As Rishi Sunak takes over as the first Indian-origin prime minister of the UK, the question arises whether his government can settle the issues that had delayed the India-UK free-trade agreement (FTA) in the first place. The deal, which has the potential to double the UK's exports to India, had hit fresh roadblocks during the tenure of the Sunak's predecessor Liz Truss.
The FTA talks between the two nations were supposed to fructify by Diwali, which was earlier this week, before facing political and economic obstacles. In the ensuing political crisis in the UK, Liz Truss had to resign, paving way for Sunak to become the youngest UK PM in modern history. Previously, while serving as the Chancellor of the Exchequer, Sunak had expressed his support for the FTA as he saw enormous opportunities for both countries in the deal.
What is an FTA?
An FTA is a deal signed between two or more countries or regional blocs to remove the trade barriers between them. This allows buying and selling of goods and services with little to no tariff and non-tariff barriers between the participants. Such deals permit the signatories to ultilise the best of each other's resources and markets. This is believed to allow economies achieve faster growth while satisfying the needs of its consumers. In essence, it is opposite to the practice of trade protectionism or economic isolationism.
The India-UK FTA
The foundation of this deal was laid last May when Liz Truss, as International Trade Secretary in the then Boris Johnson-led government, signed the India-UK Enhanced Trade Partnership (ETP). In July this year, both the countries concluded the fifth round of FTA talks and the Diwali deadline seemed achievable. However, several issues came up later, on which the two nations could not find common ground.
From this deal, the UK wants to gain market access in areas including digital and data, and legal services (subject to regulatory changes), as per a report published by Deloitte. Additionally, the UK is seeking to access Indian markets for medical devices, transport equipment, chemicals, scotch, wines, electrical equipment, certain fruits and vegetables, medical devices, chemicals, and motor vehicles and parts. India's middle class is touted to be an appealing market for premium Scotch Whisky. The UK also looks to make India a consumer of its green technology industry, and strengthen existing service sector trade routes.
From India's perspective, the FTA will allow for an increase in exports of textiles, tobacco, pharmaceuticals, food and beverages, rice and leather. India is also trying to negotiate greater opportunities for Indians to live and work in the UK. As per India, the FTA could depend on factors like lowering fees and relaxing rules for Indian students and professionals moving to the UK.
Delay In The Deal
Former UK home secretary Suella Braverman’s remarks on Indian immigrants seem to have been the primary reason behind the deal getting delayed. “I have concerns about having open borders migration policy with India because I don’t think that’s what people voted for with Brexit,” Braverman had said. She attacked the existing state of Indian migration to the UK by pointing out that a majority of visa overstayers in the UK are from India.
Braverman’s scathing attack on Indian migrants in the UK was not taken kindly by New Delhi. India responded by saying that both sides needed to honour the understanding as far as mobility was concerned. The Indian High Commission said, “Comments on these matters may not be appropriate given that the negotiations are underway, and that any arrangement will include issues of interest to both sides.”
Other reasons that caused the deal to be delayed beyond the Diwali deadline were more economic in nature unlike the highly political immigration issue. Earlier this year, both countries resorted to a mini tariff war, even while they were trying to finalise the deal. On September 28 this year, India proposed a retaliatory additional tariff of 15 per cent on 22 imported items from the UK, which included cheese, blended whiskey, and Scotch, among others. This was in response the restrictions that the UK had imposed on 15 Indian steel products, which resulted in a slump in Indian exports. India made a loss of US $247.70 million on duty collection.
Geopolitical Game
It is not just the economic benefits that the UK would want out of this deal. As Russia's war on Ukraine marches on for the ninth month, New Delhi's proximity to Moscow is a cause of worry for the UK which is already dealing with economic difficulties arising from the Russian aggression. India has previously abstained from voting against Russia in the resolutions put to vote at the United Nations General Assembly and the United Nations Security Council. The UK will be hoping that a favourable deal will bring India closer to the country which is currently facing the heat of an energy crisis triggered by Russia's actions.
Moreover, as the UK seeks to reduce its dependence on China, India has an opportunity to increase its share of supplies in categories where China has a big presence – fashion, homeware and furniture, electrical machinery and general industrial machinery. The UK may be interested in providing similar concessions in the FTA with India as they have done with Asia Pacific countries including Singapore and Japan, as mentioned in the Deloitte report.
Sunak's Position
In July this year, while he was the Chancellor of the Exchequer, Sunak said, “I’m very supportive of India playing an increasingly influential role in the region and, indeed, in the world as a massive economy and the world's largest democracy. An FTA would prove a greater champion of that cause.”
However, there remains some cloud of scepticism over Sunak's ability to deliver on this, according to Rahul Roy-Chaudhury, Senior Fellow for South Asia at the International Institute for Strategic Studies (IISS) think tank in London. He points out, “Having been born in the U.K. with parents originating from East Africa, Rishi Sunak has not been a public advocate of strong ties with India during his parliamentary and ministerial stints. Indeed, as Chancellor of the Exchequer for over two years, he did not visit India even once. There is no indication that this outlook is likely to change as Prime Minister when he needs to focus on a much larger foreign and security canvas.”
While Sunak is yet to put out his views on immigrant visas, foreign policy experts expect him to have a more nuanced take on the issue, compared to Braverman and that would be advantageous to the FTA talks. In August, speaking at an event organised by the Conservative Friends of India (CFIN) in London, Sunak had said, “I want to make sure that it’s easy for our students to also travel to India and learn, that it’s also easy for our companies and Indian companies to work together, because it’s not just a one-way relationship, it’s a two-way relationship, and that’s the type of change I want to bring to that relationship.” Whether this will translate into easier mobility of students and workers between the two nations remains to be seen.
The Way Forward
At the end of the day, both parties have much to gain from signing the FTA. While the UK needs India's cooperation to reduce their dependency on China and access bigger markets for their products, India requires such deals to expand their scope of economic power. India is already in talks with several other nations to sign more FTAs, and as such, it is very important for this deal to go through successfully first. When viewed in hindsight, the Diwali delay will only seem like a tiny detail in what is touted to be a historically ambitious deal for both nations. It is in the best interest of both parties to sign a mutually beneficial deal than to rush through without ironing out everyone's requirements.
