India-UK FTA | IAS GYAN

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Context

Britain said it will only sign the the India-U.K. Free Trade Agreement (FTA) when there is one that “meets the UK’s interests.

What Is a Free Trade Agreement (FTA)?

A free trade agreement is a pact between two or more nations to reduce barriers to imports and exports among them. Under a free trade policy, goods and services can be bought and sold across international borders with little or no government tariffs, quotas, subsidies, or prohibitions to inhibit their exchange.
FTAs usually cover trade in goods (such as agricultural or industrial products) or services (such as banking, construction, trading).
FTAs can also cover other intellectual property rights (IPRs), investment, government procurement and competition policy.

The concept of free trade is the opposite of trade protectionism or economic isolationism.

How a Free Trade Agreement Works

In the modern world, free trade policy is often implemented by means of a formal and mutual agreement of the nations involved.
For example, a nation might allow free trade with another nation, with exceptions that forbid the import of specific drugs not approved by its regulators, or animals that have not been vaccinated, or processed foods that do not meet its standards.

India-UK FTA: Background

India and the United Kingdom have a multi-dimensional strategic partnership, and are actively engaged in bilateral trade. The two countries agreed to begin formal negotiations for an FTA in January 2022, aiming to advance trade and investment relations between them.
The UK and India are now in the final stages of negotiating a free trade agreement. The consensus is that there can and will be an announcement by Diwali – a deadline agreed by Prime Minister Narendra Modi and Borris Johnson on his last official visit to India in April.
UK is concerned but that India is trying to extract a few further concessions in the contentious areas of imported whisky and automobiles. India is also, pushing for relaxation on visas for Indian workers to the UK which has long been a bone of contention.
Amid all these, there are growing fears that the proposed India-UK free trade agreement (FTA), currently in its final stages of negotiation is likely to be watered down.
The FTA is important for both countries as it would provide a boost and create a robust framework of overall trade and investment between the two countries.

Which country does the U.K. have an FTA with?

After Brexit (U.K. coming out of European Union), and Britain can now sign trade pact with other nations.
-Australia FTA:U.K. signed an FTA with Australia on December 17, 2021, eliminating almost 99% of tariff on both sides, allowing free flow of goods between the two countries. This pact will help Britain access the Pacific Rim through the Comprehensive and Progressive Trans-Pacific Partnership.
Comprehensive and Progressive Trans-Pacific Partnership is an 11-nation trade conglomerate including Australia.

Which are the countries with which India has FTAs?

As of 2022, India had 13 FTAs, including the South Asian Free Trade Area, and with Nepal, Bhutan, Thailand, Singapore, Japan and Malaysia. The 13 also include the agreements with Mauritius, UAE and Australia signed during the last five years. Additionally, India has also signed six limited Preferential Trade Agreements.

Level of India-UK Trade

India is UK’s 12th largest trading partner and accounts for 1.9% of UK’s total trade in four quarters to the end of 2022. UK is the seventh largest export destination for India. The trade balance maintained by India with UK has largely been a surplus.
Top three services exported from India to UK are technical, trade-related and other business services, professional and management consulting services and travel.

The proposed FTA

Apart from reducing tariffs, the FTA also looks at lowering non-tariff barriers, particularly technical barriers to trade around rules of origin, investor protection and IPR.
MoUs on joint recognition of certain educational qualifications and an outline pact on healthcare workforce have already been signed.
Also, both UK and India have set up panels for a totalization deal being advocated by India and permitting Indian legal services for the UK.

What does an FTA with UK mean for India?

India’s trade would see a quantum jump when the free trade pact is signed, from £23.3 billion through an Enhanced Trade Deal to £50 billion post-FTA.
With India set to becoming the world’s third largest economy by 2050, India would become the U.K.’s most preferred partner.
A trade deal between the UK and India is a huge opportunity to deepen our already strong trading relationship worth GBP 24.3 billion a year, which will benefit businesses and sectors right across both our countries.
For India, there are many benefits from access to UK technologies, advanced research and development facilities, London’s financial institutions and wealthy consumers.

What does an FTA with India mean for UK?

The government claimed the key benefits of a trade deal with India include:

Reduced barriers to trade in goods.
Increased opportunities for UK services and investment.
Supporting innovation and trade in the digital era.
More jobs for UK workers.
Creating opportunities for businesses across the UK, including small- and medium-sized enterprises.

What is India seeking from the U.K.?

Removing all trade bottlenecks.
Green trade:India is also seeking cooperation from Britain to reduce its carbon footprint by 45% and promoting green energy.

What are the sectors that will benefit?

Agriculture:The second Green Revolution, aimed at increasing food production in India to 400 million tonnes in the next 15 years, is led by plant ecology scientist Howard Griffiths of Cambridge University under Transforming India’s Green Revolution by Research and Empowerment for Sustainable food Supplies (TIGR2ESS) would strengthen alliance between Indian and British experts in social policy and science, hydrology and crop science.
Education:India would allow more U.K. universities to open their branches in the subcontinent after the FTA.

Why is this deal important?

In a post Brexit era, the India-UK FTA would be a crucial step for the UK to reduce the dependency on EU and establish independent trade ties outside of the EU. India on the other hand could use this opportunity to further boost the “Make in India” programme and secure strategic deals in the sectors of defence, cyber security, R & D and health care where UK has predominantly been a strong player.
The FTA between India and the UK will significantly help bring down the current trade barriers and restrictions on transfer of goods and services between the two countries and is likely to boost investments, exports and imports across sectors.
India being a tech giant and in the era of so many start-ups would enable the new/ mid-sized companies to have access to the U.K. market. On the other hand, the U.K. will have a much wider market coverage in the Indo-Pacific region. Moreover, the FTA will enhance the job-creating sector since India is one of the big investors in the U.K. Removal of tariffs would lead to increased competition in industries such as- automobiles and pharma.
One of the important aspects that could help India is that the UK is a permanent member of the security council and strengthening bonds with the UK could be of help to India in issues such as its standoff with China. Also, it may help India become a permanent member in the security council considering India and UK are 5th and 6th largest economy in the world.