Election delays over FTA: Finalising the Indo-UK deal will have to await the incoming governments in both nations
Financial Express | 29 May 2024
Election delays over FTA: Finalising the Indo-UK deal will have to await the incoming governments in both nations
With early elections announced in the UK, finalising the ambitious free trade agreement (FTA) between India and the UK — with negotiations over 14 rounds having already taken place since January 2022 — will have to await the incoming governments in both nations.
Both India and the UK want an agreement that is balanced and comprehensive and mutually beneficial. Concluding such a deal is not easy. Setting deadlines like Diwali 2022 or coinciding with the Cricket World Cup hosted by India last year was perhaps unrealistic as trade deals are not a simple affair, entailing a complicated process of give and take for greater access to each other’s markets to expand bilateral trade worth £39 billion in the four quarters to the end of Q4 2023.
India has a trade surplus of £7.4 billion. There are 26 chapters in the FTA, which include goods, services, investments and intellectual property rights (IPRs). According to commerce ministry officials, chapter-wise textual negotiations are nearly closed and schedules on goods and services are at an advanced stage of negotiation. An investment treaty is also being negotiated.
Among the unresolved issues are rules of origin, duty concessions on electric vehicles, Scotch whisky, investment treaty, social security agreement, carbon border tax, and liberalisation of financial services. A critical area of interest for India is free visa movement for its professionals, which the UK is resisting.
In this regard, there were concerns over the UK’s moves to curb legal migration by raising the minimum salary thresholds for skilled worker visas and reviewing, if not scrapping, the graduate visa route which allows students to work for two years after graduation.
Fortunately, better sense has now prevailed — due to a backlash in the cabinet and leading UK universities over the move — to allow the student graduate visa route to remain open. In end-March 2024, as many as 116,455 Indians were granted student visas. The UK, for its part, is frustrated with the lack of movement towards the opening up of the Indian market for professional services in law and accountancy.
On IPRs, the UK wants India to go beyond the World Trade Organization’s Trade-Related Aspects of Intellectual Property Rights agreement while India wants to protect its generics drug industry.
For such reasons, inking an India-UK FTA is far from easy with an additional complication that national elections in the UK will take place on July 4 and are ongoing in India. A ground for concern will be the stand of the incoming government in the UK, especially if it’s the Labour Party that is leading the Conservatives by 20 percentage points in the opinion polls. The good news is that the Labour Party, too, seeks a trade deal that is mutually beneficial.
Jonathan Reynolds, Labour’s business and trade spokesperson, visited Delhi in February and had talks with India’s union commerce and industries minister, Piyush Goyal. The big challenge for both nations is to revive the economic component of the relationship that is somewhat underwhelming considering the long historical association.
While the FTA negotiations will take their own course, both partners can still follow the road map 2030 on trade and step up investments in each other’s economies. In 2021, the outward stock of UK’s foreign direct investment was £19.1 billion while India’s FDI in the UK was £9.3 billion. If investments gather momentum, this is bound to result in greater two-way bilateral trade flows in the future.
