India and the United Kingdom have resumed negotiations for a proposed Free Trade Agreement (FTA), aiming to double or triple bilateral trade from the current USD 21.34 billion in the next 10 years.
Key Highlights of India-UK FTA
Background & Progress of India-UK FTA
- The India-UK FTA negotiations began on January 13, 2022.
- After an eight-month gap, talks have resumed, with 14 rounds of negotiations completed so far.
- Bilateral trade between India and the UK grew from USD 20.36 billion (2022-23) to USD 21.34 billion (2023-24).
- The UK is India’s 6th largest investor, with USD 35.3 billion in Foreign Direct Investment (FDI) between April 2000 and September 2024.
Key Demands in the India-UK FTA
India’s Interests:
- Greater market access for Indian students and professionals in the UK.
- A social security agreement to prevent double contributions by Indian professionals in Britain.
- Zero customs duty for several Indian goods in the UK.
UK’s Interests:
- Reduction in import duties on items like Scotch whiskey, electric vehicles, lamb meat, chocolates, and confectionery products.
- More access for UK services in India, particularly in telecommunications, legal, financial, and banking sectors.
Social Security Agreement – Double Contribution Convention
- India and the UK are negotiating a social security agreement to prevent double contributions by Indian professionals working in the UK.
- This agreement will benefit Indian workers, helping them avoid paying into both Indian and UK social security systems.
Three Key Negotiation Fronts
India and the UK are negotiating on:
- Free Trade Agreement (FTA) – To remove trade barriers and increase market access.
- Bilateral Investment Treaty (BIT) – To promote and protect investments in both countries.
- Social Security Agreement – To resolve double taxation issues for professionals working in both nations.
India-UK Bilateral Investment Treaty (BIT)
Purpose: To promote cross-border investments by ensuring investor protection.
Key Issue:
- India wants foreign firms to exhaust local judicial options before seeking international arbitration.
- However, foreign investors resist this condition due to the lengthy Indian judicial process.
Impact: While BITs provide stability for investors, no direct link has been established between BITs and increased investments.
Significance of India-UK FTA
- Enhances bilateral trade & investments by reducing tariff and non-tariff barriers.
- Expands cooperation in technology, healthcare, and education.
- Increases employment opportunities for Indian professionals in the UK.
- Improves ease of doing business for Indian and UK firms.
- Strengthens India’s global trade position by deepening ties with a major Western economy.
India’s Free Trade Agreements (FTAs)
Overview of India’s FTAs
- India has signed 13 FTAs and 6 preferential trade agreements (PTAs).
- Since 2014, India has signed FTAs with: European Free Trade Association (EFTA), Mauritius, United Arab Emirates (UAE), Australia.
- India is actively negotiating new FTAs with the UK and European Union (EU).
India’s Existing Trade Agreements
India has signed trade deals with: Japan, Singapore, Thailand, Sri Lanka, United Arab Emirates (UAE), Bhutan, Mauritius, Malaysia, ASEAN, South Korea, Australia and EFTA blocs
Shift in India’s FTA Strategy:
- Initially, India focused on Eastern economies (ASEAN, Japan, Korea).
- Now, India is prioritizing Western partners like the UK, EU, and US to expand exports and strengthen trade ties with major developed economies.
What is a Free Trade Agreement (FTA)?
- An FTA is a pact between two or more countries to reduce or eliminate tariffs on 90-95% of traded goods.
- It also focuses on reducing non-tariff barriers and boosting trade in services and investments.
Different Types of Trade Agreements
- Preferential Trade Agreement (PTA) – Tariff reduction on specific goods (e.g., India-Thailand PTA).
- Comprehensive Economic Cooperation Agreement (CECA) – Broader trade agreements (e.g., India-Singapore CECA).
- Comprehensive Economic Partnership Agreement (CEPA) – Deep economic cooperation (e.g., India-Korea, India-Japan CEPA).
- Trade & Economic Partnership Agreement (TEPA) – Economic-focused trade deals.
- Regional Trade Agreements (RTA) – Broader regional economic partnerships (as per WTO classification).
Benefits of FTAs
- Boosts trade and investment flows.
- Provides greater market access for domestic industries.
- Helps protect domestic companies by maintaining negative or exclusion lists of sensitive goods.
- Allows governments to impose trade remedial measures like anti-dumping duties and safeguards to protect domestic industries from sudden import surges.