India-UK FTA: Can Keir Starmer do what Rishi Sunak could not?

India and the UK have been engaged in negotiations for over two years to establish a Free Trade Agreement (FTA) aimed at enhancing trade between the two nations.

With the Labour Party’s resounding victory in the UK elections, led by Keir Starmer, and the defeat of Rishi Sunak, there is potential for a shift in the dynamics of the FTA negotiations.

The proposed agreement could lead to mutual tariff reductions on trade between the two countries and may also benefit Indians when it comes to British visas.

Can the Labour government finalise the FTA?

Since the UK’s unexpected decision to leave the European Union (EU), London has struggled to achieve the political stability necessary for a deal with India.

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However, with a Labour government in place after 14 years, there might be sufficient political stability to finalise a deal with India. According to The Indian Express, since Brexit, the majority of trade deals signed by the UK have been rollover agreements, mirroring deals that London previously had as an EU member.

Keir Starmer’s leadership marks a departure from the previous Labour Party stance under Jeremy Corbyn, who had called for international intervention in Kashmir. Starmer has acknowledged the increasing political influence of the UK’s Indian-origin population, the largest immigrant group in the country, and has worked to eliminate ‘anti-India sentiments’ within his party.

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Labour Party Chair Anneliese Dodds stated, “We are confident that we have cleansed our ranks of any members with extremist views on India.”

Starmer has even questioned the Conservative Party’s delay in finalising the FTA with India, emphasising the importance of this agreement for the future. At the India Global Forum (IGF), Starmer declared, “I have a clear message for you all today: this is a changed Labour Party.”

What issues are contentious during FTA talks?

Immigration remains a highly contentious issue in British politics. While both the Conservative and Labour parties agree on the need to restrict immigration, their approaches differ. This could become a major sticking point in the trade negotiations with India, which seeks temporary visas for its service sector workforce.

India’s service sector stands to gain significantly from such an arrangement, especially given the UK’s prominence in IT and financial services. However, considering the UK’s political climate, Labour is expected to negotiate rigorously on the visa issue.

A Labour government is likely to adopt a tougher stance on climate issues compared to the Conservatives. Starmer’s party has repeatedly criticised the Tories for deviating from the UK’s 2030 net-zero goals.

During FTA negotiations, India has sought leniency on the carbon tax that the UK is expected to implement, similar to the EU’s carbon border adjustment mechanism. India argues that this proposed mechanism could negate many of the tariff concessions agreed upon in the FTA.

When did the idea of the India-UK FTA surface?

The foundation for the FTA was laid in May 2021 when then-British Prime Minister Boris Johnson and Prime Minister Narendra Modi agreed on deeper trade cooperation through an “Enhanced Trade Partnership.”

This partnership removed several trade barriers and set the stage for FTA negotiations, which officially began in January 2022. Johnson had initially aimed for the agreement to be completed by Diwali 2022, but by October 2022, now former 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, expediting the process to finalise the agreement before the elections in both countries. However, negotiations have faced several hurdles, with the issue of visas for professionals being a major point of contention.

The 14th round of negotiations commenced in January 2024, with India pushing for the inclusion of social security payments for Indian workers in the UK, another contentious issue for Badenoch.

Despite a “last-gasp attempt” by UK negotiators in March 2024 to clinch the FTA before the Indian election campaign paused talks, the 14th round remained unresolved on major issues. Badenoch had highlighted the importance of quality over deadlines, even as India signed a free trade agreement with the European Free Trade Association.

What are the key demands of the UK?

The FTA with the UK represents a strategic shift for India, focusing its preferential trade partnerships westward. Key demands from the UK include tariff cuts for Scotch whisky, which currently faces a 150 per cent duty, electric vehicles, and chocolates.

India, on the other hand, seeks provisions for its professionals to live and work in the UK under renewable work visas.

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A significant unresolved issue is India’s request for exemption from the UK’s proposed carbon tax, set to be introduced by 2027. While this tax aims to incentivise businesses to reduce carbon emissions, it could adversely affect the competitiveness of certain Indian exports to the UK.

The UK remains firm on not exempting India from this tax, stressing its commitment to decarbonisation goals.

How can India benefit from the FTA?

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

The FTA is expected to further boost trade volumes, especially 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 growing consumer market.

However, the impact on goods exports may be limited, as many Indian products already enter the UK with low or no tariffs.

The FTA could benefit Indian exports of textiles, apparel, footwear, carpets, cars, marine products, grapes, and mangoes. Conversely, the UK’s marine products industry could see increased exports to India.

A delayed but possible agreement

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

The Indian Ministry of Commerce and Industry has prioritised the completion of the India-UK FTA within the first 100 days of a new government taking charge.

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Both nations remain committed to achieving a mutually beneficial agreement.

With inputs from agencies