While an Indian-origin Prime Minister at the helm in the United Kingdom is a rarity, the Indo-British cultural business has a long and rich history. These ties are expected to be further strengthened with the revival in the Free Trade Agreement, which was initiated in January 2022. Britain’s Prime Minister Rishi Sunak’s strong Indian ties may be just the right springboard for the proposed free trade pact providing a huge platform for Indo-British trade.
India’s FTA with the UK has been in the works for some time now. The future of the India-UK economic relationship is expected to strengthen significantly by the free trade pact. Indeed, trade between India and the UK is expected to double by 2030 which will spur investments in technology, expand global supply chain routes which has been aided by the ease of doing business.
Though India is a big trading partner of the UK, trade expansion between the two of the largest global economies will be beneficial to both economies. India’s trade with the UK has been growing steadily over the years rising from $21.9 billion in 2015 to $26.7 billion in 2020 with a significant part of the trade coming in from services. UK has also been a big investor in the Indian economy with about $30 billion of investments, approximately 6% of all foreign direct investment in the country.
There is a strong diaspora of Indians living in Britain, which naturally gives India the advantage when it comes to enhancing trade and business ties. Further, there are more than 550 UK companies operating in India with a turnover of more than Rs 3 trillion in various industries including technology, telecom, etc.
For the UK, boosting ties with India will drive growth in its economy. The UK has been looking for business partners after Brexit to strengthen its economy and India, due to its largest emerging market country-status, naturally makes the cut. A large, unfettered access to the one billion plus dynamic Indian market will make it cheaper for UK companies to access with the FTA.
On the other hand, there are many Indian companies already operating in the UK and is one of the leading employment generators. Expanding trade will provide Indian companies with capital due to the strong financial services and insurance services, including strengthening the financial technology sector with access to global capital markets as seen through the global financial hub in London.
The contours of the FTA
India is already a big trading partner, exporting ready-garments and textiles, gems and jeweller, engineering, petrochemical products, metals, spices and pharma products. The UK is also one of the large export markets for IT services. On the other hand, India imports ores, semi-precious stones, chemicals, engineering goods, professional instruments, non-ferrous metals and so on.
An FTA between the two countries will reduce or eliminate customs duty on a maximum number of goods while at the same time boosting the ease of investments in each other country. The FTA is expected to boost Indian exports in labour-intensive sectors including textile, jewellery, processed agri-products, pharma and healthcare, education and so on.
While there has already been significant progress in the FTA talks between the two countries since January, a lot still needs to be done. The UK and India have already made headway and have arrived at common ground in 16 out of the 26 segments, according to various reports.
But some of the critical areas of negotiation remain such as tariffs on professional and financial and legal services, scotch imports in India, and one more critical aspect will be the area of visas for Indians, particularly for people in the small-scale sectors. The tariffs on Scotch whisky is a key contention area for the British which currently stands at 150%. Further, another significant area of discussion is intellectual property. The UK is also looking at reducing tariffs on medical devices and machinery.
Economic co-operation – the growth mantra
Of course, the big issue is how soon the two governments can iron out the differences and come to an agreement on trade parameters that is agreeable to both the countries. But the task for the Prime Minister Rushi Sunak is much cut out.
One of the good things for Rishi Sunak is that his previous predecessor Boris Johnson has already laid much of the foundation for boosting trade ties. His famous pledge to achieve a quantum leap in the bilateral relationships was on the back of an enhanced trade partnership which the two countries were rolling out with the aim of doubling bilateral trade by 2030 from GBP 24 billion.
Of course, the Ukraine crisis has changed things geopolitically. As such, the India-UK relationship has been steadily climbing upward, despite the challenges coming on the Ukraine front. Both the countries have already progressed on several fronts including defence, and cyber security. India is already looking at improving ties on technology and marine co-operation.
Naturally, if the FTA and enhanced economic co-operation plans are fast-tracked, both the economies will be able to benefit even more. Both India and the UK would do well to respond to the changing global economic scenario quickly and enhance the economic status of the fifth and sixth largest economies in the world.