Wait for India-UK free trade agreement likely to extend until mid-2023

One of the officials said that the trade deal between India and the UK is at the last stage

The free-trade agreement (FTA) discussions between India and the United Kingdom (UK) may spill over to mid-next year as both nations are yet to iron out their differences over providing greater market access for certain goods and services, people aware of the matter said.

 Also, the brewing political tensions in the UK, coupled with the fear of a recession due to slower-than-expected economic growth, may defer the timeline for the finalisation of the pact.

Responding to Business Standard’s emailed queries, UK’s Department for International Trade spokesperson said that the UK has a close, positive working relationship with India and a thriving trade partnership worth 24 billion pounds in 2021.

“We continue to seek improvements to our current trading relationship, which is why we are negotiating a high-ambition Free Trade Agreement. We remain clear we won’t sacrifice quality for speed, and will only sign when we have a deal that meets both countries’ interests,” the statement said.

Both nations kick-started formal negotiations earlier January this year, and set an ambitious Diwali deadline for the finalisation of the trade pact. While India is yet to officially comment on any change in the deadline, Commerce and Industry Minister Piyush Goyal earlier this month pointed out that India will sign FTAs after thorough consultation with industry, and the government would not diverge from this approach for the sake of deadlines.

Besides, UK Trade Secretary Kemi Badenoch on Friday said the negotiations were progressing well, but the two sides are no longer working on the Diwali deadline.

“India is taking a more cautious stance now. The deal may be signed early-mid 2023, although the negotiations team is going on with the discussions as usual,” one of the persons aware of the developments told Business Standard.

E-mailed queries have been sent to the commerce and industry minister.

E-mailed queries sent to the commerce and industry minister and the British High Commission remained unanswered. Biswajit Dhar, professor of economics at the Jawaharlal Nehru University, said that there is little appetite for free-trade agreements during a downturn, and it is difficult to finalise a trade agreement within a stiff deadline.

“Trade deals happen when economies do/grow reasonably well, and not in times of an economic downturn. That’s been the track record. It is very difficult to perceive a situation where the British economy will be able to accommodate their partner nation’s (India) interest. Normal tendencies for all countries during a downturn — and we saw that during Covid-19, as well — is that they become protectionist,” said Dhar, adding that it will be difficult for the UK economy to open up at this point.

One of the officials cited above said that the trade deal between India and the UK is at the last stage. While 80 per cent of the negotiations have already been done, consensus on key demands from the UK on lowering tariffs on whiskey and automobiles, as well as opening up India's legal, architecture, and financial services sector is yet to materialise.

As far as services are concerned, easier movement of skilled professionals has been one of the key demands from India, which has now sparked a fresh controversy. Last week, UK Home Secretary Suella Braverman raised concerns regarding the FTA as it could increase migration of Indians to the UK and said a large number of visa overstayers are from India.

“It is difficult to fathom how these differences can be resolved quickly. India will also have demand in the services sector (movement of skilled professionals). Similarly, the UK will also have interest in legal, financial and architectural services, which has been a problem from India’s point of view, as well,” Dhar said.

The UK was India’s 17th largest trade partner during April-August (2022). India exported goods worth $4.5 billion and imported goods worth $4.3 billion during the first five months of the current financial year.

In May, 2021, both countries set an ambitious target of more-than-doubling bilateral trade by 2030. As the UK tries to build a post-Brexit trade relationship with the world, India, so far, is one of the largest markets the UK has committed to negotiating a trade deal with.