India, UK FTA Negotiations: Finish Line in Sight
UPDATE: India and the UK look set to conclude their FTA by October – just in time for Diwali, which will be celebrated on October 24 this year. The deal has enjoyed political backing from the start and both sides have conducted intense periods of formal and technical negotiations, sticking to agreed timelines. Meanwhile, it is being reported in Indian media that Prime Minister Narendra Modi could make a visit to the UK next month, but that hasn’t yet been officially confirmed.
Fifth round of India-UK free trade negotiations
India and the UK concluded the fifth round of negotiations towards their free trade agreement (FTA), on July 29. Spread over two weeks, both sides maintain confidence in the status of their technical talks. As of September 5, India and UK trade negotiators reportedly completed discussions on 19 of the 26 chapters under the proposed FTA. As per officials speaking to the media, two chapters out of the remaining seven are expected to take longer to close discussions on – as they contain items of particular interest to either side. The sticky topics include liquor, automobiles, and intellectual property rights.
Both India and the UK are seriously working towards reaching a conclusion by the much talked Diwali deadline, as the new Prime Minister Liz Truss looks set to prioritize relations with India as part of her government’s foreign policy.
On a four-day official visit to India in September, Vincent Keaveny, the 693rd Lord Mayor representing the City of London, held meetings with leading Indian businesses, investors, and finance chiefs at the banking regulator Reserve Bank of India (RBI) and the Securities Exchange Board of India (SEBI). Keaveny is London’s ambassador for financial and professional services. Speaking to the media, Keaveny maintained careful optimism about the FTA’s tight deadline, saying: “Prime Minister Modi has made it clear that he wants to sign the FTA by Diwali. There are some outstanding issues to be resolved but I think there’s a lot of optimism on both sides that we will get that done. Whatever the content of the agreement, it will be a real positive for the relationship between India and the UK across the board in the coming years.”
The India-UK trade talks have been conducted in a hybrid manner – some teams met in New Delhi while a majority joined for virtual official talks. In addition, technical experts from both sides came together for detailed draft treaty text discussions in 85 separate sessions covering 15 policy areas.
Further, the UK parliament has set up the cross-party panel – ‘India (Trade and Investment) All Party Parliamentary Group (APPG)’ – to promote trade and investment between India and the UK. APPG will support the ongoing FTA negotiations and its goals once the trade treaty is signed.
What are the next steps?
India’s trade negotiators are expected to visit London sometime at the end of September or early October, with anticipated delays as the new British government settles in. Both countries hope to sign a comprehensive and balanced FTA by the end of October.
Unlike traditional FTAs, the final India-UK trade deal will cover a wider range of areas, including gender, labor, trade and development, corruption, and MSMEs.
The two countries have also set up committees to discuss a totalization agreement sought by New Delhi, which will ease the social security compliance burden on Indian IT companies and remove dual social security taxation. India also wants market access to the UK legal services sector. It bears knowing that services trade accounts for 60 percent of overall annual commerce between India and the UK.
While there has been some instability in UK politics and government, with Prime Minister Boris Johnson stepping down in July, followed by a party leadership contest to replace him, the India-UK trade talks continued undeterred, also confirmed by Indian commerce secretary B.V.R.Subrahmanyam. Intensive FTA discussions were scheduled throughout the summer.
In India, export representative and industry stakeholders have been organizing discussions to provide actionable inputs to the government so that the FTA is mutually beneficial to both countries.
What’s at stake
The UK is keen to gain India market access for transport equipment, electrical equipment, medical devices, chemicals, motor vehicles and parts, wines, Scotch, and spirits, some fruits and vegetables – which could impact local industry players and/or boost the manufacturing ecosystem. On its part, India wants to increase exports of textiles, food and beverages, pharmaceuticals, tobacco, leather and footwear, and agricultural items like rice – to the UK. Digital services and ICT sectors will also benefit and drive the expansion of bilateral trade under the FTA.
The Russian invasion of Ukraine has delivered many curveballs, and major economies in the Western sphere have been particularly hit due to their position on Moscow’s activities and imposition of sanctions. In Q1, as per data from the UK Office of National Statistics, petroleum products dominated Indian exports to the UK with shipments worth £888 million. The upcoming FTA could unlock further expansion of Indian exports of refined petroleum products.
What were the technical areas covered in Round 5 talks?
As part of their latest round of talks, India and the UK signed agreements in the fields of education and nursing on July 21, 2022. These will ease short-term mobility for professionals and create employment opportunities.
India is the 10th largest service trade partner to the UK.
Recognition of academic qualifications
Mutual recognition of academic qualifications and duration of study in recognized and approved higher educational institutions in both countries will ease movement of professionals across the two markets (see UK government document here).
For example, Indian senior secondary school and pre-university certificates will be recognized for entry into the UK’s higher educational institutions. However, the MoU on education does not cover professional degrees, such as engineering and medicine.
MoU on maritime education
The memorandum of understanding (MoU) in maritime education will ensure mutual recognition of certificates of “maritime education and training, competency and endorsements of seafarers issued by each side”. India is among the top suppliers of seafarers in the world, and this India-UK MoU opens job prospects in the British shipping sector (see UK government documents here).
Recruitment for British healthcare sector
Recruitment of Indian nursing and allied health professionals for the UK healthcare sector will benefit from the Framework Agreement on Healthcare Workforce (see UK government documents here).
India-UK trade and investment profile
As per UK government data, released August 19 – the total trade in goods and services between the UK and India increased by 35.2 percent at the end of Q1 2022 compared to the end of Q1 2021 (an increase of £6.7 billion). Trade between China and the UK during the same period also grew, but only saw an increase of 5.5 percent or £4.9 billion.
However, total trade (export plus import) between UK and India was £25.7 billion and between UK and China was £93.4 billion in the four quarters to the end of Q1 2022. It is hoped that following their FTA, India and the UK can broaden the scope of bilateral trade. The goal is to double bilateral trade in goods and services to US$100 billion by 2030.
About 70 percent of India-UK trade is dominated by the services sector, as per reporting by the Financial Express. The proposed India-UK FTA would ultimately cover 90 percent of tariff lines.
UK-India trade factsheet: Q2 2021 to Q1 2022
The UK Department for International Trade iterated the below data in September:
- At the end of Q1 2022, total UK exports to India reached £8.8 billion over the previous four quarters showing an increase of 21.3 percent or £1.5 billion when compared to the four quarters to the end of Q1 2021.
- At the end of Q1 2022, total UK imports from India grew to £16.9 billion in the four quarters to the end of Q1 2022, which was an increase of 43.9 percent or £5.2 billion when compared to the four quarters to the end of Q1 2021.
- India accounted for 1.9 percent of total UK trade between Q2 2021 and Q1 2022 and was the UK’s 12th largest trade partner.
- In 2020, UK foreign direct investment (FDI) in India amounted to £14.9 billion, accounting for less than one percent – 0.9 percent – of the total UK outward FDI stock.
- In 2020, Indian FDI in the UK was £10.6 billion, accounting for 0.6 percent of the total UK inward FDI stock.
- Goods trade:
a) The top five goods exported from the UK to India in the four quarters to the end of Q1 2022 were: non-ferrous metals (£1.2 billion or 22.0% of all UK goods exported to India), metal ores and scrap (£598.1 million or 11.3%), mechanical power generators (intermediate) (£496.4 million or 9.3%), crude oil (£239.9 million or 4.5%), general industrial machinery (capital) (£223.8 million or 4.2%).
b) The top five goods imported to the UK from India in the four quarters to the end of Q1 2022 were: refined oil (£887.8 million or 9.7% of all UK goods imported from India), clothing (£874.7 million or 9.6%), medicinal and pharmaceutical products (£508.6 million or 5.6%), miscellaneous metal manufactures (£466.7 million or 5.1%), and textile fabrics (£455.7 million or 5.0%).
- Services trade:
a) The top five service types exported from the UK to India in the four quarters to the end of Q1 2022 were: other business services (£1.4 billion or 39.5% of all UK services exported to India), travel (£813 million or 23.3%), transportation (£453 million or 13.0%), telecommunications, computer, and information services (£207 million or 5.9%), and intellectual property (£168 million or 4.8%).
b) The top 5 service types imported to the UK from India in the four quarters to the end of Q1 2022 were: other business services (£5.8 billion or 74.7%), telecommunications, computer, and information services (£913 million or 11.7%), transportation (£351 million or 4.5%), travel (£323 million or 4.2%), and financial (£111 million or 1.4%).
India-UK FTA negotiations began formally in January 2022. For a brief round-up of trade talks so far, see our article on India’s FTAs being negotiated in 2022: Updates on India’s FTAs in 2022.
This article was originally published August 22, 2022. It was last updated September 25, 2022.
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