ORF Online - 22 September 2021
Unlocking a new era: India–UK Early Harvest Trade Deal
By Rahul Kamath
India and the United Kingdom aim to launch the negotiations on a Free Trade Agreement (FTA) on 1 November 2021, with both parties agreeing to an Early Harvest Agreement by March 2022, allowing both to establish selective gains in commodities and services. The decision was taken after a meeting between the Indian Commerce and Industry Minister Piyush Goyal and his British counterpart Elizabeth Truss on 13 September. The announcement arrives at the onset of India’s greater ambitions of fast-tracking its FTA negotiations with several other countries, namely, the European Union, Australia, United Arab Emirates, and Canada. India is optimistic to conclude an Early Harvest trade deal to liberalise tariffs on selective goods with these countries followed by a comprehensive FTA. An Early Harvest scheme serves as a precursor to an FTA between two countries to help them identify certain products and services for tariff liberalisation to further strengthen the confidence between the two trading partners.
India is optimistic to conclude an Early Harvest trade deal to liberalise tariffs on selective goods with these countries followed by a comprehensive FTA.
The Indian government has revamped its FTA strategy, to move beyond protectionism and to engage with the rest of the world to prevent being shut out from global markets. The proposed FTA between India and the UK is expected to unlock business opportunities and generate jobs across both sides. Earlier this year in May, the two Prime Ministers, Narendra Modi and Boris Johnson, announced the Enhanced Trade Partnership (ETP) to realise the full potential of the India–UK trade and commercial relations. The ETP constitutes an integral part of the Roadmap 2030 for India-UK relations to revitalise investments and collaboration between the two sides by removing trade barriers on key sectors such as agriculture, healthcare, education, and social security, with the ultimate goal of the Roadmap 2030 being the establishment of the Comprehensive Strategic Partnership (CSP) between India and UK. The UK has developed such arrangements with only four other countries—Australia, Canada, Japan, and South Korea. Under the design of Roadmap 2030, a Joint Working Group on Trade has been formed to understand the ambitions and interests of each other in reducing and removing market access barriers across both sides. The negotiations with the UK and the West are an integral part of India’s trade strategy to institute fair and balanced trade agreements with key economies to boost trade, especially against the backdrop of India pulling out of the Regional Comprehensive Economic Partnership (RCEP) in 2019.
As aforementioned, India aims at signing multiple FTAs by the end of next year, which would be monumental as India has not signed a single FTA under the Modi government after decades of mixed returns on various free trade deals. India’s primary concern with regards to FTAs has been a high trade deficit with its trading partners as Indian exports are barely penetrable in Southeast Asian markets; however, to avoid such an occurrence, India should focus on increasing its export capabilities with the UK. The Ministry of Commerce has expressed concerns about stagnancy in the value of exports over the past decade, thus, indicating the desire to export high-value products over low-value products and raw materials. India’s reluctance towards an FTA was based on its evaluation of the existing agreements where overall export growth remains low as India’s trade deficit with ASEAN, South Korea and Japan has widened post-FTAs with imports greater than exports. The India–UK FTA provides an opportunity for both parties to expand their current relations by converging in key progressive sectors such as sustainable and green technologies, intellectual property, data regulations, and privacy against the backdrop of India’s upcoming G20 Presidency in 2030.
The negotiations with the UK and the West are an integral part of India’s trade strategy to institute fair and balanced trade agreements with key economies to boost trade, especially against the backdrop of India pulling out of the Regional Comprehensive Economic Partnership (RCEP) in 2019.
Currently, there are structural differences between India and the UK as the trade openness of the UK is higher than India followed by the services sector of the UK being relatively higher than India. The share of manufacturing and agriculture is higher in India with 18.31 percent contributing as tertiary economy for India in comparison to UK’s meagre 0.575 percent. As of 2021, India is UK’s 15th largest trading partner, and the UK is India’s 18th largest trading partner with manufacturing exports accounting for over 90 percent of India’s export to the UK, consisting of clothing, medicinal and pharmaceutical products, metal manufacturers, organic chemicals, and precious stones. A major concern for New Delhi would be Downing Street’s hesitancy towards lowering its tariffs and non-tariff barriers (NTB) below the EU levels in agricultural exports as the share of agricultural exports to the UK has witnessed a decline from 14.4 percent to 7.85 percent between 2000–2020. India has invested in 120 projects and created over 5,000 jobs in the UK to become their second-largest source of foreign direct investment (FDI) only behind the United States. Since Brexit, the UK has sought to expand its markets and hence has signed several FTAs especially in the Indo-Pacific region, home to some of the largest and fastest-growing economies. The UK has clinched 68 deals since Brexit and has signed key FTAs with Vietnam, Singapore, Japan, South Korea, and Australia, all of whom constitute important partners of the UK in the Indo-Pacific region. India is a key ally/pillar for the UK in the Indo-Pacific region both in terms of market share and defence as the latter was highlighted by the signing of the Defence and International Security Partnership between India and the UK in 2015 to uphold and strengthen the rules-based international system to combat global threats. The UK is no stranger to the Indo-Pacific region as it already possesses bases in Kenya, Bahrain, Oman, Singapore, and British Indian Ocean Territory, therefore, the defence partnership with India is gathering its momentum though sluggishly.
India has invested in 120 projects and created over 5,000 jobs in the UK to become their second-largest source of foreign direct investment (FDI) only behind the United States.
India in the past has pursued FTAs with minimal benefits, however, changes in the domestic and trade policies hold the potential to undo the mistakes of the past. The signing of the Early Harvest deal would provide both India and the UK a wide range of benefits that would contribute towards a boost in economic recovery in the post-pandemic era, and build confidence and momentum before signing the FTA. India’s renegotiations with its trading partners should complement its domestic policies namely ‘Make in India’ and ‘Aatmanirbhar Bharat’. As meticulously planned trade negotiations with supportive domestic policies can fulfil the potential to enhance the Indian exports not just to the UK but to its other potential economic partners as well, thereby, realising the objectives of Aatmanirbhar Bharat of making India an integral part of the global economy. As for the UK, the signing of an FTA with India lies at the essentiality of Britain’s post-Brexit strategy as India is an emerging market with a sizeable economy, a steadily rising growth rate, and with which it shares extensive historic, cultural, and diasporic ties making this partnership alluring. The onset of the Early Harvest deals will not only mark a new beginning in India’s perception towards trade agreements but also propel its stature internationally in the upcoming decade not just as an alternative market to China but as a strategic and growth fostering economy in the world’s fastest growing region.