India is poised to capitalize on its innovative capabilities and skilled workforce through the recently negotiated Free Trade Agreement (FTA) with the United Kingdom. As the UK's largest-ever delegation visits India, the partnership between the two nations is gaining prominence, with both countries aiming to double trade by 2030.
Ajay Bagga, an international trade expert, highlighted the significance of this partnership. According to Bagga, the FTA negotiations have concluded, and the agreement is moving towards ratification by both parliaments, followed by implementation. The UK parliament is expected to vote on the agreement within a month.
The FTA is projected to yield substantial economic benefits for both nations. Bagga noted that the agreement is a significant achievement for India on the global stage, with 99.1% of Indian goods set to enter the UK at zero tariffs. The UK, in turn, will benefit from reduced tariffs on its exports to India. Lower tariffs are expected to create around a thousand jobs in the Scottish whiskey sector alone.
While the FTA is a positive step, visa restrictions remain a contentious issue. Bagga acknowledged that governments are unlikely to completely open up visas to countries with large populations and skilled workforces like India, as it is against their national interests. The mobility provisions in the agreement offer preferential visa access to specific professions, such as chefs, yoga instructors, and investors. This approach aligns with a broader global trend of compartmentalizing visa access based on specific needs and skills.
According to RK Vij, the President of the Textile Association of India, India's textile exports are expected to increase significantly as a result of the FTA. Vij noted that the current textile export trade is around $37 billion, with the goal of reaching $100 billion by 2030. He added that the domestic market is currently worth $120 billion, with a target of $250 billion. The Indian textile industry is well-equipped with raw materials and has the support of the government through various schemes.
The FTA is expected to provide a definite tariff advantage for Indian apparel manufacturers over China, with a 12% advantage. This will create a level playing field with countries like Bangladesh, potentially leading to increased sourcing from India by UK-based leaders. Currently, the UK market accounts for about 4% of Indian apparel manufacturers' revenue, and this figure is expected to rise substantially.
Bagga believes that trade deals, including those between the UK and other countries like Japan, will boost markets. He pointed out that several Asian countries are pursuing similar agreements, and Korea has engaged with the US.
Despite these positive developments, Ajay Bagga noted that Indian markets have been underperforming for the past 13 months due to external pressures, including tariffs, foreign institutional investor (FII) selling, and high valuations. He added that while free trade agreements with the EU and UK are progressing, they offer limited relief in the near term.
The recent visit of the UK Prime Minister Keir Starmer to India, accompanied by a large trade delegation, underscores the importance of the bilateral relationship. The UK parliament's initial approval of the FTA is a positive development.
