As India prepares for the announcement of dates for the upcoming general elections and the enforcement of the Model Code of Conduct (MCC), negotiations for a free trade agreement (FTA) between India and the UK remain ongoing, with the UK pressing for a more significant opening up of the Indian economy.
Despite less than a month remaining before the elections and the anticipated signing of the FTA, the deal is not expected to be finalized before the MCC comes into effect, as it is considered a cutoff point for such announcements.
Delays in reaching an agreement could further complicate matters, especially as the UK is also gearing up for elections later this year. Nevertheless, efforts to resolve remaining points of contention are in full swing, with a review of the FTA progress conducted by the Prime Minister’s Office (PMO) on February 16. Commerce and Industry Minister Piyush Goyal and Commerce Secretary Sunil Barthwal were also part of the review meeting.
According to a UK government official, "The deal can be signed in the next three weeks. There are economic and political ambitions on both sides. India needs to open up more as it is a high tariff country and the UK already is very open. We are not in a hurry because ultimately the deal has to accrue benefits for both the economies."
India's tariff regime, characterized by high import tax rates, has been a point of concern for its trade partners. The average tariff on goods imported from India into the UK stands at 4.2 per cent, whereas in India, the average tariff on goods imported from the UK is considerably higher at 14.6 per cent.
Negotiations between the two nations have centered on key issues such as reducing duty on cars and whisky, alongside seeking better access for India's service sector workforce in the UK. Contentious discussions have emerged particularly regarding cars and whisky, with India pushing for greater access into the UK market, while also seeking concessions in the auto sector, particularly in the electric vehicle (EV) segment.
The FTA between India and the UK holds significant importance as it would be the first comprehensive deal with a Western country, facilitating deeper economic integration with a major global service sector leader. Additionally, it is viewed as pivotal as it could set a precedent for future trade deals with larger Western trade partners, including the European Union and the European Free Trade Association (EFTA).
The ongoing negotiations come amid a global economic landscape undergoing transformation following the COVID-19 pandemic, with multinational companies increasingly adopting strategies to diversify their supply chains away from reliance on China. Meanwhile, multilateral trade agreements such as the Indo-Pacific Economic Framework for Prosperity (IPEF) are also under negotiation to reduce dependence on a single market.
To date, 13 rounds of talks have been completed, with the 14th round commencing on January 10. Key issues being addressed in the pact include customs duty cuts on electric vehicles and whisky, as well as the movement of professionals. Progress is also being made on the proposed bilateral investment treaty (BIT).
Originally scheduled to be signed by Diwali 2022, the India-UK FTA remains a focal point of discussion as both nations navigate the complexities of trade negotiations amidst domestic political considerations and global economic shifts.
In a related development, bilateral trade between India and the UK witnessed a notable increase to $20.36 billion in 2022-23 from $17.5 billion in 2021-22, highlighting the growing economic ties between the two countries.
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