With the announcement of India and the UK confirming to negotiate a Free Trade Agreement (FTA), the economic ties between the two countries have shown potential to gain a new momentum. The issue was discussed in the 14th Joint Economic and Trade Committee (JETCO) virtual meeting held between the two countries. It was co-chaired by India’s Commerce and Industry Minister Piyush Goyal and UK Secretary of State for International Trade Elizabeth Truss. As a follow-up and to intensify efforts towards this objective, Working Groups will meet at frequent intervals in order to achieve some of the Early Harvest Agreements. In addition, monthly meetings of Ministers of State and meetings between Mr. Goyal and Ms. Truss will also take place this year in New Delhi.
The statement released on the occasion outlined trade priorities through a Joint Trade Review. The priority areas are life science and health, information and communications technology, food and drink, chemicals and services which will address non-tariff barriers to trade during the annual dialogue.
As per trade statistics of Ministry of Commerce and Industry, India’s trade with UK in 2017-2018 was US $ 14.497 billion. While both sides noted the expansion of bilateral trade by 27% over the last three years, it must be noted that the bilateral trade between the two countries was reduced to $ 15.5 billion in 2019-20 from $ 16.87 billion in 2018-19. This decrease was attributed to the impact of the Covid-19. The entire pandemic situation as well as the fact that as a non-member of the European Union, the UK is now permitted to have separate negotiations with any countries have been successfully placed in favour of the bilateral economic relationship which anyway needed a boost. In fact, British Prime Minister Boris Johnson had pledged a ‘new and improved’ trade relationship as part of a ‘truly special UK-India relationship’ during his election campaign in 2019. The Indian market represents a huge opportunity for the UK which seeks to expand trade and explore new facets of partnership in the post-Brexit phase. India is very well placed to make the most out of the UK’s post-Brexit economy, with well over 800 companies operating in the country which contributes more than £460 million in corporate tax. As such, the commitment towards realising the FTA is a step in the right direction.
However, to fully realise the benefits of the agreement, further progress is expected to be made from the Indian side in reducing corporate tax rates, data privacy and ease of doing business indicators. Investor-friendly policies can attract new and returning foreign investors and high net worth individuals (HNWI) who have departed over the past few years. On the other hand, India has been arguing for Mode IV access for skilled professionals like doctors, engineers and ICT professionals in negotiating an FTA with the UK. The 2019 decision by the UK to announce a two-year post study work visa for international students and the introduction of the new points-based immigration system are encouraging developments in this connection. India has also been arguing for a favourable position which does not cause losses to the labour-intensive industries textiles and apparel in comparison to their counterparts in UK like Vietnam and Bangladesh.
Capitalising on mutual strengths, working on economic complementarities, expanding the trade basket and reducing barriers to effective realisation of an FTA thus are essential steps for upgrading India-UK economic ties to a new level. The UK has clearly identified India as a significant trade partner in the post-Brexit scenario. Prime Minister Boris Johnson is expected to adhere to the 31st December 2020 deadline to reach a post-Brexit trade deal with the European Union. All things considered, preparation for an FTA requires several issues to be discussed and resolved before its actual realisation. But if effectively implemented, it has the potential to bolster economic cooperation between the two countries and take it to a new level.
Script: Dr.Sanghamitra Sarma, Strategic Analyst on European Affairs