The Labour Party’s election manifesto for the recent polls also committed to clinching the deal. File.
| Photo Credit: AFP

With the new government taking charge in Britain, senior officials of India and the U.K. will hold the next round of talks this month for the proposed free trade agreement to resolve the pending issues and close the negotiations, an official said.

The India-U.K. talks for the proposed free trade agreement (FTA) began in January 2022. The 14th round of talks stalled as the two nations stepped into their general election cycles.

Also read | Visas not first priority for India in FTA with U.K.: High Commissioner Doraiswami

The official said the two sides are in touch, and the next round would start this month only.

Britain’s newly-elected Prime Minister Keir Starmer spoke to Prime Minister Narendra Modi on Saturday and said he stood ready to conclude an FTA that worked for both sides.

The two leaders agreed to work towards the early conclusion of a mutually beneficial India-U.K. FTA.

There are pending issues in both the goods and services sectors.

The Indian industry is demanding greater access for its skilled professionals from sectors like IT and healthcare in the UK market, besides market access for several goods at nil customs duty.

On the other hand, the UK is seeking a significant cut in import duties on goods such as scotch whiskey, electric vehicles, lamb meat, chocolates and certain confectionary items.

Britain is also looking for more opportunities for U.K. services in Indian markets in segments like telecommunications, legal and financial services (banking and insurance).

The two countries are also negotiating a bilateral investment treaty (BIT).

There are 26 chapters in the agreement, which include goods, services, investments and intellectual property rights.

The bilateral trade between India and the UK increased to $21.34 billion in 2023-24 from 20.36 billion in 2022-23.

The Labour Party’s election manifesto for the recent polls also committed to clinching the deal.

The new Starmer-led government’s new Foreign Secretary David Lammy is also on the record saying that he wants to finish the job on the FTA and plans to visit India within the first month of being elected.

According to the think tank GTRI (Global Trade Research Initiative), the agreement is nearly finalised and with a few minor adjustments like curtailing the number of visas for Indian professionals, the Labour Party is likely to give its approval.

It has suggested that India should focus on two issues – Carbon Border Adjustment Measure (CBAM) and non-traditional subjects like labour, environment, gender, and intellectual property rights – in the pact.

Historically, India has resisted incorporating these topics into FTAs as they often require domestic policy changes.

The GTRI report has stated that even if the UK agrees to eliminate tariffs on sectors like textiles, Indian exports might still need to meet stringent UK sustainability requirements, and this could adversely affect Indian exports, especially in labour-intensive sectors.

Shadow Foreign Secretary David Lammy. File
| Photo Credit: Reuters

Days before the U.K.’s general election, the opposition Labour Party’s shadow Foreign Secretary, David Lammy, reiterated that his party would reset its relationship with India. Mr Lammy is all but certain to be the country’s next Foreign Secretary, given that Labour is most likely — as per polls — to form the next U.K. government after the country’s July 4 elections.

Speaking on June 24 afternoon at the India Global Forum, a weeklong gathering of government officials, politicians, entrepreneurs and industrialists, Mr Lammy outlined some of the areas of cooperation — notably trade, climate and security.

“We need a reset,” he said, saying a reset with of the U.K.’s relationship with the Global South was needed, starting with India.

Referring to former Conservative U.K. Prime Minister Boris Johnson’s recital of a colonial-era Rudyard Kipling poem during a visit to a temple in Myanmar, Mr Lammy said, to applause,

“If I recite a poem, it will be by Tagore.” Mr Lammy’s great great grandmother was from Calcutta and was taken (by the British) to the Caribbean as an indentured labourer, he said.

The Labour Party has also been seeking to reset its own relationship with India after some evidence that British Indians, who have traditionally supported the Labour Party were moving to the Conservative Party. The shift, as per some data available from 2021, was led more by Hindus and Christians, rather than Muslims or Sikhs.

U.K.-India FTA ‘A floor not ceiling’

The ‘free trade’ deal (FTA), being negotiated by India and the U.K., was a floor not a ceiling to the relationship Mr Lammy said.

He also stressed the emphasis a Labour government, under Keir Starmer, would place on climate action, including by appointment a climate envoy and reversing the watering down of the U.K.’s climate targets by the Rishi Sunak government.

Speaking of a power alliance abroad, Mr Lammy said, “There can be no energy transition without an Indian energy transition.”

He urged China not to join forces with Russia, Iran and North Korea and urged deeper cooperation between India and the U.K.

“Because we are committed to a free and open Indo Pacific, just like India is,” he said, adding that a Labour government would seek to ramp up its partnership with India across several dimensions: military and maritime cooperation, emerging technology, cyber and supply chain security.

“We are India’s friends, and we are with her and right behind her. This is our message which the UK Carrier Strike Group will carry to the Indian Ocean in 2025,” he said. The Rishi Sunak government had announced in January that the Carrier Strike Group would undertake joint training with Indian forces.

“While India’s total imports from the UAE fell 9.8% from $53.2 billion in FY23 to $48 billion in FY24, imports of gold and silver skyrocketed 210%, from $3.5 billion to $10.7 billion,” GTRI report said.
| Photo Credit: Reuters

“India’s gold and silver imports from its free trade agreement (FTA) partner UAE have skyrocketed 210% to $10.7 billion in 2023-24 and there is a need to potentially revise the concessional customs duty rates under the pact to mitigate the arbitrage driving this surge,” a report said on June 17.

Economic think tank Global Trade Research Initiative (GTRI) said this sharp rise in gold and silver imports is primarily driven by import duty concessions granted by India to the UAE under the India-UAE Comprehensive Economic Partnership Agreement (CEPA).

India allows 7% tariffs or customs duty concessions on import of unlimited quantities of silver and a 1% concession on 160 metric tonnes of gold. CEPA was signed in February 2022 and implemented in May 2022.

Additionally, India facilitates gold and silver imports by allowing private firms to import from the UAE through the India International Bullion Exchange (IIBX) in Gift City. “Previously, only authorised agencies could handle such imports,” the report said.

“While India’s total imports from the UAE fell 9.8% from $53.2 billion in FY23 to $48 billion in FY24, imports of gold and silver skyrocketed 210%, from $3.5 billion to $10.7 billion,” it said.

“Import of all remaining products fell 25%, from $49.7 billion in FY23 to %37.3 billion in FY24,” it said. GTRI Founder Ajay Srivastava said the current import of gold and silver from the UAE is unsustainable as the UAE does not mine gold or silver or add sufficient value to imports.

“High import duties in India on gold, silver, and jewellery at 15% are at the root of the problem. Consider lowering tariffs to 5 per cent. This will cut large-scale smuggling and other misuse,” Mr. Srivastava said.

Trade in gold, silver, and diamonds has been prone to misuse due to their low volume but high value and high import duties in India. “Low tariff imports of gold, silver only benefit few importers who keep all profits arising through tariff arbitrage and never pass it to consumers,” he said.

Mr. Srivastava suggested the government implement certain measures to help India balance its trade policies, protect domestic revenue, and ensure fair competition in the import of precious metals and jewellery. It suggested reassessing and potentially revising the concessional duty rates under CEPA to mitigate the arbitrage driving the surge in imports of gold and silver.

“At least, implement yearly import quotas (tariff rate quotas) for silver, similar to those for gold, to control the volume of imports and prevent revenue loss,” it said, adding that India should rigorously verify the claimed value addition by Dubai-based refiners in gold and silver imports to ensure compliance with CEPA rules of origin.

It also asked to tighten regulations around the India International Bullion Exchange (IIBX) at Gift City to control the volume and nature of precious metal imports and the exchange should not allow country-based exemptions.

As increased imports contribute to a higher current account deficit and since gold and silver act more like financial instruments than regular trade items, India should avoid including them in any FTA.

“India has granted tariff concessions for these items in many FTAs and under the DFTP (duty-free tariff preference) scheme, so a comprehensive review is needed.

India announced the scheme for LDCs (least developed countries) in 2008. Under this, India provides duty free/preferential market access on about 98.2% of India’s tariff lines (or product categories).

Further, the report stated that silver imports from the UAE increased multifold to $1.74 billion in 2023-24 from a meagre $29.2 million in 2022-23 due to India charging an 8% duty under the CEPA versus a 15% duty from other countries.

“The large 7% tariff arbitrage resulted in a loss of revenue for India of ₹1,010 crore in FY24. Revenue loss will increase as India has committed to make tariffs zero on unlimited quantities of silver from the UAE within next 8 years,” it added.

It said this trade is unusual because the UAE just imports large silver and gold bars, melt and convert these into silver grains and unwrought gold for exports. “A check with global refiners will show that value addition in such process is much less than 1% as opposed to 3% required under the FTA,” it said.

On gold bars, the report said India agreed to import 200 metric tonmes of gold annually from the UAE with a 1% tariff concession and due to this gold imports rose 147.6% from $3 billion in FY23 to $7.6 billion in FY24, causing India to lose ₹635 crore in revenue in FY24.

Similarly, India’s jewellery imports have increased 187.6% from $1.1 billion in FY23 to $3.3 billion in FY24, whereas these imports from the UAE have increased 290% from $347 million in FY23 to $1.35 billion in the last fiscal.

Union Finance Minister Nirmala Sitharaman presents the Interim Budget 2024 in the Lok Sabha, at Parliament House in New Delhi on Feb. 1, 2024.
| Photo Credit: PTI

India is negotiating bilateral investment treaties with different countries with a view to promote foreign inflows, Finance Minister Nirmala Sitharaman said on February 1. She said that foreign direct investment (FDI) has doubled during 2014-23 to $596 billion compared to the inflow received during 2005-14.

“For encouraging sustained foreign investment, we are negotiating bilateral investment treaties with our foreign partners, in the spirit of ‘first develop India’,” she said while presenting the interim Budget 2024-25.

India is negotiating bilateral treaties with countries, such as the UK. These investment treaties help in promoting and protecting investments in each other’s countries. These pacts are important as India has earlier lost two international arbitration cases against British telecom giant Vodafone and Cairn Energy plc of the UK over the retrospective levy of taxes.

Align treaties with global practices

Commenting on bilateral investment treaties, economic think tank GTRI (Global Trade Research Initiative) said that India needs to align its treaties with global investment practices, address the negative perception caused by the mass treaty cancellations and reflect on its negotiation skills. New agreements should ideally resolve these concerns, it said in a statement.

GTRI said that India has cancelled 77 of its over 80 bilateral investment treaties (BIT) by 2016, as they didn’t align with its interests. “Now, it is renegotiating with 37 countries using the restrictive 2016 Model BIT, which may lead to protracted negotiations due to its narrow ‘investment’ definition, vague terms, omission of principles like ‘fair and equitable treatment’, and Most-Favoured Nation status,” GTRI co-founder Ajay Srivastava said. He added that the model BIT also demands investors seek local solutions for at least five years before arbitration, making new BITs challenging for other countries.

Foreign direct investment (FDI) equity inflows in India declined 24 per cent to USD 20.48 billion in April-September 2023, according to government data. The total FDI — which includes equity inflows, reinvested earnings and other capital — contracted 15.5 per cent to USD 32.9 billion during the period under review against USD 38.94 billion in April-June 2022.

The top investor countries include Singapore, Mauritius, the US, the UK, and the UAE. Computer software and hardware, trading, services, telecommunication, automobile, pharma and chemicals are some of the key sectors that attract FDI into India.

An official had earlier said that hardening interest rates globally and worsening geopolitical situation impacted FDI inflows into India in 2022-23.

Britain’s Prime Minister Rishi Sunak leaves 10 Downing Street.
| Photo Credit: AP

British Prime Minister Rishi Sunak on September 6 said there was “still some way to go” for a free trade pact with India to be finalised, but appeared confident that the final outcome will be a “forward-looking” and “modern” deal that would benefit both sides and facilitate shared ambition of doubling trade by 2030.

In an exclusive interview to PTI, the first Indian-origin British Prime Minister said the trade deal could help Indian exporters gain access to the British market, including India’s 48 million small and medium enterprises.

“A modern, forward-looking free trade agreement can put us firmly on the path to our shared ambition of doubling UK-India trade by 2030,” Mr. Sunak said.

Also read | The U.K.-India relationship is alive with opportunity

“It’s very exciting to have this opportunity to expand our trade relationship, and to be the first European country that India has negotiated a free trade deal with,” he said.

The Prime Minister’s responses to PTI’s questions were sent by email.

India and the U.K. are currently negotiating the ambitious free trade agreement that is expected to open new vistas of economic engagement between the two countries.

“A trade deal could help Indian exporters gain access to the UK market, including India’s 48 million small and medium enterprises. We want a deal that slashes tariffs and red tape, helping Indian consumers and businesses get easier access to the UK goods they already enjoy,” he said.

The British premier said good progress has been made in the negotiations and that there is still some way to go to finalise the pact.

“We’ve made good progress in closing chapters. Round 12 of negotiations took place last month and were the hardest yet — covering complex, sensitive, and commercially meaningful issues including goods, services, and investment,” he said.

“There is still some way to go, but I’m confident we’ll be able to agree to a deal which works for both the UK and India,” he said.

“And, of course, we hope to go further still, including by finalising the first Free Trade Agreement India has ever agreed with a European country. I remain confident that we can strike a deal which benefits both the UK and India.” The British prime minister said every bit of the trade between the two countries represents new jobs, more choice for consumers and a stronger link between the British and Indian people.

“Our trade relationship is already worth Rs 3.5 lakh crore a year — I want that number to be even higher. Every bit of trade between our countries represents new jobs, more choice for consumers and a stronger link between the British and Indian people,” he said.

In April last year, the two sides had set a Deepavali deadline for concluding the free trade agreement but the deal could not be finalised in view of differences over certain issues as well as political developments in the U.K.

The India-U.K. relationship was elevated to a Comprehensive Strategic Partnership during the India-U.K. virtual summit held between Prime Minister Narendra Modi and his then British counterpart Boris Johnson in May 2021.

At the summit, the two sides adopted a 10-year roadmap to expand ties in the key areas of trade and economy, defence and security, climate change and people-to-people connections among others.

Union Minister of Commerce and Industry Piyush Goyal meets Kemi Badenoch, U.K. Secretary of State for Business and Trade, on August 26, 2023
| Photo Credit: ANI

Indian and U.K. officials will continue their negotiations till the month-end to iron out differences on the proposed free trade agreement (FTA), the Commerce Ministry said on August 27.

This meeting will be followed by a review at the higher level, it said.

Following the G20 Trade and Investment Ministers Meeting (TIMM) at Jaipur, the progress of the negotiations was reviewed by Commerce and Industry Minister Piyush Goyal and UK’s Secretary of State for Trade Kemi Badenoch on August 26.

Also read | The U.K.-India relationship is alive with opportunity

“Teams are going to continue negotiations till the end of August 2023 which will be followed by stock taking at the higher level,” it said.

While expressing satisfaction over the last 12 rounds of negotiations wherein several chapters have been finalized, both exuded confidence that the next round of talks to be similarly successful.

“Both Chief Negotiators apprised the ministers about the current state of play, issues outstanding for resolution and their continuous joint efforts to iron out the same,” the Ministry added.

The Ministers directed the officials to maintain a good pace of exchanges with a better understanding of each other’s aspirations and sensitivities.

“Both leaders expressed their unwavering commitment to reaching a conclusion on a fair, balanced, and mutually beneficial trade deal that will enhance economic cooperation between the two countries,” it added.

In a separate statement, the Ministry said that Mr. Goyal and Swiss State Secretary for Economic Affairs Helene Budliger Artieda also held talks on ways to strengthen economic ties.

They reviewed the progress made in the ongoing negotiations for a Trade and Economic Partnership Agreement (TEPA) between India and EFTA (European Free Trade Association).

The EFTA members are Iceland, Liechtenstein, Norway, and Switzerland.

“Both leaders reiterated their shared vision of achieving a mutually beneficial trade deal based on the principle of reciprocity that reflects the evolving economic landscapes of both India and the EFTA countries,” it said.