The India-U.K. FTA And What It Means For Our Country — BQ Explains

Ahead of the expected Diwali deadline, the India-United Kingdom Free Trade Agreement is being negotiated as the two countries hold out on the fine print regarding Rules Of Origin, Intellectual Property Rights and market access for goods and services.

Investments are being negotiated separately through the Bilateral Investment Treaty, which is expected to be completed along with the FTA.

The Ministry of Commerce, at its monthly trade briefing earlier in October, maintained that the discussions are at an "advanced stage" and that "negotiations (are) going on to iron out the differences".

During the meeting at the G20 leaders summit, U.K. Prime Minister Rishi Sunak and Indian Prime Minister Narendra Modi agreed to expedite and seal the "ambitious" trade talks between the two countries. It was also expected that the two leaders would hold another bilateral meet when Sunak would visit India again. However, with no fixed date on Sunak's visit, and the negotiations still open, a new timeline for the completion of the FTA remains an open-ended question.

The countries are currently engaged in weekly talks as part of various high-level engagements, and both nations have expressed enthusiasm to close the negotiations on all 26 chapters of the trade talks.

Launched on Jan. 13, 2021, the India-U.K. FTA began its latest 13th round of negotiations on Sept. 18, 2023.

The United Kingdom is India's fifth largest export destination, accounting for a total of $11.4 billion in merchandise exports in FY23, according to data from the Commerce Ministry.

As per data from the Department of Business and Trade, U.K government's export trade with India (imports for India) till the period ending March 2023 recorded a total value of £8.1 billion ($9.82 billion) and £6.7 billion ($8.13 billion) in goods and services, respectively.

Similarly, the total value of all U.K. imports (exports from India) was £10.5 billion ($12.7 billion) and £11.0 billion ($13.3 billion) in goods and services, respectively, for the same period.

India enjoys a positive trade balance with the U.K. which stood at $2.44 billion, according to Indian official data in FY23.

India's top exports to the U.K. include smartphones, drug formulations and biologicals, electric machinery and equipment, and ready-made garments.

India's top buys or imports from the U.K. include whiskies, semi-manufactured silver, metal and non-metal waste and scrap.

A recent research report by the Global Trade Research Initiative notes that there may be “only limited benefits” for India as far as merchandise goods from the proposed FTA are concerned, as many of its exports to U.K. already enjoy low/zero tariffs.

According to the think tank, the FTA could mean tariff reductions by India on cars, scotch whisky and wines.

With FY23 merchandise exports to U.K. at $11.41 billion, GTRI states that Indian products worth $6 billion already face no tariffs in the U.K., even without the FTA. These products include items like petroleum products, medicines, diamonds, machine parts, airplanes, and wooden furniture.

Meanwhile, items such as textiles, apparel, footwear, carpets, cars, marine products, grapes, and mangoes face relatively low-to-moderate tariffs in the U.K., according to the same report and could benefit from a duty reduction.

The note also mentions that 91% of the value of total merchandise imports from U.K. enter India on payment of average-to-high tariff duties, as illustrated by the 100% tariff on cars and 150% tariff on scotch whisky and wines.

An FTA is expected to benefit U.K. import items like precious metal, metal scrap, petroleum products, scotch and other alcoholic beverages, machinery, medicine and make-up categories.

"While duty elimination in the U.K. can help Indian exports, significant growth requires improvements in product quality. Signing an FTA alone may not lead to a substantial increase in India's labour-intensive goods exports," it said.

According to a Bloomberg report, the trade talks are likely to remain unfinished till December as state elections commence in India.

BQ Prime had reported that the two countries have reached a broad consensus on the negotiations, pertaining to goods such as automobiles and whisky towards the end of July. It was expected that Britain was also prepared to relax some visa rules for Indian professionals.

Some of the open points of deliberation according to Bloomberg include the U.K. seeking concessions for electric vehicle imports, dispute settlement for international tax issues through an investment protection proposal and better market access. India, too, is said to be batting for longer post-study visas for those who go abroad to study in the U.K.

Certain aspects of the deal, such as Rules Of Origin, Intellectual Property Rights, and the investment treaty continue to remain open discussion points from the previous rounds.

The lack of a fixed date on the U.K. Prime Minister Sunak's visit to India also looms as a concern around the new expected timeline for the trade talks.

Speaking to the parliamentary panel recently on Sunak's anticipated visit to India during the World Cup, U.K. Business and Trade Secretary Kemi Badenoch said, “We have never set a deadline. I think this is very optimistic briefing for newspapers. We are very close. It is possible, but I wouldn't be setting that sort of deadline. We will finish when we finish.”

(As on date, £1 = $1.21)