Negotiations for the proposed India-UK Free Trade Agreement (FTA) may have entered the slow lane with the UK’s new labour party “more focused” on protecting the interests of its domestic constituency and India, too, weighing its commitments more carefully, sources said.

“Unlike the previous two Diwalis, this year there has not been much talk about Diwali deadlines to conclude the India-UK FTA. The sense of urgency has clearly dissipated with the new Labour government in the UK more focused on protecting its workers, spurring economic activity and keeping inflation low. While engagements on the FTA are on, an end is not in sight immediately,” an official close to the development told businessline.

India too is strategising more on its future FTAs, and an active exercise is underway to learn from the experiences and mistakes of past pacts to negotiate future ones more effectively.

“India is fully engaged with the UK on the proposed FTA. But commitments will only be taken when there is absolute clarity about what it could entail in the future and that we are getting commensurate benefits,” another source said.

There were hopes that the FTA could be forged this year, but clearly the negotiations are likely to spill over into 2025 and strong determination from both sides would be needed for its conclusion, the source added.

The India-UK FTA talks, aimed at doubling bilateral trade to $100 billion by 2030, were started under the Conservative government in January 2022. Since the pact has bipartisan support, the Labour government, led by Prime Minister Keir Starmer, which swept to power in the UK in July this year after a decade, has also expressed its keenness for the pact.

“Our Free Trade Agreement negotiations are the floor, not the ceiling, of our ambitions to unlock our shared potential and deliver growth, from Bengaluru to Birmingham. We have shared interests on the green transition, new technologies, economic security and global security,” UK Foreign Secretary David Lammy had said ahead of his India visit in July this year.

But the focus of the new UK government on accelerating economic activity, increasing revenue earnings and inflation control in the unstable global environment, as reflected in its latest Budget, has made it more focused on potential job losses and a decline in manufacturing activity due to FTAs giving more market access to partner countries, the official said.

“Till the UK government is convinced that its market gains in India will be substantial and it can convince its domestic constituency of the potential benefits, it seems difficult for a consensus to be reached on difficult issues holding back the agreement,” the official added. 

The UK had been asking India for commitments to bring down duties steeply in sectors such as Scotch and automobiles, where import duties in India are as high as 150 per cent and 100 per cent (70 per cent for vehicles below $40,000), respectively. It also wants the liberalisation of financial and legal services, as well as stronger IPR rules, to provide additional protection to pharmaceutical majors.

India, on the other hand, wants easier work visa norms for its professionals, which London is not ready to commit to.

“While both sides are optimistic about bilateral trade doubling to $100 billion by 2030 if the FTA is implemented soon, neither seems to be ready to make the kind of compromises required to give the pact a final push at the moment,” he said.

Related Topics