progress and prosperity of our people and global good.”

Similarly, Prime Minister Starmer has consistently maintained that he aims to foster strong ties with India, marking a shift from previous Labour Party policies under Jeremy Corbyn. Starmer’s government is keen on promoting people-to-people ties, acknowledging the contributions of the Indian community to the UK’s social, economic, and political landscape.

Challenges Ahead

Despite the optimism, several challenges remain. Historically, India has resisted incorporating topics like labour and environment into FTAs, as they often require significant domestic policy changes. The GTRI report also highlighted that even if the UK agrees to eliminate tariffs on sectors like textiles, Indian exports might still face stringent UK sustainability requirements, potentially impacting labour-intensive sectors adversely.

Moreover, the Labour Party’s need to adjust visa provisions for Indian professionals may also pose a hurdle. As the talks resume, both sides will need to navigate these complex issues to reach a mutually beneficial agreement.

With strong political will from both Prime Ministers Modi and Starmer, there is hope for a swift and favourable conclusion to the agreement. The successful finalization of the FTA could pave the way for enhanced bilateral trade, investment, and cooperation in various sectors, contributing to the prosperity of both countries.

As PM Modi stated, “We remain committed to deepening comprehensive strategic partnership and robust India-UK economic ties for the progress and prosperity of our people and global good.” This sentiment captures the shared vision of both nations as they work towards a future of greater economic collaboration.

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