India and the UK also seek to double the bilateral trade in goods and services to about GBP 73.6 billion by 2030
By Nikhita Pais
Trade relations between India and the United Kingdom date back to the establishment of the East India Company in 1600 and have only grown over these past years. Though the Britishers left India way back in 1947, their presence can still be experienced in various aspects of our day-to-day life in India. We are a land with over a hundred different spoken languages, yet united by a foreign language introduced to us by the West. Architectural structures, historical monuments, and train lines in different parts of the country – many of which date back to the Victorian Era.
To take this long-standing relationship between the two and to further extend it to the field of trade, the UK and India commenced negotiations on January 13, 2022, about a year ago, to establish a free trade agreement (FTA) between the two. As of January 2023, the total exports from India to the UK were valued at GBP 17.5 billion, while the exports from the UK to India were valued at GBP 12.1 billion. Figure 1 below shows the statistical trade flows between UK and India:
Source: The Department for International Trade, UK
Rounds of Negotiations
Even though the initial rounds of the negotiations have been concluded successfully, there is always a long way to go before a concrete and substantial agreement is implemented. The conclusion of the sixth round of negotiations was witnessed on December 16, 2022. During the talks, both countries settled on having an ‘early harvest scheme’ or a partial trade agreement to lower tariffs on small goods and ease rules for selected services such as textiles, leather goods, and footwear. Furthermore, subjects concerning the patent regime for pharmaceutical companies, work visas, and access to Indian movies are on the agenda.
India and UK have agreed on the UK-India Young Professionals Scheme, which permits individuals in the age group of 18-30 years to live and work in either country for up to a period of 2 years. While avoiding sensitive topics to move forward more effectively, the trade deal was limited to liberalizing 50 to 60 services from a total of 160. The round of talks discussed 26 policy areas concerning trade in goods and services — including financial services and telecommunications, investment, intellectual property, customs, sanitary and phytosanitary measures, technical barriers to trade, gender equality, sustainability, geographical indicators, and digital, small and medium enterprises, amongst others.
India is negotiating the agreement with the aim of boosting exports to the UK, especially in labour-intensive sectors such as textiles, leather, gems and jewellery. The UK, on the other hand, is seeking duty concessions on items such as Scotch whiskey and automobiles.
Benefits of the FTA
It is crucial to understand the FTA benefits that India and the UK strive to achieve. The deal is seen as creating enormous benefits for both countries, with the potential to boost bilateral trade by up to GBP 28 billion a year by 2035 and increase wages by up to GBP 3 billion across the UK.
The UK desperately needs new markets away from the European region to rejuvenate its typical target markets, benefiting from more (and more avid) consumers. Apart from rendering the expected natural boost to the bilateral trade between India and the UK, some of the other benefits of the FTA, as we see it, include providing market access to high-value products originating in the UK and providing increased opportunities for UK services and its investments.
The FTA would also reduce existing barriers to trade, empowering small and medium enterprises and providing them with a much-needed lift. Then again, with a reduction in trade barriers and greater access to investment opportunities in both the UK and India, we see this as an opening to increase capital spending in each other’s jurisdictions, thereby promoting more job prospects for the working classes. This would also result in higher wages being paid out. Furthermore, with an exchange of digital technology and know-how, the economies of India and the UK can expect tremendous growth. A modern and sustainable trade agenda would be promoted in both UK and India.
India is UK’s 15th largest trading partner, and there has been a 45.3% increase in UK exports of goods to India from the period commencing in 2021. Furthermore, India’s exports of goods to the UK increased by 38.1% during the same period. The top 5 commodities traded between India and the UK are graphically represented below in Figures 2 and 3:
Source: The Department for International Trade, UK
Though there are certain products that India scores more than the UK, India is now seeking market access for its agricultural products, like basmati rice, as well as visa and immigration quotas. At the same time, the UK is expected to ask for tariff reductions on scotch whisky, automobiles, and wind turbine parts, among other products.
One of the other significant topics discussed in these negotiations is gender equality between the two countries – needless to say the huge room for improvement in those areas. It is also estimated that the trade agreement with the UK would improve Indian exports in big job-creating industries, such as textiles, leather products, and footwear.
From the UK perspective, an FTA with India supports the government’s strategy of continuing to develop the UK’s status as an independent trading nation that seeks trade and investment opportunities, champions free trade, and supports the leveling up agenda in all regions of the UK. From an Indian standpoint, our economy has always considered an FTA a vital tool to boost its investment and trade – it is no coincidence that it became one of the leading countries with the highest number of FTAs. On top of it, through the Production Linked Incentive scheme, India seeks to attract UK companies to invest in India’s manufacturing sectors.
Reinforcing the India–UK comprehensive Migration and Mobility Partnership (MMP), made in May 2021, and the launch of the UK-India Young Professionals Scheme scheduled for early 2023 as a part of the MMP, the FTA would enable the free movement of highly skilled workers to and from India and the UK, which is the need of the hour, especially in light of the restricted access to the EU markets post Brexit and the huge labor shortage faced in sectors such as hospitality, construction, and manufacturing.
India is an essential partner for the UK, and an FTA offers the opportunity to deepen their bond. The home to the Taj Mahal is one of the most dynamic, fast-growing economies at the heart of the Indo-Pacific region, an area representing over 40% of global GDP. The UK needs more efficient access to these markets and has already applied to be a part of the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership.
The UK must focus on the areas that will drive its future economic success, such as collaborative innovation and more substantial regulatory alignment, with a particular focus on trade since that drives economic growth and prosperity. According to the Department of International Trade’s estimates, removing duties alone would increase UK exports to India by up to GBP 6.8 billion, with Scotch whisky and cars currently facing enormous duties of 150% and 125%, respectively.
The Indian government had planned to set up 175 GW of renewable energy capacity by 2022, of which it has installed 119GW of solar, wind, bio-power, and small hydropower capacity; this is also seen as a significant opportunity for the UK’s renewables industry, which hopes to benefit from a deal that slashes barriers such as import tariffs as high as 15% on wind turbine parts. India is also expected to register a quantum jump in the export of marine products through the recognition of 56 marine units in India. In addition, the booming pharma industry in India also expects to receive better market access.
It is for us to wait and watch how these negotiations pan out. If your company could be interested in being part of the liberalizing efforts between these two great nations, let’s have a chat and we will help you think things through. In the meanwhile, do follow our LinkedIn Page and our website for more updates on the India-UK FTA. We expect news by March 2023.
 Nikhita Pais is an International Trade and Investment Lawyer handling the Indian desk for Sidera Consult for matters pertaining to both trade remedies, market access and expansion.
 Department for International Trade, UK, Trade and Investment Factsheet.