A delegation from the UK arrived in India on January 22. “There have been several issues, but most chapters have been closed in the last three months. Over 90 per cent of the deal is one, only a handful of articles in a few chapters are remaining. It is a small basket,” a senior government official told The Indian Express.
“For us, (India) the Model Code of Conduct will be the cut-off date. Our UK counterpart understands this and that is the reason their officials are here and meetings are ongoing with the highest level of the government across ministries — commerce, finance and external affairs,” the official said.
The MCC will come into effect the day the Lok Sabha poll schedule is announced. Elections need to be held before June 16 when the term of the 17th Lok Sabha ends. The MCC contains general precepts for model behaviour during elections, with an entire chapter on what the party in power can and cannot do.
The India-UK FTA was originally slated to be signed by the Diwali of 2022, a deadline that was announced earlier by the UK side and then affirmed by the Indian government in the September of that year. Following that, no formal timeline was announced by either side for the conclusion of the deal.
While the UK has asked India to reduce the duty on cars and whisky among other items, India has sought better access for its service sector workforce in the UK. While the average tariff on goods imported from India into the UK is 4.2 per cent, the average tariff in India on goods imported from the UK is 14.6 per cent; so it is expected the cut in duty by India would be of a greater extent.
Negotiations on cars and whisky have been contentious as the Indian industry has been seeking greater access into the UK market. Indian whisky manufacturers have said the UK should ease its three year maturation rule, which acts as a barrier, and New Delhi is also seeking duty concessions in the auto sector, particularly in the EV segment.
The FTA with the UK would be the first full fledged deal with a western country that would see deeper economic integration with a major global service sector leader. It is also seen as crucial since it will serve as a template for trade deals with larger western trade partners such as the European Union and European Free Trade Association (EFTA).
Economic integration with the western countries through FTA assumes significance as the global supply chain is undergoing a reset after Covid-19 and multinational companies globally are adopting a China plus one policy. Multilateral trade agreements such as the Indo-Pacific Economic Framework for Prosperity (IPEF) are also being negotiated in a bid to shift away from dependence on China.
However, the window to sign the deal is fast closing with elections in both the countries this year. While the general election in the UK is expected in December this year, India’s general elections are likely to take place between April and May this year.
With elections approaching, India is looking to close two other FTAs including the India-Oman Comprehensive Economic Partnership Agreement, the European Free Trade Association with the four nation bloc of Iceland, Liechtenstein, Norway, and Switzerland.
However, the comprehensive trade deal with Australia is likely to be taken up after the general elections as Australian negotiators are seeking access into India’s agricultural market, which is a sensitive sector for India.
India’s labour-intensive sectors are expected to see gains from the India-UK FTA, especially the textile sector. Indian textile exports face tariffs as high as 10% in the UK and a trade deal could put India on par with competition such as Bangladesh (which get LDC benefits), and revive textile exports. Meanwhile a greater integration in the services sector with the UK could help greater job creation in the fast growing industry.
India and the UK are also looking to sign a bilateral investment treaty (BIT) alongside the FTA that could improve UK’s investments into India. To resolve investor-state disputes under the new BIT faster, India is expected to move away from its 2016 model BIT approach that stressed on exhaustion of local remedies.
In FY2023, India’s merchandise exports to the UK were valued at $11.41 billion while imports stood at $8.96 billion.