The much-anticipated India-UK Free Trade Agreement (FTA) is on track to be signed by both nations by the end of this month, according to an official source. UK Prime Minister Rishi Sunak is planning to visit India in late October to formally sign this significant agreement. This FTA is poised to enhance bilateral trade in goods and services, as well as promote foreign direct investment flows.
During his visit for the G20 Leaders’ Summit last month, Sunak expressed his eagerness for a “comprehensive and ambitious trade deal” between the two countries, noting that some hard work remained to ensure it benefits both nations.
An official involved in the negotiations stated, “All the contentious issues in the proposed FTA have been resolved.” However, the Bilateral Investment Treaty (BIT) will be signed at a later date, as consensus has not yet been reached. In the absence of a BIT, the India-UK Infrastructure Financing Bridge will address bilateral investment issues.
Contentious issues in the negotiations included BIT, Rules of Origin, and intellectual property rights under the FTA. The demand for easier visas for professionals from India faced some resistance from the UK.
Regarding services, agreements have been reached along the lines of the UK’s FTA with Australia, which came into effect in May 2023. The UK sought national treatment for its services businesses and increased freedom for its professionals to operate in India, both of which have been agreed upon.
The services sectors of interest to the UK include financial services, business and professional services, and transport services. The UK also aimed for a liberalized visa regime for its business travelers in India.
With India’s ongoing diplomatic dispute with Canada potentially affecting the flow of Indian professionals there, the UK FTA could offer an alternative avenue. India has suspended FTA negotiations with Canada.
In its FTA with the UK, Australia secured commitments regarding the mutual recognition of professional qualifications and providing greater certainty for skilled professionals entering the UK labor market.
Among the sensitive issues in the FTA talks were duties on whiskey and automobiles from India’s perspective. In the auto sector, tariff reductions on UK imports were designed to minimize the impact on local manufacturing. Regarding spirits trade, both countries have narrowed their positions on immediate duty cuts, the speed of cuts in the coming years, and other conditions.
In the case of wines and other spirits, India may reduce import duties from 150% to 100% and then further down to 50% over a ten-year period. The UK had initially demanded an immediate reduction to 75%, followed by a decrease to 30% within three years.
Notably, despite high duties, scotch whiskey imports increased from 5.5 million cases in 2021 to 7.5 million cases in 2022, primarily driven by Mumbai. Total bottled liquor imports in 2022 amounted to 8 million cases.
In traditional export sectors like textiles and leather, the UK has agreed to India’s request to reduce duties to zero.
In terms of trade statistics, India’s merchandise exports to the UK in FY23 increased by 9.03% year-on-year, reaching $11.4 billion, while imports surged by 27% to $8.9 billion. Foreign direct investment (FDI) from the UK in FY23 stood at $1.7 billion compared to $1.6 billion in the previous year. India’s primary exports to the UK include ready-made garments, textiles, gems and jewelry, engineering goods, petroleum and petrochemical products, transport equipment, spices, machinery and instruments, pharmaceuticals, and marine products.
Key imports from the UK comprise precious and semi-precious stones, ores and metal scraps, engineering goods, professional instruments (excluding electronics), chemicals, and machinery.
