What’s holding up UK-India FTA?

Experts believe trade deal could be prolonged despite historic and strong ties

• Sarwar Alam
• 09 May, 2024

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By: Sarwar Alam

RESEARCHERS have described the prospect of the UK and India concluding a free trade agreement as “prolonged optimistic caution”, adding that issues the ongoing general election and immigration visas will play a major part in how any deal is concluded.

Last month, a delegation led by a senior UK government official was in Delhi for two weeks for a 14th round of trade negotiations, without reaching a deal with discussions, and put on hold until later this year.

The UK and India launched trade negotiations 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 UK-India Free Trade Agreement (FTA) to still take another two-three years to be completed.

“There is prolonged optimistic caution in terms of the trade and economic relationship. There’s lots of warmth and optimism that has been sustained over pretty seismic geopolitical developments, on which even though India and the UK have not always seen eye to eye, nevertheless, that optimism has maintained and resulted in sustained protracted negotiations for a free trade agreement,” he said.

“That free trade agreement itself, however, has not materialised and that is due to a set of very deep-seated historic reasons on both sides. On the Indian side, (it is) in terms of how the Indian economy is structured and its hesitation to enter into trade relationships which do not build on its strengths but may expose it in terms of its weaknesses.

“On the UK side, while from the purely economic and trade perspective, things look easier, but in terms of domestic politics, what trade-offs will be required in terms of warm bodies from India being present in the UK, wanting to work in the UK – then that touches a raw nerve because it touches upon immigration rates.”

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

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

“There is a good geo-political spin at this time which puts India and the UK in a good position. This is a once in a generation buzz,” said Mukherjee.

“I’ve been tracking Indian foreign policy for almost two decades now. Previously, the UK and India relationship was seemingly off because each country had their own concerns about Pakistan, about Afghanistan, about the focus on China, but I think where we are now puts us at a uniquely promising position. It’s to the wisdom of both sets of political leaders and our diplomats, I would say we are in probably the best position yet to fulfil the promise of the partnership.”

India has had a difficult experience of trade and investment deals in recent times. The country walked out of 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 with the UK and 21 EU member states, as it faced a number of international arbitration claims under them. However, with improved export performance over the past three years, India has reassessed its stance 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 made up of Norway, Switzerland, Iceland and Liechtenstein.

“As India slowly sheds its cautious approach towards trade deals, the India-UK FTA fits well with both the UK’s post-Brexit ambitions, and India’s current strategies and economic choices,” said UKICE director professor Anand Menon.

Tillin believes the Indian diaspora in the UK and the “living bridge”, a term also used by UK prime minister Rishi Sunak, between the two nations is a key reason for a desire from both sides for an FTA. “Many Indian officials and in fact, UK officials, have also used this language of the living bridge,” said Tillin.

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

“We’ve seen a similar thing in our universities as well with major increases to the number of Indian students coming to study in the UK, many of them attracted by the reintroduction of the post study work visa.”

In the 2021 Census, 1,864,318 people in England and Wales were recorded as having Indian ethnicity, accounting for 3.1 per cent of the population. India sees firsthand benefit from this with the country receiving £3 billion from the diaspora community in the UK alone in 2018.

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

“From the Indian side, the viability of creating businesses or expanding an Indian company into the UK or an Indian entrepreneur wanting to set up something new in the UK which is feasible and would be facilitated in the UK, all of these things rest on the existence of that diaspora – it is crucial.

“Were that not to be the case, I don’t think we’d be having this conversation or if we were having this conversation, it will be tremendously one sided. The UK might still have a significant interest in India, but, for India, that interest will probably decrease very significantly.”

The report states that there are a number of factors that are proving stumbling blocks to concluding the FTA, including short-term mobility for high skilled professionals, investment protection, market access for British legal and financial firms, Indian tariffs on scotch whisky and cars, and non-tariff barriers on some Indian exports in terms of phytosanitary requirements. Indian dairy products, for example, are not permitted in the UK.

However, the researchers felt the real challenge has been in the area of migration and mobility.

“Due to anti-immigrant sentiment, not least on the part of many in the governing Conservative party, linking a bilateral FTA to a deal on mobility may not be easy,” said Menon.

Former home secretary Suella Braverman said she was worried a deal would lead to an “open borders migration policy with India”.

Stricter student visa rules have already seen a decline in the number of Indian students applying for UK universities. According to Universities and Colleges Admissions Service (Ucas), the number of students applying to start undergraduate degrees this year from India has fallen by four per cent 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 the UK.

“Students are very aware as to how they will be perceived and how they will be welcomed, and that’s certainly a source of great worry for us as educators in an international-facing university trying to recruit those students,” said Mukherjee.

“The other constituency who will be aware (of the UK immigration debate) are corporates, who either have or are mulling inward investment from India into the UK. We’re in the middle of a survey through the Federation of Indian Chambers of Commerce of Industry, in which they’re polling their members in India as to what are their experiences of investing into the UK.”

Last September, when asked whether the UK would be willing to open up its visa system to Indian students and workers to secure an FTA, chancellor Jeremy Hunt said it was “difficult to imagine how much more we could give on that front”.

The researchers have suggested there needs to greater flexibility in migration, especially as the two countries look to build on the services sector.

A key request on the UK side is access for the British services sector – which makes up 80 per cent of the economy – to the Indian market. India has a population of 1.4 billion and its economy is predicted to become the world’s third largest by 2050. For India, while the UK ranks outside the top ten in terms of trading partners, it’s the country’s third largest partner when it comes to services.

“For Indian service companies to do more business in the UK, they need to be able to bring people who they think have those skills and many of those people will be from abroad,” said Kumar.

A spokesperson for the Department for Business and Trade said, “The UK and India are continuing to work towards an ambitious trade deal. While we don’t comment on the details of 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 the economy”.