British delegation calls off New Delhi visit, putting India-UK FTA talks in limbo. What is going on?

A high-ranking British delegation has abruptly cancelled its scheduled visit to New Delhi, throwing the ongoing talks on a planned free trade agreement (FTA) into uncertainty.

The delegation, set to arrive on 28 May, was supposed to finalise terms on contentious issues such as work visas for Indians, duty relaxations, and imports of British-made electric vehicles. The cancellation, reported by HT’s Mint newspaper, has raised concerns on both sides, particularly given the significant advances reported in recent talks.

“The British officials have cancelled their visit without providing a specific reason. It is assumed that the announcement of elections may have led to the cancellation of their trip,” a person familiar with the situation told the newspaper. “The deal was progressing very positively. We were hopeful of closing some of the remaining chapters, which are challenging for both sides,” this person added.

In the past, the UK side has mostly refused to comment on the deal or give updates to the media. British Prime Minister Rishi Sunak has called elections for 4 July this year, bringing into question why the UK does not want to continue talks just as India did during their own election period.

How have the negotiations gone so far?

The seeds of this FTA were sown in May 2021 when then-British Prime Minister Boris Johnson and Prime Minister Narendra Modi agreed on deeper trade cooperation. This “Enhanced Trade Partnership” removed several trade barriers and set the stage for the FTA negotiations that began in January 2022.

Johnson had initially declared that the agreement should be completed, in time for an announcement on Diwali 2022 . However, by October 2022, UK Secretary of State for International Trade Kemi Badenoch shifted the focus to the quality rather than the speed of the deal.

As of December 2023, the UK and India had completed the 13th round of negotiations, fast-tracking the process to finalise the agreement before the elections in both countries.

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Negotiations have been mired in several issues, with the UK’s concerns about visas for professionals being a major sticking point. The 14th round of negotiations began in January 2024, with India pushing for the inclusion of social security payments for Indian workers in the UK, which was reported as a point of contention for Badenoch.

In March 2024, UK negotiators made a “last-gasp attempt to clinch an FTA before the Indian election campaign pauses talks,” according to a UK government official. Despite these efforts, the 14th round of negotiations remained open without a breakthrough on major issues.

Badenoch emphasised not using the Indian elections as a deadline, just as India was signing a free trade agreement with the European Free Trade Association.

What are points of contention in the FTA?

The FTA with the UK signifies a strategic shift for India, moving its focus from east to west in terms of preferential trade partnerships.

Negotiations are also influenced by specific demands and concessions from both sides. The UK’s demands include tariff cuts for Scotch whisky, which currently attracts a hefty 150 per cent duty, electric vehicles, and chocolates. In contrast, India seeks provisions for Indian professionals to live and work in the UK for a fixed period under work visas, with renewal options.

One of the unresolved issues in the negotiations is India’s request for an exemption from the UK’s proposed carbon tax, which is set to be introduced by 2027. This tax aims to incentivise businesses to reduce their carbon emissions but could negatively impact the competitiveness of certain Indian exports to the UK.

The UK has not yet agreed to exempt India from this tax, emphasising its commitment to its decarbonisation goals.

Trade between India and the UK has seen significant growth, increasing from $10.45 billion in FY22 to $11.46 billion in FY23, and further rising by 13.26 per cent to $12.98 billion in FY24.

The FTA is expected to further boost trade volumes, particularly in services, by facilitating the movement of skilled professionals. This could lead to enhanced investment opportunities for UK businesses in India and improved access to India’s expanding consumer market.

Also Read: Rishi Sunak wants to scrap UK graduate visa: What is it, how will it affect Indians?

Despite the potential benefits, the impact on goods exports may be limited since many Indian products already enter the UK with low or no tariffs.

However, reducing duties could benefit Indian exports of textiles, apparel, footwear, carpets, cars, marine products, grapes, and mangoes. This could also lead to increased exports of marine products from the UK to India, benefiting the UK’s marine products industry.

What now for the India-UK FTA?

Indian negotiators, led by chief negotiator L. Satya Srinivas and deputy chief negotiator Darpan Jain, have been diligently working to resolve the remaining issues, including the proposed carbon tax, business mobility, and duty-free access for certain goods. They remain confident that a mutually agreeable solution will be reached soon.

The Indian Ministry of Commerce and Industry has placed the completion of the India-UK FTA as a priority for the 100-day agenda after a new government takes charge.

“The British delegation informed about the cancellation of their scheduled visit in the previous week following the announcement of polls in the UK,” another source had told HT’s Mint.

The situation remains fluid, with both countries awaiting the outcomes of their respective elections. As the political landscape evolves, both nations remain committed to achieving a mutually beneficial agreement, albeit on a delayed timeline.

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