Recently, India and the United Kingdom initiated official Free Trade Agreement (FTA) discussions, which both nations want to conclude by the end of 2022. Until then, both nations are considering an interim free trade zone, which would result in tariff reductions on the majority of commodities. India and the United Kingdom are dynamic democracies with a relationship based on our common history and culture. The varied Indian diaspora in the United Kingdom, which works as a “Living Bridge,” adds to the dynamic of bilateral ties. Among the G20 countries, the United Kingdom is one of the greatest investors in India.

FTA

• A free trade agreement (FTA) is an agreement between two or more countries to decrease obstacles to imports and exports. A free trade policy allows products and services to be purchased and sold across international borders with little or no government taxes, quotas, subsidies, or bans impeding their interchange.
• Trade protectionism and economic isolationism are the polar opposites of the principle of free trade.
• Preferential Trade Agreements, Comprehensive Economic Cooperation Agreements, and Comprehensive Economic Partnership Agreements are the three types of FTAs .

Significance of India- UK FTA

• Strategic Advantage: The United Kingdom is a permanent member of the United Nations Security Council and one of India’s strategic allies. Strengthening commercial ties would seek the UK’s backing on global problems like as the impasse with China in the Ladakh sector of the Line of Actual Control (LAC) and a bid for a permanent seat on the UN Security Council (UNSC).
• Clarity on Trade in Services: The FTA is supposed to bring clarity, predictability, and transparency, as well as to promote a more liberal, facilitative, and competitive services regime. There is also significant potential for increased exports in service sectors like as IT/ITES, nursing, education, healthcare (including AYUSH), and audio-visual services. Visa limitations have been a major obstacle in India’s efforts to expand services trade.
• Increasing Goods Exports: Trade agreements with the United Kingdom might improve exports for significant job-creating industries such as textiles, leather goods, and footwear. India is also likely to see a significant increase in marine product exports as a result of the recognition of 56 Indian marine units. Mutual Recognition Agreements (MRAs) on Pharma might open up new markets.
• Exit from RCEP: In November 2019, India pulled out of the Regional Comprehensive Economic Partnership agreement. As a result, there is a renewed emphasis on trade agreements with the United States, the European Union, and the United Kingdom, which are crucial markets for Indian exporters looking to diversify their sourcing.

Challenges

• Delays in Signing FTAs: While interim agreements decrease tariffs on some items, they can cause considerable delays in attaining comprehensive FTAs in some circumstances. India negotiated an interim trade deal with Thailand in 2004 to decrease tariffs on 84 commodities, however the accord was never turned into a full-fledged free trade agreement.
• WTO Challenges: Interim FTAs do not progress to complete FTAs FTAs may potentially face challenges in the World Trade Organization from other nations (WTO). WTO regulations allow members to grant preferential treatment to other nations only if they have bilateral agreements covering “substantially all of the trade” between them.

India is one of the world’s fastest-growing big economies, and the FTA with the UK has played a vital role in increasing the country’s trade volume. However, policymakers believe that India’s FTAs with the UK have not delivered the predicted concrete advantages and, on the contrary, have harmed the country’s manufacturing industry due to permissive rules of origin. As a result, all stakeholders must conduct a thorough examination of FTAs in terms of commodities, services, and investment flows.

How to structure

1. Give an intro about India- UK relations
2. Explain briefly what an FTA is and mention about the proposed FTA between UK and India
3. Explain the economic and strategic potential of signing the FTA, separately
4. Mention the challenges and suggest way forward
5. Conclude

Reference:

1. https://www.thehindu.com/opinion/op-ed/ink-india-britain-free-trade-unlock-new-opportunity/article38366663.ece