After three years of intense negotiations, on May 6, the United Kingdom and India finalized a historic free trade agreement (ALE), marking the most important commercial pact in the kingdom of bilateral trade by 2040.
This complete ALE is about to strengthen the economic partnership between the two countries, promote growth, create jobs and offer consumers from the two countries to access a wider range of goods and services.
With the signing of the agreement, the United Kingdom has stolen a walk on the other two AFF that India is negotiating, with the United States and the European Union. The most important aspect of the agreement is that it has the printur of a bipartite political consensus in Great Britain. In addition, in the political context, the agreement strengthens the economic relationship, the most crucial pillar of India’s “full strategic partnership” with the United Kingdom.
The agreement has long been presented as one of the greatest prices in the United Kingdom after Brexit. This historic free trade agreement is also praised as a strategic victory for the two nations. The agreement is expected to improve market access, reduce prices and promote economic growth of the two countries. The pact unlocks the potential of economic ties and can also strengthen confidence in other key sectors. The modified geo-economic environment gave a feeling of urgency to the pace.
Key elements
It was agreed that the United Kingdom will reduce taxes on goods imported from India in clothing and shoes, food products, including frozen shrimp, jewelry and gems, certain cars. India will reduce taxes on goods imported from the United Kingdom, such as cosmetics, Scottish whiskey, gin and carbonated drinks, greater value cars, food including lamb, salmon, chocolate and cookies, medical devices, aerospace, electric machines. The agreement will also allow British companies to compete for more service contracts in India. The agreement is expected to increase the bilateral trade by 25.5 billion GBP, the GDP of the United Kingdom by 4.8 billion GBP and wages of 2.2 billion GBP each year in the long term. The British agreement with India is its third greatest after its agreements with Australia and Japan.
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The FTA is also aligned with the Indian government’s commitment to the creation of jobs in India thanks to the trade agreement of the United Kingdom-India, in particular for its emerging population for young people. As these sectors develop, they will probably create a job, thus contributing to economic stability and growth. Another notable characteristic of the Ale of British India is its ambitious commitment to improve the mobility of professionals and services. Indian service providers, in particular in information technology, financial services and professional sectors, should earn a competitive advantage in the British market.
In addition, the introduction of a double-contribution agreement (DCC) temporarily exempts Indian workers in the United Kingdom from social security contributions for three years, similar to the UK’s social security agreements with countries like Switzerland, Norway and Canada. It will not affect access to benefits or the British immigration health supplement and will come into force alongside the wider ALE. This provision not only improves competitiveness, but also creates financial gains for Indian workers and their employers. In the United Kingdom, the services sectors, including financial and legal services, also acquire a certainty of the market in the growing economy of India.
The agreement will come into force in one year and, in the meantime, the two countries will have to work hard on the desired reforms to ensure that the FTA works as a winner-win for both.
Historical perspective
The Ale of the United Kingdom indicates a historical reality in which India has been recognized as a world power and the “brightest jewel” of the former British Raj. To understand that from a historical point of view, it is important to return to the beginning of the 1600 when the British East India Company came to India for trade. Over time, this has turned into colonial domination where India has mainly provided British raw materials, while their goods flooded the Indian markets. The increase in India in the world’s new order is therefore not a miraculous novelty, it is in fact a return to its traditional global trade model. It was not until the very end of the 18th century, after the company of East India began to take advantage of the Mughal Empire, the era of Indian economic decline had started, and it was precipitated.
In 1600, when the East India Company was founded, Great Britain generated 1.8 pc of world GDP, while India produced 22.5 pc. In 1870, at the top of the RAJ, Great Britain generated 9.1 pc, while India had been reduced for the first time to the quintessence of a Third World Nation, a symbol through global famine, poverty and deprivation. But today, things are coming back to historical standards. There are more than 950 companies belonging to Indians operating in Great Britain and more than 650 British companies operating in India by cumulatively supporting more than 600,000 jobs in the two economies.
Rise of India in British perspective
It is important to state the extra ordinary transformation of Great Britain’s relations with India. Great Britain’s relations with India are mainly motivated by economic considerations rather than by political and normative considerations. It is a relationship in which the hand of India is increasingly reinforced politically vis-à-vis the United Kingdom precisely thanks to the growing political and economic weight of India. In addition, the relationship is asymmetrical in which India is more important for the United Kingdom than the United Kingdom for India, and in which the United Kingdom continues India more than India pursues the United Kingdom. The rise of India as a world power, politically and economically, was an important development in the British international system and foreign policy recognized it.
The ALE was however sought by both sides, but the official negotiations had to wait for the two-year period for the release of the EU Britain at its conclusion. But it has always been almost two years to start negotiations mainly because British policy was not ready to accept the fact that India was now a strategic partner and an important economic power. The British government may have realized that relations with India are at the top of the priorities of foreign policy of the United Kingdom, “but relations with the United Kingdom are not at the top of the priorities of the foreign policy of India.
United Kingdom Relationship and Ale negotiation
Great Britain and India have a complex and multifaceted history. In recent years, the largest democracy in the world with the largest population in the world has equaled its political freedoms with economic economics that unleash a torrent of growth, wealth creation and prosperity that transforms the nation to play a great world role with its economic influence. This is why Great Britain quickly understood the importance of India for its own economic role in the new political and economic environment. The 1.6 million British Indian diaspora in the United Kingdom will play a big role in navigation in strategic relationships and free trade fruits between the two counties.
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It has been about 77 years since India has acquired its independence from the British Empire and it is prudent to suppose that Great Britain has never imagined that a country it had reigned and ruined, for almost 200 years, in just eight decades, it will exceed the British economy and has become a responsible trading partner. The direct contributions of India to British economic development have not been seriously recognized and with the FTA now, it will.
India has the hands of the EU-India FTA negotiations
Beyond the propulsion of bilateral trade, the India-UK trade agreement could also provide a timely boost for Indian free trade negotiations with the EU and the United States. By concluding the free trade negotiations with the United Kingdom in record time, India has created a larger space for the current negotiations of the ALE with the European Union. India has also sent a message to the EU this feeling of accommodation, compromises instead of confrontation and practice of the approach to solve problems is the best way to reach the desired distance.
Although India’s negotiations with the EU were revitalized, especially after the recent visit to the European Commission president, Ursula von der Leyen, as well as the College of Commissioners in New Delhi in February, the daring commercial pact was carried out in both sides for only negotiations and the end of the EU, almost 18 years ago.
It also talks about the complexity of the EU structure which hinders its ability to move decisively. We hope that the EU will learn from the Commercial Pact of the United Kingdom-India and will move quickly to solve the remaining problems. India will certainly use the FTA with the United Kingdom as a reference for its negotiations with other business partners. In recent times, the EU has shown the flexibility of the fight against specific concerns of India, in particular on the mechanism of adjustment of carbon borders (CBAM) which aims to put a tax on all imports in the EU, on the basis of carbon emissions generated in the production of good.
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However, India must also be ready to deal with the unpredictability of EU policies. It is also important to note that if the British bureaucracy is no less rigid than the EU, they are more pragmatic, practical and visionary.
India’s strategic commercial initiatives reflect India’s commitment to integrate more deep into the global economy, diversifying its commercial partnerships and promoting economic growth through increased international cooperation. India with its low presence, of less than 3 PCs in world trade is not often in a position where it can impose its preferences bilaterally. Consequently, commercial links with the EU which have 28 pc of global imports, making it a key export market for India is very important. An ALE with the EU, the largest trading partner in India, will change the situation in the crucial course of India to become a nation developed by 2047. In addition, if the AFS that India negotiates with other countries are well executed, they will position India as a Lynchpin in a changing economic order, mixing its demographic and democratic forces with a more connected competitive market presence.
(Sunil Prasad is the secretary general of the Chamber of Commerce of Europe based in Brussels. The points of view expressed here do not necessarily reflect those of the Media India group.)
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