India and the United Kingdom have resumed negotiations for a comprehensive free trade agreement (FTA), aiming to more than double bilateral trade over the next decade. Commerce and Industry Minister Piyush Goyal and UK Business and Trade Secretary Jonathan Reynolds made the announcement during a joint press conference in New Delhi. This marks a significant step in strengthening economic ties between the two nations.
Key Developments in the Trade Talks
The negotiations, previously paused in March 2023 due to elections in both countries, have gained momentum following discussions between Prime Minister Narendra Modi and UK Prime Minister Keir Starmer during the G20 Summit in Rio de Janeiro in November 2024. Currently, bilateral trade between India and the UK stands at £41 billion (₹4.51 trillion) for the 12 months ending September 2024, according to British government estimates.
Both nations have expressed optimism regarding the agreement, with Goyal emphasizing its "path-breaking" potential to increase merchandise trade significantly. However, multiple contentious issues remain, including visa regulations, agricultural tariffs, and market access for various industries.
Challenges and Sticking Points
One of India's primary demands is a more liberal visa regime to facilitate smoother movement of skilled professionals and businesses between the two nations. Goyal highlighted that streamlined visa policies are essential for fostering stronger trade and investment ties. "We have opened up each other's services sectors while protecting the sensitivities of both countries. To enable this, business visas must be linked to investments and service sector expansions," he stated.
On the other hand, the UK is keen to gain greater access to India’s dairy market, a sector historically protected by high tariffs and stringent regulations. British officials are also advocating for reductions in India's agricultural tariffs, particularly on whisky imports, which were recently lowered from 150% to 100%.
Impact on the Dairy Industry
The UK sees India’s vast dairy market as a key opportunity for British dairy exporters. However, India considers its dairy industry highly sensitive due to its significance for millions of small-scale farmers. Commerce Minister Goyal has reaffirmed that India has no plans to offer duty concessions on dairy imports in any FTA, citing the need to protect local farmers’ livelihoods.
"Dairy is a sensitive sector for India. Across all our FTAs globally, we have not offered duty concessions on dairy, and this agreement will be no different," Goyal stated.
The National Farmers’ Union (NFU) of the UK has raised concerns about access to the Indian dairy market, emphasizing disparities in production standards and the potential impact on UK farmers. In previous trade negotiations with New Zealand, India's refusal to open its dairy sector was a major roadblock, highlighting the importance of dairy protectionism in Indian trade policy.
Broader Trade Implications
Despite these hurdles, the FTA is expected to unlock new opportunities in services, investments, and goods. UK Investment Minister Poppy Gustafsson is set to meet with Indian investors in Mumbai and Bengaluru to promote economic collaboration.
Furthermore, discussions are ongoing for a separate social security treaty to enhance economic cooperation between the two countries. India has been actively pursuing FTAs with key partners, having recently signed agreements with the UAE, Australia, and the European Free Trade Association (EFTA), which includes Switzerland, Norway, Iceland, and Liechtenstein.
Looking Ahead
While both nations are eager to finalize the agreement, striking a balance between market access and domestic protections remains a key challenge. The dairy industry will likely be a major sticking point, with India prioritizing the interests of its small-scale farmers while the UK seeks to expand its exports.
As negotiations continue, the success of the FTA will depend on the ability of both sides to address these complex trade dynamics while ensuring mutually beneficial economic growth.
