Step forward for trade: India-UK FTA is more comprehensive than expected

India and the United Kingdom (UK) have successfully concluded negotiations for a free-trade agreement, or FTA. Prime Minister Narendra Modi described it as a “historic milestone”, and Commerce Minister Piyush Goyal said it “set a new benchmark for equitable and ambitious trade”. Officials on both sides emphasised it was more comprehensive than other trade deals that India had previously signed. Indian companies’ access to British markets would be almost tariff-free, while Indian consumers will benefit from a gradual reduction in tariffs on imports from the UK. This will make a particular difference to the availability of certain high-end engineering goods, including automobiles, as well as food products including Scotch whisky, gin, and lamb. The public-procurement market will also be opened up to each other’s companies, which will hopefully lead to some savings and efficiency in government spending. Whitehall has suggested the FTA will lead to an additional increase of 10 basis points in the UK’s gross domestic product (GDP) growth rate every year. Its departmental projections predict trade will increase by over 25 billion pounds, with 60 per cent of that increase being due to higher imports into India by British companies.

 

This deal was considered to have significant barriers in its path as recently as last week. Mr Goyal made two quick trips to London himself to try and close it, though it seems likely that what made the difference was an eventual political call that India could forgo some of its previously expressed concerns. These included concerns, for example, about the UK’s proposed new carbon tax. Its impact will be worth watching. The movement of professionals has been eased, but falls considerably short of earlier hopes from New Delhi regarding significant visa liberalisation. The Labour government in England would not have been able to defend any such relaxation, given that migration has become the most salient issue in the country’s politics at this time. In any case, about a quarter of a million Indians moved to that country in 2023 alone. What has been achieved for Indians working in the UK is a relaxation in the requirement that they contribute to National Insurance in that country. To avoid double payment, as long as Indians working for Indian companies but posted in Britain continue to pay into their provident funds, they will not be required to pay into UK National Insurance as well. Effectively, keeping sensitivities on both sides in mind, a decoupling between labour mobility and migration has been achieved.

 

What remains to be seen is the degree to which the integration of the two countries’ highly competitive services sectors progresses, and whether regulatory harmonisation can also be achieved — particularly on sanitary and phytosanitary standards. Some services, including legal, also need greater integration than this deal will deliver. Other concerns, including investment protection and support, may need additional deals to be struck. Both countries should work on finalising the bilateral investment treaty. This is not the end of the road but the beginning. Nor can India’s commerce ministry rest on its laurels. It has three significant deadlines to meet. First, it needs to avoid the reimposition of duties by the US when President Donald Trump’s 90-day “pause” on his retributive tariffs expires. Second, it must ensure that a full deal is struck with the US by Fall, a deadline set by the Prime Minister and Mr Trump. And finally, it must conclude a comprehensive agreement with the European Union by the end of the year. It is that last deal that would give the greatest impetus to Indian investment, export, and growth.