India-UK Free Trade Agreement: Finally on the Way to Realization?

Following the recent general elections in India and the UK, the prospect of a free trade agreement between India and the UK seems closer than ever. While the idea that the recent elections, including the change of government in the UK, are the ultimate catalyst for its conclusion is tempting, the reality is a little more nuanced.

Modi's 100 Days: A New Sense of Urgency?

In April 2022, former British Prime Minister Boris Johnson, in a moment of characteristic grandiloquence, promised the nascent trade deal with India made by Diwali. While JohnsonMr Trump's promise now sounds like empty boasting, it has underscored the conservatives' position ambition to recalibrate the UKGlobal trade after Brexit. Three British prime ministers and 14 rounds of bilateral negotiations later, a deal remains elusive. Yet voices on both sides are overwhelmingly positive, so much so that the FTA is at the top of the Indian government's initial 100-day post-election programme.

Latest UK and India General Elections delayed procedurebut they are far from being the only determinants of the FTAAlthough the Modi-led government has been a permanent fixture in the previous 14 rounds of negotiations, the outcome of the UK elections has changed the dynamics and faces at the negotiating table, but not the core content of the talks.

Recent general elections in the UK and India have delayed work, but they are far from the only factors determining the fate of free trade agreements.

Indian governments have historically been reluctant in trade negotiations, often favouring a measured and protracted approach.s 16 years of negotiation and eventually agreement with the European Free Trade Association (EFTA) This is a case in point. However, the Modi administration appears to have shifted gears, signaling a new intent and urgency, as evidenced by the trade deals recently signed with the United Arab Emirates and Australia. Through these trade deals, New Delhi is trying to shed some of its protectionist reputation in favor of a more business-friendly environment, better integrate into global supply chains, and increase its exports to more than 100 countries.$2 trillion by 2030.

Job opportunity

For the Conservatives, the FTA was seen as a post-Brexit triumph, highlighting the UK's positionLabour’s newfound negotiating power, freed from EU restrictions, never materialised under their leadership. With Labour’s resounding victory in early July, Sir Keir Starmer inherits a deal that looks set to be finalised.

Despite market perceptions of StarmerAs the UK seeks to strengthen ties between Europe and the Atlantic, a free trade agreement with India represents a pragmatic opportunity. Just before elections in both countries, British Secretary of State for Business and Trade Jonathan Reynolds, visited Delhi In February 2024, while he was Labour's Shadow Secretary of State, he held talks with IndiaCommerce and Industry Minister Piyush Goyal. Just two weeks into his new role, British Foreign Secretary David Lammy, who joined Reynolds on his pre-election visit, has already landed once again in New Delhi, indicating the Labour Partyis keenly interested in the finalisation of the FTA.

There has long been positive dialogue on both sides regarding the FTA negotiations, but the current state of affairs appears particularly propitious. Current UK-India trade is estimated at 39 billion (US$49.8 billion) per yearAccording to some estimates, a free trade agreement between the two countries could double bilateral trade to $100 billion by 2030.

Friction points

Of the 26 chapters of the agreement, most of the issues have been either have been resolved or are at an advanced stage. Yet long-standing issues of contention persist.

Of the 26 chapters of the agreement, most issues have been resolved or are at an advanced stage. Yet long-standing points of contention persist.

Migration, mobility and visa liberalisation for Indian workers have proved particularly thorny issues in the FTA negotiations, particularly under the Conservative government. Former Home Secretary Suella Braverman wrecked the negotiations last year by claiming that Indian migrants made up the largest number of people overstaying their visas in the UK. A Labour government, less encumbered by the immigration rhetoric that has paralysed the Conservatives, offers a clearer path to resolving this issue.

The UK, for its part, wants a cut in Indian tariffs on goods such as whisky and cars, which currently stand at around 100-150%. Britain also wants better access to the Indian market for its financial, legal and other services, which account for 80% of the British economy, a challenge for India amid fears of an influx of foreign competition.

One issue that has recently emerged in New Delhi is the financial burdens on Indians working temporarily in the UK, such as paying national insurance contributions when they are not eligible for British social security benefits. These issues highlight the broader challenge of balancing domestic policies with global trade ambitions.

The road ahead

Although the negotiations follow their own course, both partners can still follow the Roadmap 2030 on trade and increasing mutual investmentsavings. In 2021, the stock leaving the United KingdomForeign direct investment (FDI) was 19.1 billion ($24.4 billion), while IndiaFDI in the UK was 9.3 billion ($11.9 billion). If investments accelerate, this should translate into increased bilateral trade in both directions in the future.

Although the negotiations will take their own course, both partners can still follow the 2030 Trade Roadmap and increase investment in each other's economies.

The UK-India free trade agreement negotiations are at a critical juncture. The Conservatives, while struggling to gain the upper hand in other areas in the twilight of their 14-year rule, have moved these negotiations forward in a positive way. While recent elections in both countries provide fresh impetus, the real drivers of this potential deal are strategic interests and the groundwork laid by previous administrations. The Labour governmentThe pragmatic approach and willingness to overcome remaining challenges could finally enable the FTA to come to fruition, marking an important milestone in UK-India relations.

In the broader context of the UK's post-Brexit trade ambitions, new free trade agreements have so far only been successfully concluded with Australia And New ZealandThese agreements, however, sparked controversy at homeparticularly among British farmers who are concerned about competitive pressures on their industries. In addition, negotiations with Canada were on break The India-UK FTA was signed earlier this year due to unresolved issues regarding food safety standards. This context underscores the challenges the UK faces in securing favourable trade deals and highlights the importance of the ongoing negotiations with India. Thus, the India-UK FTA is more than just a bilateral trade deal; it serves as a vital prototype for both countries as they consider more lucrative future deals, particularly with the EU.

For Brexiteers, who have sought sovereignty and control, the complexity of post-Brexit trade negotiations is a poignant reminder of global interdependence. If Labour succeeds, it will underscore its commitment to economic pragmatism and growth, demonstrating that successful trade deals with non-EU countries can also pave the way for more comprehensive deals with the EU.

While another Diwali may come and go before a deal is finalised, all the steps are in the right direction to usher in a new era of economic partnership. In the meantime, the irony is inevitable: the post-Brexit Tory dream of a free trade deal with India, unfulfilled after eight years of promises and two years of negotiations, could be realised just months after Labour comes to power.This potential coup would underline the Labour Party's positionits commitment to economic growth and international partnerships, two essential elements of the Labour Party's foreign policy.

---

Noah Chamberlain is a research intern at ORF and a research fellow at Queens College, University of Cambridge.

Shairee Malhotra is a research associate in the Strategic Studies Program at the Observer Research Foundation.

The opinions expressed above belong to the author. ORF research and analysis is now available on Telegram! Click here to access our curated content blogs, feature films and interviews.