India-UK free trade agreement: Here's how close the two countries are to signing the landmark agreement

India and the UK appear to be close to concluding the free trade agreement (FTA) that has been in the works since January 2021. Indications are that the talks could be completed by this October or November. Of the 26 chapters proposed in the FTA, the two countries are believed to have agreed on 19. Besides, negotiations are also underway on a separate bilateral investment treaty. 

The two countries seem to have fast-tracked talks on the pact. Just last month, Union Commerce and Industry Minister Piyush Goyal and Commerce Secretary Sunil Barthwal visited London for the 11th round of bilateral talks, and the next round is currently underway. These talks could also receive a boost at the G20 trade and investment ministerial meeting scheduled to be held in Jaipur in late-August.  

The increased momentum is a reflection of how crucial the pact is for both countries. When signed, this would be the most comprehensive deal inked by India with any developed country, coming on the heels of an interim treaty signed with Australia last year. The trade pact could also boost India’s negotiations in at least two other deals: one with the European Free Trade Association—the four-nation bloc of Iceland, Liechtenstein, Norway and Switzerland—and an interim trade pact with Canada. For a post-Brexit UK, meanwhile, these talks represent a chance to access newer markets. It has signed 71 trade deals since leaving the European Union in 2020. 

But it hasn’t been all smooth sailing. For India, protecting its domestic industry remains a priority, especially given the focus on Make in India, but at the same time it hopes to become a bigger exporter to the UK. 
Being amongst the largest service exporters to the UK, India has also sought easier immigration rules for skilled professionals from the country in sectors like IT and healthcare, and for students. In turn, the UK is hoping that the trade agreement will give its products like whisky and premium automobiles better access to the Indian market with lower tariffs.  

There appears to be broad consensus on issues relating to automobiles and whisky, though the issue of reducing duties on these products remains to be fine-tuned. India is keen on ensuring that duty cuts for British whisky do not impact its domestic industry. Similarly, the tariff on auto imports from the UK would be reduced in such a way that it would not impact the local industry.   

Dairy is understood to have been kept out of tariff negotiations as it would impact the domestic industry and, most importantly, farmers. Besides, India has also stressed the need to follow data localisation norms and ensure that data is stored locally.  

There are other contentious issues as well, like the one on rules of origin, which are the basis for extending duty concessions. Each trade pact contains a set of rules of origin that prescribe the norms to be fulfilled to meet the ‘originating status’ criteria in the exporting country. This is to ensure that countries with a trade agreement do not dump goods from a third country after just affixing a label on them.   

Officials remain confident that the talks will be concluded before year’s end, but they do point out that “nothing is agreed upon until everything is agreed upon”. 

An early conclusion of the FTA is expected to give a fillip to bilateral trade. India was the UK’s 12th largest trading partner for the four quarters till March end, accounting for 2.1 per cent of total UK trade, according to the UK’s Department of Business and Trade. Bilateral trade between India and the UK increased to $20.36 billion in 2022-23 from $17.5 billion in 2021-22.  

In the first quarter of the current fiscal, India’s exports to the UK grew 21.24 per cent year-on-year to $3.3 billion and imports fell by 33.5 per cent to $1.5 billion. This was led primarily by exports of petroleum products, refined oil, telecom equipment, ready-made garments, metals and electric machinery. The top imports from the UK were iron and steel, cosmetics, alcoholic beverages and aluminium products.  
Biswajit Dhar, a trade expert and former professor at the Jawaharlal Nehru University (JNU) in New Delhi, notes that the trade deal will have positives for both India and the UK, but issues like market access and tariff on products like automobiles still have to be agreed upon. Rules of origin is another issue that has to be finalised, he says, adding that it is a sticky point.   

Surendar Singh, Associate Professor at the New Delhi-based FORE School of Management, says the negotiations for the India-UK FTA are advancing at a much faster pace than other such trade talks. “I expect it to be concluded by Diwali,” he says.  

This deal could also have an impact on other negotiations. 

For instance, non-trade issues in the negotiations are being seen as a key monitorable, and these could possibly set a precedent for other trade talks. Dhar notes that issues like labour standards and environment still have to be agreed upon. “India hasn’t endorsed any deal on labour standards or the environment till now,” he points out.  

Singh of FORE School of Management believes that in any trade deal, India needs to protect its own policy space in terms of non-trade issues such as labour and environment standards, digital trade, where it does not have any domestic regulations. “We must ensure that we do not become a prisoner of a trade agreement. We should refrain from negotiating trade deals that curtail our domestic policy sovereignty in international trade deals,” he says.  
Clearly, the India-UK trade deal would have ramifications beyond bilateral trade and investment.   
     
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