New Delhi: The UK-India Free Trade Agreement, a major trade deal that has been stalled for years due to political instability in Britain, is finally set to relaunch in early 2025. This announcement was made by British PM Keir Starmer following his bilateral meeting with Prime Minister Narendra Modi on the sidelines of the G20 Summit in Brazil.
Starmer has clearly emphasised that London is seeking a new strategic partnership as well as deepening cooperation in areas like security, education, technology and climate change.
Now why does the UK government push for a quick FTA with India? What are the possible implications?
The India-UK Free Trade Agreement (FTA) is seen by many as part of a broader strategic shift in trade relations, including efforts to reduce dependency on China. Both countries aim to diversify supply chains and enhance economic ties, which can help reduce their reliance on Chinese imports in various sectors.
Former Diplomat Ashok Sajjanhar, who negotiated for India in the Uruguay Round of Multilateral Trade Negotiations for India-EU India-ASEAN and the India-Thailand Free Trade Agreement, in an exclusive conversation, told ETV Bharat that the relaunching of the India-UK FTA presents a mutually beneficial opportunity for both nations. Both parties have expressed a strong desire to swiftly conclude a high-quality FTA that is equitable and offers advantages to businesses in both countries.
He highlighted that there have been challenges that have held back progress in FTA, but the main issue is the instability in the UK political system.
The ex-diplomat said, “Recently, the UK has had several Prime Ministers in a short time, which has created uncertainty and stalled talks. Boris Johnson, Liz Truss and Rishi Sunak all promised to finalise a Free Trade Agreement (FTA) with India. Now that the Labour Party has come to power, there is hope for more stability in the government, which could help move negotiations forward. For the UK, a trade deal with India is important, especially after leaving the European Union. Since the referendum in 2016 and the official departure in 2020, the UK has aimed to strengthen ties with India, which is the fifth largest economy in the world and set to become the third largest soon, with strong economic growth”.
“This partnership is also valuable for India. The UK has served as a key link to the European market. Many Indian companies have a strong presence in the UK, especially in manufacturing and services. A trade agreement would benefit both countries and their businesses. With Labour leader Starmer highlighting the importance of a trade deal with one of the fastest-growing economies, I believe we can reach a positive resolution soon”, he added.
He said, “UK's relations with China are becoming increasingly strained as they now perceive it as a systemic rival. There was once a strong desire to maintain a robust economic partnership with China while separating it from security concerns. However, this approach is not progressing at the necessary pace. The United Kingdom, like many European nations, views China as a systemic threat and is exploring alternative partnerships. India stands out as the most viable option, especially as Prime Minister Starmer noted, given that it is the fastest-growing major economy and is currently the fifth largest, soon to become the third largest in the world".
When asked about what is at stake and what are challenges ahead, Sajjanhar pointed out that there is significant potential for collaboration between the two countries in areas like automotive parts, pharmaceuticals, digital public infrastructure, and technologies such as quantum computing and AI. India aims to be a hub for semiconductor manufacturing, where both countries can combine their strengths. “However, challenges exist. The UK has high tariffs on alcoholic beverages, which India must consider when spending foreign currency on luxury items. Additionally, India's skilled professionals face difficulties travelling to the UK due to strict immigration policies. Addressing these issues is essential for effective collaboration,” he added.
Strategic significance of India-UK FTA
Earlier today, British Prime Minister Keir Starmer emphasised the importance of the UK's trade relationships for economic growth. He stated, “Boosting economic growth is key to improving living standards for working people. A new trade deal with India will support jobs and prosperity in the UK.”
India, the fifth-largest economy, is a vital partner. The proposed deal aims to create jobs, attract investment and enhance market access for both nations. During the bilateral meeting, Indian PM Modi noted the importance of addressing the issue of economic offenders from India in the UK. The two leaders also agreed on the need to make progress on issues related to migration and mobility.
The India-UK Free Trade Agreement (FTA) talks initially began in early 2021. In May 2021, both countries agreed to start formal negotiations towards an FTA, following the UK's exit from the European Union (Brexit) and its aim to establish new trade deals with countries outside the EU. These talks were seen as an effort to deepen bilateral economic ties between India and the UK, focusing on areas such as trade in goods and services, investment, and cooperation in sectors like technology and green energy.
The negotiations progressed through 2021 and 2022, and a "framework agreement" for the FTA was set with the goal of reaching a comprehensive deal by the end of 2023. The FTA was expected to provide benefits like enhanced market access, tariff reductions, and stronger economic cooperation between the two nations.
Current India-UK trade and economic ties
As of 2023-24, India and the UK share a substantial trade relationship, with the total trade between the two nations reaching approximately £29.6 billion (around $36 billion USD) in 2022-23, according to the UK government statistics. The robust trade relationship between India and the UK is expected to further strengthen, with the resumption of the India-UK Free Trade Agreement (FTA) negotiation.
Benefits of India-UK FTA
The new Free Trade Agreement (FTA) will improve market access for businesses. British companies want India to reduce tariffs on exports like scotch whiskey, electric vehicles, lamb and sweets. Meanwhile, India seeks better access to the UK's service sectors, including telecommunications and finance. As the UK Business and Trade Secretary Jonathan Reynolds rightly pointed out India is a vital trading partner for the UK. “We believe there is a good deal to be done here that works for both nations”, earlier he said.
Read more: UK PM Starmer Announces Relaunch Of FTA Talks After PM Modi Meet In Rio
