India-UK Free Trade Agreement Vista for businesses – ETCFO

As the Indian-origin Prime Minister of Britain and cricket buff Rishi Sunak is likely to visit India during the Cricket World Cup, there may be much to cheer for India Inc.

The two countries are close to signing a free trade agreement which will give bigger access to Indian goods and services in the UK shores.

The negotiations cover various sectors, including automotive and certain confectionery items, while excluding data-related issues and dairy products. Both countries are keen to ease norms in services sectors such as IT, healthcare, banking, and telecommunications. Investment discussions are ongoing as a separate bilateral investment treaty, and the total bilateral trade between the countries increased significantly in recent years, making an FTA strategically significant.

The development is a shot in the arm for India which recently saw the breakdown of FTA talks with Canada following the ongoing diplomatic row.

The FTA with Canada was in the works since 2010 with 10 rounds of negotiations being held in the last decade, the most recent being in 2017. In 2020, the two countries held a virtual meeting to discuss the possibility of an early harvest agreement or interim agreement and were closer to the deal.

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Notwithstanding the Canada derailment, India’s FTA ambitions are soaring high.

After a relative lull and the multilateral globalisation slowed down, India has taken to FTAs with renewed gusto. It signed an Economic Cooperation and Trade Agreement (ECTA) with Australia and the Comprehensive Economic Partnership Agreement (CEPA) with the United Arab Emirates (UAE) in recent years, signalling a significant shift in trade strategy towards greater global integration. The FTAs with Australia and the UAE have injected vitality into its engineering exports, providing a promising outlook amid declining overall exports.

India’s FTA with other countries

Over the past decade, India has inked 13 Regional Trade Agreements (RTAs) and Free Trade Agreements (FTAs) with a diverse array of countries and regions, including Japan, South Korea, ASEAN nations, SAARC countries, Mauritius, the United Arab Emirates, and Australia. During this period, India’s merchandise exports to each of these countries and regions have experienced notable growth.

Central to the country’s FTA strategy is a deliberate effort to diversify its trade partners and emerge as an export house as a big alternative to China. India recognises the value of engaging with Western economies that offer complementary goods and services.

India’s renewed FTA focus aligns with the global trend of reducing reliance on China. Both India and Western nations have compelling economic and strategic reasons to explore alternatives to Chinese supply chains. By forging new trade alliances, they aim to create a web of supply chains that can serve as viable alternatives to China, potentially reshaping global trade dynamics.

India’s FTA priorities

In ongoing negotiations with Western partners, India has specific objectives. India seeks to facilitate the movement of professionals and students, leveraging its expertise in scientific and technological fields. The EU, on the other hand, is keen to access India’s automobile, wine and spirits, and agricultural markets. In return, India aims to secure openings in textiles, garments, and leather markets, where tariff reductions could enhance competitiveness.

However, the path to successful FTAs presents its share of challenges. Western nations may impose standards related to environmental protection, labour rights, and gender equality as protective measures. India must navigate these potential hurdles judiciously to safeguard its interests. Prudent management of government procurement concessions, as seen in the UAE agreement, is essential to protect the interests of Micro, Small, and Medium Enterprises (MSMEs). Negotiating Intellectual Property Rights (IPRs) should strike a balance, addressing concerns like ‘evergreening’ while allowing for minor patents. Tariff reductions are another complex issue, as India must reduce higher tariffs, whereas Western nations typically have lower or zero-rated tariffs.

Additionally, matters such as data localisation remain significant points of contention. The EU, for example, has reservations about data localization and has not yet endorsed India as ‘data secure’ for data sharing. Resolving these issues will be pivotal for the success of these trade agreements.

The path forward

As India continues to negotiate FTAs with the EU, UK, Canada, and Israel, it is crucial to strike a harmonious balance between liberalised trade and safeguarding domestic interests. These agreements should serve as an impetus for the government to resume discussions on Bilateral Investment Protection Agreements (BIPAs) to attract foreign direct investment.

In an era characterised by global economic unpredictability and shifting alliances, India’s pursuit of FTAs signifies a strategic move towards economic resilience and enhanced global integration. By diversifying trade partnerships and addressing challenges proactively, India can unlock new opportunities and fortify its position in the international trade landscape. Liberalization and rule-based economic relations undoubtedly constitute India’s strongest assets in navigating the challenging years ahead. As the British PM comes down to strike a deal, a new trade chapter will hopefully open new vistas for India Inc.

(Editor’s Note is a column written by Amol Dethe, Editor, ET CFO. Click here to read more of his articles exploring several buzzing topics.)

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