UK–India free trade agreement: Scrutiny of the Government’s Negotiating Objectives Contents

UK–India free trade agreement: Scrutiny of the Government’s Negotiating Objectives

Chapter 1: Strategic considerations

1.The Government’s ambition for a trade deal with India is to be welcomed. India’s historical reluctance to enter trade agreements has eased over recent years, with the Modi government concluding trade agreements with the UAE and Australia earlier this year. The UK therefore has an opportunity to build on the existing UK-India trade relationship and negotiate better access to a growing Indian market. At the same time, the negotiations entail significant challenges and risks the Government will need to address or balance. They are set out in more detail in this chapter.

The strategic case

2.The UK Government has identified the ‘Indo-Pacific tilt’ as one of the core components of its international and export strategies, which includes deepening trade relations with India.

3.India is widely expected to overtake China to become the world’s most populous country by the end of the decade,1 and the world’s third largest economy within 15 years.2 A growing economy, as well as a growing middle class and consumer market,3 make India an attractive trading partner for the UK.

4.The Department for International Trade’s (DIT) modelling in its Scoping Assessment estimates that an FTA could lead to between a 0.12% and 0.22% increase in GDP by 2035, depending on the depth of the negotiated outcome.

5.It estimates that UK exports to India could increase by between £8.8bn (+50%) and £16.7bn in 2035. UK imports from India could increase by between £5.2bn (+30.7%) and £10.9bn (+63.7%) in 2035.4

Negotiating challenges

Feasibility of a comprehensive agreement

6.As the benefits to the UK will be heavily dependent on the depth of the negotiated outcome, the UK Government understandably is focusing on securing a comprehensive trade agreement. The joint statement by the Prime Minister and Prime Minister Modi on 22 April 2022 noted that both Parties were seeking agreement “on a comprehensive and balanced Free Trade Agreement”.5 However, India’s history of trade protectionism and preference for ‘thin’ deals, alongside other UK Government communications referring to the possibility of an interim deal, have cast doubt over whether a comprehensive trade agreement will be achievable.

7.Although India has struck so-called comprehensive agreements with South Korea, Japan, and more recently the UAE, the agreement with Australia this year was an interim deal focusing mainly on goods and services,6 and there are reports that India is now also pursuing an interim deal with Canada, with which it has been discussing a comprehensive trade deal on and off for 12 years.7 When giving evidence to the Committee, the Rt Hon Anne-Marie Trevelyan MP, Secretary of State for International Trade, emphasised that the Government is focused on securing a comprehensive deal, “… we want to do a deal that is far beyond a tariffs trade deal only. We are looking to negotiate something much more comprehensive.”8

8.Comprehensive trade agreements often include provisions that touch on domestic policies, including on intellectual property, standards, data protection, women and labour rights, and environmental protections. India’s very different regulatory environment and approach to some of these issues make agreement on a comprehensive trade deal particularly challenging. The fact that the UK is not one of India’s top trading partners—ranking only as India’s 17th largest trading partner for goods9 means the UK Government’s leverage to secure changes to India’s domestic policies will be limited. Even if India agreed to make changes to its domestic legislation, implementation could take a long time. We do not see how the Negotiating Objectives can be met (and businesses benefit) without India agreeing to make some changes to its domestic laws or practices.10

9.This raises the question how comprehensive a comprehensive deal should be, and what the UK Government would consider to be its minimum requirements. We regret that the Negotiating Objectives do not set out the areas the Government would be prioritising.

10.Witnesses commented on the risks of a ‘thin’ or interim deal. The UKTPO told us that while an interim deal may be achieved, there could be “a real possibility that the process between the UK and India stops at the interim agreement without ever proceeding to the full FTA stage”.11 They also noted that a selective interim agreement could be less likely to satisfy the requirements under Article 24 of the General Agreement on Tariffs and Trade (GATT) under WTO rules.12 Sangeeta Khorana, Professor of Economics at Bournemouth University, told the Committee that “the strategy of negotiating the ‘difficult’ sectors at a later date runs the risk of impeding the progress of talks” and undermine the conclusion of a broad FTA.13

Asymmetry between UK and India’s business environments

11.The last publicly available Doing Business report from the World Bank ranks the UK eighth in the world for ease of doing business, with India being ranked 62 out of 190.14 Corruption has an adverse impact on doing business, yet Transparency International’s latest corruption perception index shows that corruption levels in India are high.15

12.For example, it is widely said that the payment of ‘facilitation fees’ at all levels is part and parcel of conducting business in India.16 Yet such practices are unlawful under the UK Bribery Act 201017 and businesses operating in the UK could be prosecuted for engaging in them, either directly or via a subsidiary. The Government’s Negotiating Objectives are too general and vague on this issue, aiming simply to “provide for appropriate mechanisms for the implementation, monitoring and dispute resolution of anti-corruption provisions”18 without considering the practices that are specific to India.

13.The difficulties faced by foreign companies wishing to do business in India also include a lengthy process for business permits, a complex tax regime, low levels of contract enforcement, limited IP protections, and significant documentation requirements to move products across borders.19 These are not referenced in the Government’s Strategic Approach to the negotiations.

14.The Government provides some information on the barriers to services, noting that India has higher restrictions on services than the UK, with accounting and legal services being almost closed to foreign providers, and rail freight transport fully closed.20

15.Witnesses told us that “India is a notoriously difficult nation to trade with”21 and that trade with India comes with high costs and red tape.22 SMMT emphasised the complex regional variations in the bureaucratic requirements for exporters and cautioned that “addressing and removing these complications will be a highly sensitive topic for discussion and a tough ask from FTA negotiations”.23

16.Tax is a challenging subject where the UK Government approach needs to be sophisticated, yet the Government’s Strategic Approach does not mention any objectives with regard to tax, despite UK business reporting this as a major business barrier. The implementation of the nationwide Goods and Services Tax in 2017 has helped according to the NFU,24 but others report that despite the introduction of the Goods and Services Tax system, the regime has actually become more complex.25 The NHS Confederation was concerned by a lack of clarity regarding tax liabilities when operating in India.26 Furthermore, foreign companies pay a higher rate of corporation tax, and even if the Indian Government reduces tariffs in an FTA, these could be offset by higher excise (and other) taxes set by individual states.

17.Any UK-India trade agreement needs to address—or at the very least include commitments by India to work towards addressing—these asymmetrical barriers if UK businesses are to benefit from an agreement. It will also need to include non-circumvention clauses and access to independent and robust dispute resolution mechanisms to create an environment that delivers a degree of certainty and protections for UK businesses.

India’s developing economy

18.The developing nature of India’s economy means a great degree of uncertainty over what India’s economy may look like in future, with implications for how the Government assesses the impact of a deal with India and the protections or safeguards any future deal should include. The Strategic Approach makes clear that the modelling used by the Government to assess the macroeconomic impacts of the agreement is a static one. While the agreement could lead to greater-than-predicted benefits, changes to India’s economy—for example in response to the Indian government’s ‘Made in India’ initiative27—could mean greater competition for UK firms, particularly those operating in sectors where the UK currently enjoys an advantage. It is unclear how this uncertainty is being factored into the negotiations.

Conclusions and recommendations

19.The potential economic gains from a comprehensive trade agreement with India are projected to be more significant than the benefits from trade agreements with Australia, New Zealand or Japan.

20.We welcome the Indian government’s new approach to opening trade links and the positive momentum achieved.

21.India’s history of relatively thin FTAs, historically protectionist policies and different regulatory approaches, mean that the barriers and challenges to trade with India are considerable and deep-rooted. Overcoming these barriers would require, in many areas, changes to India’s domestic legislation, which could be a lengthy process.

22.India’s record and context raises questions over whether—notwithstanding the Government’s ambition—a comprehensive trade agreement is achievable in the short term and to a fixed deadline. An interim deal could lock in early gains, but it could also put off a more comprehensive deal if the UK makes too many early concessions.

23.It is difficult to envisage that any deal with India would be as comprehensive as any deal the UK has agreed with other like-minded partners. There are therefore questions over how comprehensive the deal with India should be and its minimum requirements. It is regrettable that the UK Government has not set out the areas it would prioritise for inclusion. We believe it should. The very general, high level, indeed at times overly ambitious, Negotiating Objectives offer no clue as to the Government’s negotiating priorities.

24.Given the challenges of securing a comprehensive deal with India, it is questionable whether the setting of an ambitious but arbitrary deadline for the conclusion of the negotiations is the right approach. The UK Government must not accept a poor agreement simply to meet a deadline. We welcome the Secretary of State’s assurances that the Government will not compromise on the quality and scope of the FTA, and that it will only sign up to an agreement by Diwali if it works for UK businesses.

25.Unlike with Australia or New Zealand, there are substantial difficulties—and therefore costs—when doing business in India. These are not adequately captured by the Government’s Strategic Approach and Negotiating Objectives, but include a complex bureaucracy (which can change from state to state) and tax regime. The Negotiating Objectives thus come across as unrealistic. We call on the Government to engage with Parliament and wider stakeholders on how it is seeking to address these challenges, and which barriers are being prioritised.

26.Facilitation payments are common in India, yet modern international business standards condemn this. The Government must satisfy itself and press India on making progress towards meeting international business standards.

27.We also call on the Government to ensure that any agreement with India includes robust and enforceable provisions on non-circumvention and dispute resolution.

28.While the gains from an FTA with India are projected to be more significant than those from an FTA with Australia, New Zealand or Japan, they are more uncertain. India’s economic landscape is rapidly evolving and we call on the Government to set out how it will ensure that the agreement takes account of and can respond to changes in the Indian economy, so that any final agreement continues to work for the UK long term.


1 UN Department of Economic and Social Affairs, ‘World Population Prospects: 2019’: https://population.un.org/wpp/ [accessed 20 July 2022]

2 See, for example: CEBR, ‘India to become 3rd largest economy in 2031’ (26 December 2021): https://cebr.com/reports/india-to-become-3rd-largest-economy-in-2031-says-cebr/ [accessed 20 July 2022]; PWC, ‘The World in 2050’ (February 2017): https://www.pwc.com/gx/en/research-insights/economy/the-world-in-2050.html [accessed 20 July 2022]; Bloomberg UK, ‘An Economist’s Guide to the World in 2050’, 12 November 2020: https://www.bloomberg.com/graphics/2020-global-economic-forecast-2050/ [accessed 20 July 2022]

3 DIT, An information note for the consultation relating to a Free Trade Agreement between the United Kingdom and India (25 May 2022), pp 11–12: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/989234/dit-india-uk-consult-info-note.pdf [accessed 20 July 2022]

4 DIT, UK-India Free Trade Agreement: The UK’s Strategic Approach (13 January 2022): https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1046839/uk-india-free-trade-agreement-the-uks-strategic-approach.pdf [accessed 20 July 2022] Subsequently: Strategic Approach

5 Foreign, Commonwealth and Development Office, ‘Joint statement by Prime Ministers Johnson and Modi’ (4 May 2021): https://www.gov.uk/government/publications/india-uk-virtual-summit-may-2021-roadmap-2030-for-a-comprehensive-strategic-partnership/joint-statement-on-india-uk-virtual-summit-4-may-2021-roadmap-2030-for-a-comprehensive-strategic-partnership [accessed 20July 2022]. The Strategic Approach notes that “As part of the government’s commitment to secure the best deal for the UK, within negotiations we will consider the merits of an Interim Agreement as a potential option to deliver early benefits”, p 5.

6 Written evidence from the UKTPO (IND0036)

7 See: Government of Canada, ‘Canada-India Comprehensive Economic Partnership Agreement negotiations - Background information’ (March 2021): https://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/india-inde/fta-ale/background-contexte.aspx?lang=eng [accessed 20 July 2022], ‘Negotiating teams from India, Canada to fine-tune scope of proposed free trade pact next week’, The Hindu Business Line (20 May 2022): https://www.thehindubusinessline.com/economy/negotiating-teams-from-india-canada-to-fine-tune-scope-of-proposed-free-trade-pact-next-week/article65440155.ece [accessed 20 July 2022] and, ‘India, Canada weigh interim trade pact’, The Indian Express (12 March 2022): https://indianexpress.com/article/business/india-canada-weigh-interim-trade-pact-7816015/ [accessed 20 July 2022].

8 Oral evidence taken before the International Agreements Committee on 13 July 2022 (Session 2022–23), Q 14 (Rt Hon Anne-Marie Trevelyan MP). See also her response to Q 4.

9 Government of India, Department of Commerce, ‘Export Import Data Bank: Total Trade: Top countries’ (29 June 2022): https://tradestat.commerce.gov.in/eidb/ [accessed 20 July 2022]. By way of comparison, the USA ranks as India’s top trading partner for goods, with Germany being the top European partner (ranked 11th).

10 Oral evidence taken before the International Agreements Committee on 13 July 2022 (Session 2022–23), Q 8 (Rt Hon Anne-Marie Trevelyan MP)

11 Written evidence from UKTPO (IND0036)

12 GATT Article 24 (8)(b): “A free-trade area shall be understood to mean a group of two or more customs territories in which the duties and other restrictive regulations of commerce (except, where necessary, those permitted under Articles XI, XII, XIII, XIV, XV and XX) are eliminated on substantially all the trade between the constituent territories in products originating in such territories.” WTO, ‘GATT Article XXIV’: https://www.wto.org/english/tratop_e/region_e/region_art24_e.htm [accessed 20 July 2022]

13 Written evidence from Professor Sangeeta Khorana (IND0026)

14 World Bank, ‘Doing Business Project’: https://data.worldbank.org/indicator/IC.BUS.EASE.XQ?name_desc=true [accessed 20 July 2022]

15 In 2021, Transparency International’s Corruption Perceptions Index scored India as having serious corruption problems. See: Transparency International, ‘Corruption Perceptions Index 2021’: https://www.transparency.org/en/cpi/2021 [accessed 20 July 2022].

16 CNN, ‘1 in 2 Indians paid a bribe at least once in the past year, survey finds’ (28 November 2019): https://edition.cnn.com/2019/11/27/asia/india-corruption-bribe-intl-hnk-scli/index.html [accessed 20 July 2022]

17 Ministry of Justice, Guidance: The Bribery Act 2010 (March 2011), p 18: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/832011/bribery-act-2010-guidance.pdf [accessed 20 July 2022]

18 Strategic Approach, p 16

19 See: United States International Trade Administration, ‘Country Commercial Guides: India - market challenges’ (October 2021): https://www.trade.gov/country-commercial-guides/india-market-challenges [accessed 20 July 2022]; and Resolution Foundation, Sophie Hale, A presage to India: Assessing the UK’s new Indo-Pacific trade focus (26 January 2022): https://economy2030.resolutionfoundation.org/wp-content/uploads/2022/01/A-presage-to-India.pdf [accessed 20 July 2022]

20 Strategic Approach, p 46

21 Written evidence from SMMT (IND0031)

22 Written evidence from the Federation of Small Businesses (FSB) (IND0028)

23 Written evidence from SMMT (IND0031)

24 Written evidence from the NFU (I). Before the Goods and Services Tax (GST) was introduced, imports could be subject to several duties, as well as state or local taxes and charges. Most of these have now been subsumed into a single GST.

25 Deloitte, 2021 Asia Pacific Tax Complexity Survey (3 August 2021): https://www2.deloitte.com/content/dam/Deloitte/cn/Documents/tax/deloitte-cn-tax-dtt-asia-pacific-tax-complexity-survey-2021-210803.pdf [accessed 20 July 2022]

26 Written evidence from the NHS Confederation (IND0001)

27 Government of India, ‘Make in India’: https://www.makeinindia.com [accessed 20 July 2022]




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