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India-UK Free Trade Agreement: Progress and Challenges – Business News
With a new government in Britain, senior officials from India and the UK are expected to resume discussions this month on the proposed Free Trade Agreement (FTA) with the aim of resolving outstanding issues and finalising negotiations.
Negotiations, which began in January 2022, have slowed down due to elections in both nations. However, newly elected British Prime Minister Keir Starmer has expressed readiness to conclude an FTA that benefits both nations, as he communicated to the Prime Minister Narendra Modi.
Historical context and current situation
Bilateral trade between India and the UK saw a significant increase, reaching USD 21.34 billion in 2023-24, from USD 20.36 billion in the previous fiscal year. The Labour Party, led by Starmer, made a commitment in its election manifesto to seal the deal. New Foreign Secretary David Lammy has also stressed the importance of concluding the FTA, with plans to visit India in his first month in office.
The Global Trade Research Initiative (GTRI) has reported that the deal is almost finalized, with only a few tweaks needed, such as capping the number of visas for Indian professionals. GTRI suggests that India should focus on issues such as the Carbon Border Adjustment Measure (CBAM) and non-traditional issues such as labor, environment, gender and intellectual property rights in the pact.
Main issues in negotiation
Several critical issues need to be resolved before the FTA can be finalized:
Market Access to Services and Goods:
India’s Demands: Greater access for qualified professionals in sectors such as IT and healthcare, and market access for a variety of products with zero customs duty.
Opportunities for UK Services in India:
The UK is seeking more opportunities in the Indian market for services in the telecommunications, legal and financial (banking and insurance) sectors.
Bilateral Investment Treaty (BIT):
– The two nations are also negotiating a BIT, with the agreement covering 26 chapters, including goods, services, investment and intellectual property rights.
Leaders’ Statements
Prime Minister Modi has 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 the India-UK comprehensive strategic partnership and robust economic ties for the progress and prosperity of our people and the global good.”
Similarly, Prime Minister Starmer has consistently maintained that he intends to foster strong ties with India, marking a shift from the Labour Party’s previous policies under Jeremy Corbyn. Starmer’s government is keen to foster people-to-people ties, recognising the contributions of the Indian community to the UK’s social, economic and political landscape.
Challenges ahead
Despite the optimism, several challenges remain. India has historically resisted incorporating topics such as labor 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 in sectors such as textiles, Indian exports could still face stringent UK sustainability requirements, potentially negatively impacting labor-intensive sectors.
Furthermore, the Labour Party’s need to adjust visa provisions for Indian professionals could also pose a stumbling block. As negotiations resume, both sides will need to navigate these complex issues to reach a mutually beneficial agreement.
With strong political will from Prime Ministers Modi and Starmer, there is hope for a speedy and favourable conclusion of the agreement. A successful finalisation of the FTA can pave the way for increased bilateral trade, investment and cooperation across sectors, contributing to the prosperity of both countries.
As PM Modi stated, “We remain committed to deepening the comprehensive strategic partnership and robust economic ties between India and the UK for the progress and prosperity of our people and the global good.” This sentiment captures the shared vision of both nations as they work towards a future of greater economic collaboration.