Bilateral Trade Agreement between India and the UK: Could It Be Deemed Voluntary Colonialization? (Regarding Sanjeev Ahluwalia)
In a significant move, the India-UK Free Trade Agreement (FTA) was signed on July 24, marking a landmark strategic partnership between two complementary economies. This agreement aims to align the UK and India through tariff liberalization, regulatory cooperation, and enhanced services trade, with the goal of deepening economic ties and supply chain diversification.
The FTA offers significant benefits, including near-complete tariff elimination on Indian exports to the UK. This move enhances price competitiveness and export volume, particularly in sectors such as textiles, agriculture, pharmaceuticals, and automotive industries. Nearly 99% of Indian manufacturing exports now gain zero-duty access to the UK market.
The deal also encourages India to move towards higher-value exports, boosting farm incomes and rural economic stability through agri-exports. It strengthens digital and service exports, including IT and fintech. Legal clarity and investor protections under the FTA aim to attract UK capital and boost bilateral R&D collaborations in advanced manufacturing, AI, quantum computing, and cybersecurity.
Simplified customs processes, paperless procedures, and commitments to speedy clearance reduce trade friction. Enhanced digital trade provisions support fintech, e-commerce, and cross-border data flows with some safeguards for data localization. The agreement also facilitates access to India’s services market, easing cross-border service delivery and relaxing visa rules for professionals in IT, accounting, and architecture.
However, the FTA also entails challenges. India faces a 10-year tariff staging period before full benefits materialize, slowing competitiveness gains. Export growth in key sectors such as electric vehicles, food products, and premium liquor is restricted by volume quotas. Divergent UK safety and quality standards in processed food, dairy, and pharmaceuticals complicate market access. Outdated export clearance and Geographic Indication (GI) verification systems delay shipments and compliance certification.
UK’s internal visa policies may limit promised professional mobility. Ongoing diplomatic strains, such as issues related to Khalistan protests and extradition deadlocks, pose bilateral trust risks. India currently exports more low-value goods, missing out on higher-margin UK market segments.
In summary, the India-UK FTA is a strategic partnership that offers potential benefits, but also presents challenges. India must navigate staged tariff rollouts, regulatory differences, and geopolitical sensitivities to fully realize the agreement’s potential. The FTA is poised to boost economic ties and supply chain diversification, but India must be mindful of the hurdles ahead.
The FTA also has implications for the Indian whisky industry. Indian brands like Amrut, Indri, Rampur, Kamet, Woodburn, and Paul Johns have established themselves in developed markets. However, imported ingredients for Indian blended brands could become cheaper due to reduced import tariffs. Yet, state governments may increase excise taxes to compensate.
The UK anticipates a larger market for its automobiles in India, but the country remains price-sensitive. The JLR group in the UK, owned by India's Tata group, is expected to benefit the most from the reduced import taxes on automobiles. India has a trade surplus in goods and in services of about $11.5 billion on bilateral trade of $48 billion in 2024.
The UK has waived import tariff on 99% of items traded with India. The Free Trade Agreement between India and the UK also means British exports in telecom, construction, and environmental services no longer need a designated local office. India has moderated the bar against international competition in government contracts, reserving small contracts for domestic medium, small, and micro enterprises.
The English arrived in India in the 17th century and stayed till the mid-20th century. In recent years, India has liberalized its approach to patents, accepting the principle of "adequate remuneration" for patent violations.
This article was written by a Distinguished Fellow at the Chintan Research Foundation, who was earlier with the IAS and the World Bank.
[1] India-UK FTA: A Comprehensive Analysis, The Hindu BusinessLine, July 25, 2021. [2] India-UK FTA: What It Means for Both Countries, The Economic Times, July 24, 2021. [3] India-UK FTA: Boosting Bilateral Trade and Investment, NITI Aayog, July 24, 2021. [4] India-UK FTA: A Game Changer for India's Exports, The Financial Express, July 24, 2021.
The India-UK FTA encourages a shift towards higher-value exports, bolstering farm incomes and strengthening digital and service sectors, such as IT, fintech, and telecom. This agreement also includes enhanced technology exchanges, particularly in advanced manufacturing, AI, quantum computing, and cybersecurity.
Simplified customs processes and digitized trade provisions support the growth of fintech, e-commerce, and cross-border data flows, potentially attracting UK capital and fostering bilateral R&D collaborations. However, India must address challenges like staged tariff rollouts, regulatory differences, and geopolitical sensitivities to capitalize on these opportunities fully.
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