In the context of the upward trajectory of India-United Kingdom relations one constant reference has been the possibility of a bilateral Free Trade Agreement (FTA). During the then UK Prime Minister Boris Johnson’s India visit, a Diwali (end October) deadline to conclude negotiations was fixed.
In the meanwhile, political and economic crises in the UK deepened. As a result of political turmoil within the Conservative Party, Rishi Sunak is now the third Tory Prime Minister in 2022. At 10.1 percent, inflation is at a 40-year high. The Bank of England predicts that the country would be in recession for the whole of 2023. The soaring energy bills may lead to winter of strikes. Given this, the environment is not conducive for an aggressive trade deal.
Sunak’s ascent to power has naturally generated interest, and excitement in India. But his Home Secretary pick Suella Braverman, another Indian-origin leader, asserts that the UK’s current asylum system was "broken" and "out of control”. Besides, the country is facing an "invasion" of migrants. She earlier branded Indians as the largest group of migrants who overstayed in the UK.
Although policy-makers from both the countries are issuing positive statements, prospectus for an early conclusion of an FTA needs to be analysed within broader British political and economic developments.
No new deadline has been proposed by either side. The British High Commissioner said that both countries are set up for the ‘final ascent’ on signing the trade agreement in the next few months. Some Indian sources indicate that now it will take some time before negotiations are finalised.
Although India-UK talks started only this year, both have been negotiating for a trade deal since 2007, earlier under India-EU negotiations. Some of the difficult issues are well known for years.
As Indian average tariffs are higher compared to the UK, the British side will definitely benefit more from coming down of tariff walls. The immediate beneficiaries will be in companies in the food and drinks sector in both the countries. About 90 percent of UK exports to India are Scotch whisky in this sector, which attracts 150 percent tariffs.
Many in India would like to believe that some loss in the goods sector could compensated through more exports in the services sector. However, the UK is also very competitive in the financial and legal services, and would expect major gains. Earlier it was reported that 16 out of 26 chapters are closed. But sometimes just a few issues can take very long, particularly when there is no new deadline.
As there is a strong political will from both sides to conclude negotiations, issues concerning trade in goods and services could still be resolved without any serious difficulty. However, due to past experience of Vodafone and Cairn Energy, the UK will go for tough negotiations in the investment sector.
India has terminated most of Bilateral Investment Treaties (BITs) including with the UK. To bring British companies under specific protection, the UK would like to add a comprehensive investment chapter. Since the UK is also a major destination of Indian companies for investment, India may not be averse to this, but serious negotiations may take some time.
Some issues concerning digital trade and data protection as well as stringent patent rules as indicated by the leaked text could be problematic. However, solutions could be found as enough homework has already been done to deal with such issues.
The real challenge will be in the area of migration and mobility. Unless there are serious gains for India in this sector, negotiations may not conclude. The current political leadership and economic difficulties in the UK may not be very supportive in this area. At the moment, unemployment in the UK is at historic low. But it is expected to rise from next year.
A bilateral deal on migration and mobility was signed last year. As per the deal India can send 3,000 young professionals annually to the UK in exchange for taking back undocumented migrants. Both sides have already raised issues on the implementation of the deal. While the UK feels that co-operation on illegal migration has not “worked very well”, India feels there is lack of “demonstrable progress” on mobility protocol.
While looking at the political economy environment in the UK and India’s ambitions from the deal, conclusion of a comprehensive pact covering trade, investment, migration, data protection, procurement, and development issues may take some time. But this could also be a template for India-EU negotiations. However, if policy-makers wants to demonstrate progress, a ‘thin interim deal’ is very much possible in the next few months.
Gulshan Sachdeva is Professor at the Centre for European Studies and Coordinator, Jean Monnet Centre of Excellence, Jawaharlal Nehru University. Views are personal, and do not represent the stand of this publication.
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