What’s holding up the UK-India FTA?

Experts believe that the trade deal could be extended despite historical and strong ties

By: Sarwar Alam

RESEARCHERS have described the prospect of Britain and India striking a free trade deal as “long-term optimistic caution”, adding that issues such as the ongoing general election and immigration visas will play a major role in how a deal is struck.

Last month, a delegation led by a senior British government official spent two weeks in Delhi for a fourteenth round of trade talks without reaching an agreement and was postponed until later this year.

The UK and India launched trade talks in January 2022 while Boris Johnson was Prime Minister. Johnson said he wanted the deal “to be done by Diwali” in October 2022.

The FTA aims to double trade between the two countries to £86 billion by 2030.

Dr. Sunil Mitra Kumar, acting director of the India Institute at King’s College London, said he expected a free trade deal between Britain and India would take another two to three years to be completed.

“There is long-term optimistic caution in trade and economic relations. There is a lot of warmth and optimism about the quite seismic geopolitical developments, where even though India and Britain have not always seen eye to eye, this optimism has persisted and resulted in sustained, protracted negotiations on a free trade agreement . ” he said.

“However, that FTA itself did not materialize and that is due to a series of very deep-seated historical reasons on both sides. On the Indian side, this is the case in terms of the way the Indian economy is structured and the reluctance to enter into trade relationships that do not build on its strengths but may expose them in terms of its weaknesses.

“On the British side, things seem simpler from a purely economic and trade perspective, but in terms of domestic politics, what trade-offs will be required when it comes to the presence of warm bodies from India in Britain, which are in Britain Britain want to work?” Great Britain – then that strikes a nerve, because it has to do with the immigration figures.”

Kumar and his colleagues from King’s College, Dr Anit Mukherjee and Professor Louise Tillin, have worked with the think tank UK in a Changing Europe (UKICE) to publish a report this week assessing the state of relations between Britain and India assessed.

The report states that both countries have a deep-rooted historical relationship, as well as current overlapping ties, from geopolitics to trade and migration, that are “perhaps more important and complex than at any time since independence.”

“There is a good geopolitical turn at the moment, which puts India and Britain in a good position. This is a once-in-a-generation buzz,” said Mukherjee.

‘I have been following Indian foreign policy for almost twenty years now. Previously the relationship between Britain and India was seemingly in turmoil as each country had its own concerns about Pakistan, about Afghanistan and about the focus on China, but I think where we are now puts us in a unique, promising position. It is up to the wisdom of both sets of political leaders and our diplomats that we are likely best positioned to deliver on the promise of the partnership to date.”

India has had difficult experiences with trade and investment agreements in recent times. The country left the Regional Comprehensive Economic Partnership (RCEP) at the last minute in November 2019.

Since 2016, New Delhi has also terminated 77 bilateral investment treaties (BITs), including those with Britain and 21 EU member states, as the country faced a number of international arbitration claims. However, as export performance has improved over the past three years, India has reassessed its position and signed trade deals with Mauritius, the UAE and Australia.

And last month, after more than 15 years of negotiations, India signed a comprehensive trade deal with the European Free Trade Association (EFTA), a bloc comprising Norway, Switzerland, Iceland and Liechtenstein.

“As India slowly abandons its cautious approach to trade deals, the India-UK FTA fits well with both Britain’s post-Brexit ambitions and India’s current strategies and economic choices,” said UKICE Director Professor Anand Menon.

Tillin believes that the Indian diaspora in Britain and the ‘living bridge’, a term also used by British Prime Minister Rishi Sunak, between the two nations are a key reason for both sides’ desire for a free trade deal. “Many Indian officials, and in fact British officials, have also used this living bridge language,” Tillin said.

“There has been a very rapid increase in the flow of inbound migration to the UK from India in the very recent past, with over 350,000 visas issued in the last year alone, as a result of some of the post-Brexit changes in the British visa regime. The number of Indians on the UK payroll has more than doubled in just two years (870,000), which is a phenomenal rate of increase.

“We have seen something similar in our universities too, with a large increase in the number of Indian students coming to study in Britain, many attracted by the reintroduction of the post-study work visa.”

The 2021 census recorded 1,864,318 people in England and Wales as having Indian ethnicity, accounting for 3.1 percent of the population. India is seeing first-hand benefit from this, receiving £3 billion from the diaspora community in Britain alone in 2018.

“The Indian community in Britain is in some ways the core of the relationship,” says Kumar.

“From the Indian side, the viability of setting up businesses or expanding an Indian business into Britain, or of an Indian entrepreneur wanting to set up something new in Britain that is feasible and would be facilitated in Britain, all depends on the existence of that diaspora – it is crucial.

“If that weren’t the case, I don’t think we would be having this conversation, and if we were having this conversation, it will be extremely one-sided. The UK may still have a significant stake in India, but for India that stake is likely to diminish very significantly.”

The report states that there are a number of factors that appear to be stumbling blocks to the conclusion of the FTA, including short-term mobility for highly qualified professionals, investment protection, market access for UK legal and financial firms, Indian tariffs on Scotch whiskey and cars, and non-tariff barriers for some Indian exports in terms of phytosanitary requirements. For example, Indian dairy products are not allowed in Britain.

However, the researchers believed that the real challenge was in the areas of migration and mobility.

“Due to anti-immigrant sentiment, not least on the part of many in the ruling Conservative Party, linking a bilateral free trade agreement to an agreement on mobility may not be easy,” Menon said.

Former Home Secretary Suella Braverman said she feared a deal would lead to an “open-border migration policy with India.”

Stricter rules on student visas have already led to a drop in the number of Indian students applying to British universities. According to Universities and Colleges Admissions Service (Ucas), the number of students applying for a bachelor’s degree from India this year has fallen by four percent to 8,770.

This comes after the government introduced new rules in January banning all foreign students, except those doing postgraduate research, from bringing family members to Britain.

“Students are very aware of how they will be perceived and how they will be welcomed, and that is certainly a source of great concern for us as faculty at an internationally minded university trying to recruit these students,” Mukherjee said.

“The other constituency that will be aware (of the UK immigration debate) are businesses, which have or are considering inward investment from India into Britain. We are in the middle of a survey by the Federation of Indian Chambers of Commerce or Industry, in which they are surveying their members in India about their experiences of investing in Britain.”

When Chancellor Jeremy Hunt was asked last September whether Britain would be willing to open its visa system to Indian students and workers to secure a free trade deal, he said it was “hard to imagine how much more we could do on that front.” could give”.

The researchers have suggested that there is a need for more flexibility in migration, especially as the two countries look to build on the services sector.

A key request on the British side is access for the British services sector – which makes up 80 percent of the economy – to the Indian market. India has a population of 1.4 billion and its economy is expected to be the third largest in the world by 2050. While India is outside the top ten in terms of trade partners, it is the country’s third largest partner when it comes to services.

“If Indian services companies want to do more business in Britain, they need to be able to bring in people they think have those skills, and many of those people will come from abroad,” Kumar said.

A spokesperson for the Department for Business and Trade said: “The UK and India continue to work towards an ambitious trade deal. While we will not comment on the details of the live negotiations, we are clear that we will only sign a deal that is fair, balanced and ultimately in the best interests of the British people and economy.”