An ‘early harvest’ free trade deal with the UK by this Diwali seemed unlikely even at the outset — although hopes were raised after the visit of former UK Prime Minister Boris Johnson to India in April. After the events of the past week in the UK, the prospects of a bilateral FTA anytime in the near future appear bleak. However, this is just as well, as the circumstances both in the UK and the rest of the world do not look good for the speedy pursuit of FTAs. The WTO expects world trade growth to slow down to 1 per cent in 2023, owing to the effects of the Ukraine war, high energy prices, inflation and monetary tightening. In times of downturn, protectionism tends to rise, eroding the impulse to reduce trade barriers. There are good reasons for India to move with caution in such times, when countries are unwilling to go the extra distance. It should be clear about what it can realistically give or get in a context where data, e-commerce and the environment have become part and parcel of trade talks.
Fact is that this is also a bad time to talk business with the UK. Political instability in the UK is at its height, with Prime Minister Liz Truss’ future looking distinctly shaky. It’s bad enough that India cannot be sure of which team it will be dealing with even a few months from now; what’s worse is that the UK government does not appear consistent about anything. After the Conservatives displayed some sense of purpose under Johnson in the trade talks, they seem to have backtracked. The present Home Secretary Suella Braverman recently made uncharitable remarks about Indians overstaying their work permits, hitting at India’s demand for easy immigration for professionals. The UK is clearly in no mood to reduce its trade barriers, with its current account deficit for 2022 expected to cross 7 per cent of GDP (according to OECD). In the context of India, it cannot risk further widening an £8 billion deficit in goods and services trade, in total bilateral trade of £25.7 billion in 2021-22. Its protectionist intent is borne out by the extension of safeguard duty and quotas on Indian steel. This has impacted exports of over two lakh tonnes, for which India has requested compensation. Meanwhile, in retaliation India has imposed additional duty of 15 per cent on 22 import items from the UK, including cheese, Scotch, cosmetics, petroleum products and machinery items. Bilateral trade talks are obviously not a priority in this backdrop.
But an FTA with UK can and should be taken up at the right time. Besides consolidating markets in pharma and garments, India can seek to replace China as a supplier in some areas. Ultimately, the pursuit of FTAs with a slew of countries should bolster Atmanirbhar Bharat and not run counter to it. A bad deal is worse than no deal — India should know this best, given the NITI Aayog’s assessment of how its earlier round of FTAs, signed with ASEAN and individual nations of the Far East, worked to its disadvantage.