Delhi and London are moving fast to finalise early-harvest deals in areas like pharma, fintech and defence manufacturing while working on a comprehensive FTA. They must emulate the ambitions of Singapore and Vietnam.
Singapore has it, Vietnam has it and now India is aiming for a quickfire approval for an early version of it.
Yes – we are talking about a free trade agreement (FTA) with the UK, with Brexit officially clearing the stage for New Delhi and London to intensify their negotiations for what would be one of the world’s most comprehensives trade deals.
According to analysts, both the UK and India need to move fast if they want to leverage the growing mistrust of China and utilise the opportunity – with other countries like Vietnam and Singapore moving swiftly to seal such agreements.
Two Indian officials quoted by the Indian Express said that post-Brexit, India and UK are moving to finalise early-harvest trade agreements in areas like pharmaceuticals, fintech, chemicals, defence manufacturing, petroleum and food products, as the two countries are keen on deals while continuing negotiations for the comprehensive FTA.
It is in this regard that UK Prime Minister Boris Johnson’s scheduled visit to India – as the chief guest of the Republic Day parade on January 26 – assumes critical significance in taking the trade talks forward.
With Post-Brexit UK looking at bilateral trade and economic agreements with several countries, both New Delhi and London have finally been able to engage with each other based on their shared commitment towards a free trade agreement without the shackles of the European Union hanging in the backdrop. “The two sides are working on the finer details pertaining to about five-six sectors as some announcements are expected during UK Prime Minister Boris Johnson’s India visit in January 2021,” one of the officials said.
Ever since the UK’s Brexit decision in 2016, both India and the UK have been keen on initiating dialogues on a potential FTA, which couldn’t be held without a formal divorce deal between London and Brussels.
The UK accounted for 16% of India’s $53.7 billion exports to the EU in the fiscal year 2020. The EU, including Britain, was the largest export destination for India last fiscal, with a 17% share in the country’s overall outbound shipments. Apart from garments, India ships out gem and jewellery, pharma products, footwear and organic chemicals, among others, to the UK in large volumes.
“India must ink a bilateral trade agreement at the earliest especially as many other countries including Vietnam have already inked deals with Britain to boost trade. Thrashing out a bilateral trade deal will be easier for India compared to one with the EU as the complexities will be less,” said Ajay Sahai, Director-General and CEO of Federation of Indian Export Organisations (FIEO). The FIEO has in fact urged the government to sign a memorandum of understanding for an FTA with Britain when Johnson visits India.
“Any India-UK trade talks won’t have the same level of complication that exists between India and the EU. We can clinch an FTA with the UK without much hiccups,” said Sharad Kumar Saraf, president of FIEO. According to analysts, having pulled out of the China-dominated RCEP deal due to strong reservations about its ultimate benefit, India has been seeking to expedite trade talks with large markets. Against this backdrop, Brexit augurs well for New Delhi.
Mahesh Desai, chairman of engineering exporters’ body EEPC, said: “After the formal Brexit deal, there could be some heightened trade issues like dual technical certification as also perhaps different rules of origin (for Indian exporters). But if India quickly seals a trade deal with the UK, with tariff preferences like the EU generalised system of preference or a better tariff preferences schedule for Indian products, our exports may benefit.”
On the other hand, although the EU is India’s largest trading partner accounting for 11.1 per cent of total Indian trade, on par with the US and ahead of China (10.7 per cent), negotiations for an India-EU FTA are also likely to be revived. After 16 rounds of talks between 2007 and 2013, negotiations for the India-EU FTA were stuck due to strong differences, as the bloc insisted that India cut import duties on automobiles and wine (which would benefit mainly Germany and France), among others.
But one cautionary caveat that Indian officials seem to be wary of is the larger and long-term implications of an FTA, and that’s where New Delhi is expected to take its time to evaluate threadbare any potential trade deal while remaining committed to fast-track agreements.
“India is very cautious while signing any FTA because of its past experience. Various FTAs signed in hurry by the previous governments, particularly with the Asean, are under review as these deals are heavily tilted against Indian interests,” one India official told Financial Express.
Last year, co-chairing the 17th Asean-India Economic Ministers Consultations, Indian commerce minister Piyush Goyal had cautioned that FTAs had to be “mutually beneficial”. He had asked for an early review of the Asean-India Trade in Goods Agreement (AITIGA) as the trade pact was reportedly hurting India’s interest. “The agreements [with the UK] should clearly mention the aspects related to the country of origin of the goods and the percentage of value addition as these issues have been subject matter of debate,” said Abhishek A Rastogi, partner at law firm Khaitan & Co.
Despite that fineprint, both India and the UK will be keen to showcase the momentum and mutual trust in the new chapter of their bilateral engagements with a slew of early-harvest deals – and thus this Republic Day will certainly bring India more things to cheer for alongside the legendary parade in the heart of the capital.