Impacts of India-UK FTA: Nothing So Great About Free Trade With Great Britain

Source: The post is based on the article “Nothing So Great About Free Trade With Great Britain” published in The Times of India on 6^th November 2022.

Syllabus: GS – 2 – Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests.

Relevance: About India-UK FTA negotiation.

News: Recently the possibilities for India-UK free trade agreement have increased.

About India-UK FTA negotiation

What will be the impact of the India-UK FTA on India’s economy?

Positive impacts of India-UK FTA

A study by the UK’s department of international trade said that India-UK FTA could increase India’s bilateral exports to the UK by £10.6 bn, and that of the UK by £16.7 bn.

-India might witness a modest increase in its exports of goods and services, especially IT sector, to the UK.

-With the UK’s customs duties low in most sectors, Indian exports could make gains only in a few sectors, such as garments, leather products, gems and jewellery.

Negative impacts of India-UK FTA

Inevitable job losses in those sectors where imports from the UK would displace domestically produced goods and services in India.

Reduction/elimination of customs duties by India and opening of some services sectors, particularly financial services to UK.

The FTA might curtail the ability of the Indian government to use policy instruments to boost the domestic production of goods and services. This is because, in India-UAE FTA, the government agreed to provide non-discriminatory treatment to UAE producers. India might agree to a similar demand from the UK also.

Not significant for Indian exporters: UK’s government procurement market already faces intense competition from countries such as the EU and US. So, it is unlikely that Indian exporters will make any significant gains in the UK government procurement market.

Challenge from the environmental aspect: The FTA could contain environment-related obligations that could hinder the Indian government’s efforts to low-carbon economy transition driven predominantly by domestic players.

What should India do before finalising India-UK FTA?

Conduct a detailed and objective assessment: India should analyse the economic benefits and costs of the India-UK FTA. Especially the provisions relating to labour, environment, digital trade and IPRs – before moving forward in the negotiations.

In conclusion, a meagre increase in India’s exports of £10.6 bn over a decade does not justify taking demanding commitments that impact India on many fronts.