India-UK free trade talks to gather pace after a brief lull | The Financial Express

India-UK free trade talks to gather pace after a brief lull

Trade analysts say financial and legal services, labour sticking points; slim chances of deal in 2022.

India-UK free trade talks to gather pace after a brief lull
The Indian government raised the foreign direct investment limit in the insurance sector to 74% from 49% in May last year. (IE)

The briefly interrupted last-mile negotiations for the ambitious India-UK Free Trade Agreement (FTA) may restart with the Rishi Sunak occupying 10 Downing Street, London, but the unprecedented economic crisis gripping the island country could still slow the process and delay a deal beyond 2022, according to officials and trade analysts.

The new UK prime minister with Indian lineage has been vocal for the bilateral trade pact and even supported further easing of the British visa regime for Indians, despite being an early backer of the Brexit. On its part, Delhi places a lot of importance on “services” component of the pact, as it is keen to get market access for Indian professionals.

While this is a factor that augurs well for the proposed FTA, the sticky issues include India’s regulatory policies concerning the insurance sector and its apparent inability to commit to ratify and implement all of the ILO norms on labour, including those aimed at reining in the negotiating power of trade unions.

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Prime minister Narendra Modi and former UK prime minister Boris Johnson, had planned to sign the FTA by Diwali (October 24) when Johnson visited India in April. However, that plan did not materialise due to the death of Queen Elizabeth II and the political churn and economic turmoil in the UK.

Former British home secretary Suella Braverman Braverman denouncing an “open borders migration policy” with India which, she said, was at variance with “what people voted for with Brexit,” too cast clouds on the FTA talks. Indians are the largest group of people who “overstay visas,” the official said, before backtracking in the face of strong reactions from India and, presumably, within the UK government headed by prime minister Truss.

Sunak, however, was quoted as saying in July: “Our plan over time is to expand what we consider to be markers of high potential individuals. The qualifying criteria for that visa (which applies to university students) will expand over time and will benefit Indian nationals. It’s an incredibly generous and powerful visa which will benefit Indian citizens who are studying at any of these global universities.”

Sunak also repeatedly expressed the view that “financial services sector” holds out an “exciting” prospect of closer exchange between the two countries.

The Indian government raised the foreign direct investment limit in the insurance sector to 74% from 49% in May last year, but the UK feels that while this enhanced the market access for UK-based firms, the domestic regulations could still come in the way of their India business plans.

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“The FTA talks were stuck because both sides could not agree on a range of issues. While it may be quite easier for the UK to agree on (merchandise) tariffs , given that it anyway keep much lower tariffs, it may have concerns over market access in the legal and financial services. Also, as of now, the focus of the UK government and the new prime minister will be on salvaging the economy, rather than clinching a bilateral trade pact,” said noted trade policy expert Biswajit Dhar. He cited that the UK generally follows the EU template for trade pacts, where the labour standards are an unavoidable ingredient.

Also, India’s legal services sector is still dominated by sections thriving on legacy and has strong lobbying power when it comes to resisting moves to provide market access to foreign firms.

Pralok Gupta, associate professor at Centre for WTO Studies, Indian Institute of Foreign Trade said: “Sunak has good understanding of visa issues for Indian professionals in UK while recognising their contribution to the UK economy.

Because of his Indian links, he is also better aware of data flows related developments in India. Therefore, he is better placed to understand these issues both from India and UK perspectives, leading to a balanced outcome in the ongoing India-UK FTA talks, taking care interests of both parties.”

According to RV Anuradha, partner, Clarus Law Asociates, Braverman’s view that the India-UK Migration and Mobility Partnership (MMP), entered into last year, had not worked well is misplaced. “In fact, the India-UK MMP specifically excludes trade in services through movement of natural persons, which it states will be part of the FTA commitments,”Anuradha noted. “With a strong base of skilled professionals, India is well-positioned to further enhance its tactical advantages in Mode 4 under the proposed FTA. For this, dealing with Mode 4 as from the MMP is crucial,” she added. Mode 4 refers to temporary movement of service professionals for supply of services for a specified periods.

Dhar, however, doesn’t see the FTA being cliched before the end of 2022, given the current state of affairs, and would keep his fingers crossed on whether both sides will conclude the deal by the end of the current financial year. “An agreement on movement of professionals is very important. Negotiators on both sides will need to get unambiguous political mandate. Diplomacy will have to a play a key role,” said Ram Upendra Das, former head of the Centre for Regional Trade in the ministry of commerce and industry.

Sunak said in July: “Financial service is an area where there’s an enormous opportunity for both of our countries. India’s goal is to spread insurance across the entire economy because insurance is a great thing for enabling protection for individuals and growth. We can help with that in the UK because we have a (strong) insurance industry. And bit by bit we’ve been able to provide more of those products, services and expertise to Indian firms and citizens and companies.”

Both India and the UK launched formal negotiations in January for the FTA, which could ultimately cover more than 90% of tariff lines. They aim to double bilateral trade of both goods and services to about $100 billion by 2030. The India-UK trade is dominated by services, which make up about 70% of the overall annual commerce.

Meanwhile, both sides are yet to wrap up negotiations for the FTA text. Usually, once the text is finalised, it’s subject to legal scrubbing and other internal processes like Cabinet clearances before it’s signed.

The UK has been the six the largest source of FDI for India, with inflows of $32 billion between April 2000 and June 2022.

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First published on: 26-10-2022 at 02:10 IST