The eighth round of negotiations for the proposed UK-India free trade agreement (FTA) is scheduled in New Delhi in March 2023 after the seventh round concluded on 10 February 2023.
Although the UK economy is facing recession risks and India is pre-occupied with the Presidency of the G20, there are hopes for a trade deal in 2024. British Prime Minister Rishi Sunak is interested in transforming historic ties into a modern economic partnership in the post-Brexit era while Indian Prime Minister Narendra Modi is keen to mark India as a rising geopolitical player in the global economy.
This article reviews motives for the UK-India FTA, economic gains, contentious negotiation issues and win-win solutions.
Motives and economic gains from the UK-India FTA
The fact that there were six rounds during 2022 in talks which only started in January 2022 indicates the enthusiasm to get the trade deal done. The UK motives include deepening ties with a rapidly growing Indian economy, improved market access for goods like cars and whisky and easing Indian investment rules in financial services. After the UK-Japan FTA, this could be the UK’s second most important FTA by trade value since Brexit. It is likely to be the most comprehensive of India’s new wave of FTAs, with twenty-six chapters covering tariffs, sustainable growth, product and service standards, SMEs, government procurement, data flows and intellectual property. India is looking to augment ties with a developed, service-oriented UK economy, increase market access for goods such as textiles and pharmaceuticals, attract UK investment and ease UK work permits for Indian professionals.
Both countries could see significant economic gains from a comprehensive agreement. One of the few model-based studies undertaken by the UK Government estimated that total bilateral trade in goods and services could rise from GBP25.7 billion in 2021Q1-2022Q1 to around GBP39.7 billion by 2035. Depending on the depth of the agreement, the UK’s GDP could increase by between GBP3.3 billion to GBP6.2 billion by 2035 and India’s GDP by between GBP3.7 billion to GBP8.6 billion. Such gains are predicated under a deep agreement that could lead to additional benefits from including flows of investment and labour, as well as protection of intellectual property rights and the environment. A deeper agreement also indicates gains for workers through a rise in wages in India by 0.95 %, and in the UK by 0.35%.
Contentious negotiation issues and potential solutions
Given that a deep agreement that looks at chapters beyond tariff liberalisation is better than a shallow one, we explore the sticking points for achieving it.
Services and investment
The UK wants India to liberalise its highly protected services markets in telecommunications, finance, and legal services. But India remains apprehensive due to powerful domestic lobbies.
As both countries are large services exporters, a deal without considerable services liberalisation may be a shallow FTA. Significant complementarity between the services exports of both countries means the negative impact of liberalisation on homegrown businesses would be reduced. India’s financial services sector is highly developed and could benefit from the UK’s innovative and dynamic banking and non-banking services, especially in fintech, where India has been making great strides and the UK is an established global player. Furthermore, India’s strength in ICT services can be expanded through investment in delivery centres and IT consultancy services in the UK.
The UK-India Tech Partnership launched in 2018 could be further strengthened and included in the trade deal to boost innovation and collaboration on emerging technologies. Although UK investments will require protection under an investment chapter in the FTA, India has been burnt before with investor state dispute settlement (ISDS) claims. It seems worthwhile for India to explore international experience with ISDS clauses in FTAs to find a workable solution.
India is looking for simplification in the UK’s business and temporary visas for professionals. Recently on the sidelines of the G20 summit in Indonesia, PMs Narendra Modi and Rishi Sunak agreed to a reciprocal Young Professional visa scheme that will offer a place to degree-educated young Indians the right to live and work in the UK (and vice-versa) for up to 2 years. Building on this, additional easing in immigration rules could focus on the IT and healthcare sectors. In particular, the complex registration and licensing procedures for Indian doctors and medical practitioners hoping to practice in the UK could be simplified. Moreover, Indian professionals in the UK under the inter-company transfer (ICT) visa could be afforded access to long-term settlement in the UK, similar to the skilled worker visa category. On the Indian side, the UK could be re-granted access to the e-visa system. Aiming for Australia-UK FTA style temporary movement provisions could be the key to a comprehensive trade deal.
Data protection is a major concern for UK firms that may operate in India under the FTA due to the absence of GDPR like protection in India. India should implement the Digital Personal Data Protection Bill 2022 that is pending in the Indian parliament. This will be an important step towards better data protection and meeting the UK business standards. India’s data localisation requirements could also hurt UK firms. India could offer special time-sensitive privileges to UK businesses on overseas storage of data of Indian citizens, similar to what it did for several global companies such as Meta Platforms Inc. and Alphabet Inc. Any extension of the time frame could then require additional permission from the relevant organisation in India.
IPR and medicines
The leaked intellectual property rights (IPR) chapter of the FTA calls for the harmonisation of intellectual property (IP) regulations, especially patent laws in the UK and India. Such relatively strict laws could affect the provision of affordable and life-saving generic medicines in India.
If the UK permitted India to maintain its IP laws on generic medicines, one benefit would be cheaper medicine imports at lower tariffs that could reduce NHS costs. Furthermore, as the UK already imports generic drugs and active pharmaceutical ingredients (APIs) from India, a favourable FTA could strengthen supply chains. But the UK Health Service Medical Supplies (Costs) Act 2017, which introduces increased documentation and regulations for India’s generic medicine exporters, also needs attention.
On India’s side, UK’s patent laws will translate into securing a patent regime against evergreening by pharmaceutical companies. Evergreening is used by big pharma companies to extend their patents on similar drugs (with slight variations) that restrict the sale of generic medication in the market. Restrictions on such monopolising behaviour could translate into more affordable medication for millions of Indians that have little access due to high prices.
Agriculture is a sensitive sector in both countries. The UK is a net agricultural importer and an FTA could boost India’s agricultural export share from just 1.1% in the UK’s import basket for goods like rice, marine products, spices and bovine meat. Indeed, the UK Government’s study estimates that a deeper trade agreement could significantly increase bilateral trade in agricultural goods. The UK, however, fears granting too much access to its agri-food market while not receiving as much access to the Indian market for whisky, salmon, and cheese exports.
India could revisit its apprehensions about allowing British food imports, especially with its expanding middle class that is willing to spend on higher-value added agri-based food products. To compensate farmers for losses from increased British imports, India could establish a structural fund like those of the EU, and the UK could contribute aid-for-trade. But British exporters will need to meet India’s complex sanitary and phytosanitary (SPS) standards. Perhaps the Indian Customs could provide greater transparency and training to meet its SPS standards to help UK firms export more easily.
A deep UK-India FTA means more significant economic gains than a narrow FTA done quickly. There is a reasonable window of opportunity to conclude the UK-India FTA as general elections are likely in both countries in the next two years. Expending some political will to find pragmatic solutions to difficult negotiations issues can yield a deep FTA covering services, data protection, IPR and agriculture. This would lay the foundations for a modern economic partnership between the two countries. If negotiations for a deep FTA are beyond the immediate scope, doing a narrow deal quickly with a built-in-agenda for future talks is a second-best option. Either way of achieving a UK-India trade deal will be an important legacy for PMs Sunak and Modi.