New Delhi, Feb 26 – India has actively engaged in trade diplomacy, signing 13 Free Trade Agreements (FTAs) and six preferential trade pacts to boost exports and ensure broader market access for domestic industries. Since 2014, India has finalized trade deals with Mauritius, the UAE, Australia, and the European Free Trade Association (EFTA), while ongoing negotiations are in progress with the UK and the European Union.
On February 24, Commerce and Industry Minister Piyush Goyal and UK Secretary of State for Business and Trade Jonathan Reynolds announced the resumption of negotiations on the India-UK FTA. These discussions are picking up after an eight-month pause, with 14 rounds already completed since their launch on January 13, 2022.
Understanding FTAs and Their Benefits
An FTA is a trade arrangement between two or more countries aimed at eliminating or significantly reducing import duties on 90–95% of goods exchanged between them. It also minimizes non-trade barriers and streamlines regulations to enhance service exports and investments.Trade agreements vary in scope:
- Preferential Trade Agreements (PTAs) grant reduced tariffs on selected products (e.g., India-Thailand).
- Comprehensive Economic Cooperation Agreements (CECA) and Comprehensive Economic Partnership Agreements (CEPA), such as those India holds with Singapore, Korea, and Japan, include broader trade and investment collaboration.
- Trade and Economic Partnership Agreements (TEPA) cover a wider range of trade and regulatory frameworks.
Strategic Trade Agreements and India’s Shift in Focus
India has already established FTAs with Sri Lanka, Bhutan, Thailand, Singapore, Malaysia, Korea, Japan, Australia, the UAE, Mauritius, and ASEAN and EFTA blocs. A report by the Global Trade Research Initiative (GTRI) highlights India’s shift in FTA priorities from Asian economies toward Western partners like the UK, EU, and the US to expand exports.India-UK FTA: Key Expectations
The proposed FTA aims to:- Reduce tariff and non-tariff barriers
- Improve market access
- Expand cooperation in technology, healthcare, and education sectors
Potential Gains for India
In FY24, India's merchandise exports to the UK stood at $12.9 billion. However, GTRI founder Ajay Srivastava notes that over half of these exports already enjoy low or zero tariffs in the UK, limiting the direct impact of the FTA. Products such as petroleum, medicines, diamonds, machine parts, and wooden furniture already face no tariffs.However, Indian exports worth $6.1 billion could benefit from lower tariffs, particularly in sectors like:
- Textiles and apparel (shirts, trousers, dresses, bed linen)
- Footwear and carpets
- Automobiles
- Marine products
- Agricultural goods (grapes, mangoes)
- 100% tariff on cars
- 150% tariff on Scotch whisky and wines
- 14.6% average tariff across UK goods imported into India
Key Demands from Both Sides
- India’s Priorities:
- Greater access for students and professionals in the UK
- A social security agreement
- Zero-duty market access for select goods
- UK’s Priorities:
- Reduction in tariffs on Scotch whisky, electric vehicles, lamb meat, chocolates, and confectionery
- Expansion of services access in telecommunications, legal, and financial services (including banking and insurance)
Bilateral Investment Treaty (BIT) – A Sticking Point
The India-UK trade negotiations also include discussions on a Bilateral Investment Treaty (BIT). While such treaties help protect foreign investments, a key point of contention is the dispute settlement mechanism. India insists that foreign firms must exhaust local legal remedies before seeking international arbitration, a condition that concerns UK negotiators due to India's lengthy judicial process.Outlook
While the India-UK FTA is expected to boost trade ties, analysts believe its immediate impact on India’s merchandise exports could be limited, given that many Indian goods already enter the UK with favorable tariff rates. However, lowering tariffs on specific sectors like textiles, automobiles, and agriculture could provide new opportunities for Indian exporters.With negotiations back on track, both nations are looking to finalize a comprehensive trade pact that balances market access, investment protection, and strategic economic interests.
