India-UK FTA
By Dr. D.K. Giri
(Prof of Practice, NIIS Group of Institutions)
The signing of FTA between India and the United Kingdom marks a new chapter in the bilateral ties. It signifies a momentous transformation of the nature of the relationship. A former colonial master, accused in the past of exploiting the resources from India, ‘the jewel in its crown’, now is negotiating with a sovereign country for goods, services and expertise. That is the inevitable change of fortunes, equations of power and international relations.
Both countries, however, should view the bilateralism through the lenses of contemporary politics and future possibilities without prejudice of the past. Thanks to leadership in both countries, they have been taking things prudently.
History can be interpreted in more than one way. The famous historian, E.H. Carr said in his classic book, “What is History”, that history is a collective and subjective recollection of the past events. People recall them to their advantage, not to dwell on the enervating experiences to spoil the present and perhaps the future.
From the above premise, it is helpful to remember the default legacies of British rule – our political system, structures of bureaucracy and army, two robust institutions of governance and defence, railways, the education system and the unity of the princely states into one governing unit and so on. It is true that his legacies are not built on Indian traditions and wisdom. That is why perhaps, the tension persists between Indian society and politics. But that is another debate. India certainly has the chance forever to draw on its own civilisation and integrate it to the existing systems.
On the FTA, which is called the Comprehensive Economic and Trade Agreement, it was concluded on the 6 May this year after four years of negotiations since 2022. It is being signed, at the time of writing, on the 24 July at Chequers, the official country residence of the British Prime Minister. It is inked by Piyush Goyal, the Indian Trade Minister and his counterpart Jonathan Reynolds in presence of both the Prime Ministers.
The significance of the Agreement can be seen in the utterances of the Prime Ministers. Narendra Modi said, “The FTA will further prosperity, growth and boost job creation of our own people. A strong India-UK partnership is essential for global progress”. Keir Stammer, the British Prime Minister was equally sanguine in the midst of chaotic geo-politics and global trade, “It is a landmark deal that will boost employment, drive economic growth and bring down the prices for the British consumers”. He expressed his delight in signing of the FTA just ahead of unveiling a GBP 6b investment in India.
The FTA is quite comprehensive having chapters on goods, services, innovation, procurement, IPR, social security, mobility of professionals, visa and work opportunity etc. Notably, FTA will be followed by a Bilateral Investment Agreement and an Agreement on Defence Production and Cooperation.
The key takeaways from the FTA are as follows. The Indian labour-intensive goods will have easier access, they include leather, footwear, garments, clothes, marine products, sports goods, toys, gems, jewellery, engineering goods, auto parts, organic chemicals etc. Almost 99 per cent of Indian exports will be duty free. On the other hand, Britain will receive heavy reduction of tariffs on whisky and cars. Other goods from Britain enjoying concessional tariffs are cosmetics, lamb, salmon, medical products, soft drinks, chocolates and drinks.
The major concession granted by India is a drastic slash of duty on whisky from 150 per cent to 40 per cent in 10 years. The tariff on automobiles from U.K. falls from 100 per cent to 10 per cent. However, the India-UK trade will rise to 25b USD per year reaching 120b USD by 2030. Another 40b USD is proposed to be added by 2040.
Specifically, on a sector-wise perusal, UK firms on telecoms, banking and insurance sectors will have access to Indian market. UK companies can bid for Central Government tenders. Both countries agree to promote digital trade with paperless transactions making trade quicker and easier. There is a mutual recognition of Safety and Hygiene Standards (SHS) ensuring product quality. This will auger well for India as often Indian companies are less quality conscious.
Garments and home textiles will be cheaper as UK removes 8 to 12 per cent of duty. This should help the exporters from Tiruppur, Surat, and Ludhiana. Jewellery, gems, leather goods will also be duty free. This should benefit the Indian MSMEs. Machines, auto parts, tools, car parts will have easier access which should boost their manufacturing in Pune, Chennai and Gurugram. Professionals, mainly intra-corporate transferees, will have easier travel to the UK market. They are exempt from paying for social security for three years. Their dependents are allowed to work.
Pharmaceuticals, especially the generic medicines, one of the strengths of India, will have greater access to UK healthcare system. Agri products like Basmati rice, shrimp, tea and spices will be cheaper helping the exporters from Assam, Gujarat, Kerala and Bengal. Chemicals and plastics will grow in demand in UK after the reduction of tariff. The export of these items is sought to be doubled by 2030. This should help the producers in Gujarat and Maharashtra. On renewable energy, UK is planning to invest in solar, hydrogen, EV projects, boosting green growth and cleaner environment.
Arguably, there are apprehensions about tangible benefits accruing to India out of the FTA. The Opposition Congress has expressed its concern about the impact on the MSME and farmers, whether British exports will overwhelm their prices and products. Allowing the British companies to bid for Central Government tenders may affect the local enterprises. Without reciprocal visa facilities, British entrepreneurs are given a red carpet.
The Global Trade Research Institute warns that India will suffer a net loss of 900m USD without gaining benefits in real terms. India’s concurrence on certain IP rules beyond WTO provisions may hurt India’s interests. A drastic slash on duties in cars will undermine the local companies. Observers argue that India’s world manufacturing share is merely 2 per cent, so, the sector should be enabled not weakened through unfair competition.
Such apprehensions will be tested as the Agreement unfolds on the ground. UK-India Trade Agreement may be a pace-setter, may be not, as each country or regional bodies have different dynamics and complexities. The reference is being made to USA and the European Union with who FTAs are on the anvil. Yet, an India-UK Trade Agreement will merit the attention of the world for their historic ties and future possibilities.
To conclude on the unbreakable historic relations between India and UK, both countries have to deal with the expectations of complementarities in their positions in international relations. To illustrate, India made diplomatic contact with EEC (now European Union) in 1962, but could join it only after Britain became a member in 1973. Such twining continues even today. That should be remembered by both sides. — INFA