[Editorial] India-UK FTA

Background:

  • In May 2021, the Prime Ministers of India and UK spoke of their vision for transformation in the India-UK ties, over this decade.
  • As part of the efforts, the Prime Ministers set a target of doubling bilateral trade by 2030.
  • The leaders have directed their respective governments to expedite efforts to reduce trade barriers and to complete the groundwork for starting work on an FTA (Free Trade Agreement) by 2021-end.
  • Their meeting came in the midst of the 2nd wave of the pandemic- an indication of the political will involved.

What steps have been taken so far?

  • The 2 countries had agreed upon an Enhanced Trade Partnership in May, 2021. This agreement is considered to be the precursor to the FTA.
  • The countries have already started making moves to realize this vision.
    • India has started importing apples from the UK for the 1st time in 50 years.
    • UK has allowed the import of more shrimps from the Indian fisheries.
  • In January, the countries launched the FTA negotiations. The target has been set for concluding negotiations on a comprehensive agreement by the end of this year.

Most probable and repeated topics of upsc prelims

What is the current trade situation?

  • The India-UK bilateral trade stood at more than £23 billion in 2019.
  • There are some 600 British companies in India and these employ over 320,000 people. Examples include the Barclays (with its Pune office being the biggest outside of London), JCB manufactures its products in India for export to more than 110 countries across the world, and Hindustan Unilever, the consumer goods giant, is headquartered in Mumbai.
  • India has over 800 companies in the UK which employs some 1.1 lakh people.
  • India is one of the big investors into the UK, especially in sectors like fintech, EV and batteries. In 2020-21, India was the country’s 2nd biggest source of investment (in terms of number of projects).
  • Just recently, Ola Electric (Indian EV manufacturer) and Essar Group (an Indian MNC) announced investments into UK.

What are the prospects?

  • UK is a country that thrives on free trade. It recently (in 2020) exited the EU’s common trade bloc, after 47 years. Hence, it is looking to build a network of trade ties with like-minded democracies.
  • India too is looking to expand its trade ties and has been concluding a number of trade deals recently. For instance, India, like the UK, is negotiating on such deals with Australia.
  • India, enjoying the advantage of demographic dividend, has an opportunity to transform its society and economy in the coming 3 decades. It also has the added advantages of strategic location in the Indo-Pacific, which houses 50% of the global population and is where 50% of global economic growth is happening.
  • An FTA with the UK will open up an open and competitive market for India’s companies. Eg: startups in Bengaluru would get direct access to the capital markets of London.
  • Such an agreement would boost growth and employment in both India and the UK.
  • According to UK government’s estimation, a comprehensive FTA would add some £14.8 billion to the collective GDP of both the countries by 2035.
  • The deal would also help diversify supply chains and make it easier for cross-border businesses.
  • Lower trade barriers, in addition to regulatory certainty, would incentivize new SMEs to enter into the export arena.
  • Free trade also means that consumers in both the countries get a greater variety of products and could improve affordability.

What are the challenges?

  • The India-EU negotiations have been progressing at a slow pace. The FTA talks between UK and India could face a similar fate, considering the several sticky points.
  • Export regulation issues could impede the agreement over alcoholic products and dairy products in the talks.
  • The dairy sector is an especially sensitive area in the talks with UK, as it is in the case of talks with Australia. This is mainly because of the lack of reciprocal market access. The UK has banned Indian dairy exports citing non-compliance with regulatory standards.
  • With regards to the alcoholic products, the UK has imposed non-tariff barrier as Indian whiskeys don’t meet the 3 year maturation requirement of the UK. There are also issues over the terminologies used- 1 year-matured Indian whiskeys and those produced from molasses are labelled as ‘Indian spirits’ in the UK.
  • There are cross-country supply chains existing between the UK and the EU countries, despite the Brexit. This is especially true of British auto manufacturers. This could give rise to unique challenges for the FTA talks, in relation to rules of origin.

What is the way ahead?

  • Both the countries have started taking small but meaningful steps to improve trade ties. These steps bode well for the FTA under negotiation.
  • However, all is not smooth down the lane as several sticky points exist. These need to be addressed jointly. For instance, regarding the ban on Indian dairy products, joint capacity building workshops could be organized to encourage the Indian industry to meet international standards. Meanwhile, some flexibility can be brought in – low end products like skimmed milk can be kept off the list but the market can be opened up for high end products like cheese. This will ensure that the domestic dairy aren’t competed out of existence.
  • Trade negotiations, in general, are complex, especially when involving countries of different sizes and at different stages of development. However, a comprehensive FTA presents significant opportunities for both the countries.

Conclusion:

The FTA would mark a new kind of partnership between the 2 countries- by giving a framework for mutual benefits and growth. This is especially significant given India’s celebration of the 75 years of independence from British colonial rule.

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