Scotch, Smartphones, and Textiles: Unpacking the India-UK FTA Negotiations
The ongoing Free Trade Agreement (FTA) negotiations between India and the United Kingdom are entering a crucial phase, with talks set to resume this month with the newly formed UK government*. Initiated in January 2022, these negotiations aim to foster a stronger economic partnership between the two nations, although several key areas remain under discussion.
Over the past 2.5 years, fourteen rounds of discussions have taken place, reflecting both progress and challenges. The negotiations have encountered hurdles, particularly concerning the UK's demands, which include lower duties on Scotch whisky made in the UK, broader access to India's financial products sector, and relaxed regulations for pharmaceuticals and steel. Conversely, India seeks reduced tariffs on electronics exports, enhanced visa availability for Indian professionals, and better access to the UK market for its established textiles sector.
The new Labour government in the UK has explicitly mentioned the India-UK FTA in its manifesto, raising hopes for a favorable outcome. A key sector poised to benefit from this agreement is India's electronics industry. India's electronics exports to the UK have witnessed a remarkable surge, growing from $450 million in 2020 to an impressive $1.7 billion in 2023. This growth, driven significantly by smartphone exports, underscores the sector's potential, especially as a major beneficiary of India's Production Linked Incentive (PLI) scheme. An FTA could further amplify this growth, providing Indian electronics with a more competitive edge in the UK market.
India's total textile exports to the UK, encompassing knit apparel and raw materials, exceed $1.5 billion annually, making it the second-largest export sector. However, this sector faces significant challenges, notably the UK's proposed carbon tax, which could impose additional costs on Indian textile exports. India is negotiating for exemptions from this tax, emphasizing the need for a balanced approach that supports sustainable practices without stifling trade.
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India maintains a trade surplus with the UK, with exports significantly outweighing imports. In 2023, the total value of goods exchanged between the two countries reached $21.3 billion, with India enjoying a $4.5 billion surplus. In addition to bolstering trade, a successful FTA could further enhance Foreign Direct Investment (FDI) flows from the UK.
The successful conclusion of this FTA is expected to have a positive impact on industries like electronics manufacturing and textiles in India, potentially leading to increased exports and job creation. However, sectors such as liquor manufacturing and financial products (e.g. insurance) might face increased competition from British brands entering the Indian market.