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Prelims Capsule


India and the United Kingdom have launched Free Trade Agreement (FTA) negotiations

India and the United Kingdom have launched Free Trade Agreement (FTA) negotiations


  • GS 3 || Economy || External Sector || Foreign Trade

Why in the news?

The UK government announced the start of free trade agreement (FTA) discussions with India. This is being referred to as a “great chance” to push British enterprises in front of the Indian economy’s “queue.”

What is FTA?

  • Imports and exports:It is an agreement between two or more countries to lower obstacles to imports and exports.
  • Interchange under a free trade policy:Goods and services can be bought and sold across international borders with little or no government tariffs, quotas, subsidies, or restrictions to obstruct their interchange under a free trade policy.
  • Trade protectionism and economic isolationism are the polar opposites of free trade.
  • Preferential Trade Agreements, Comprehensive Economic Cooperation Agreements(CEPA), and Comprehensive Economic Partnership Agreements are the three types of FTAs.

How a Free Trade Agreement Works?

  • Break trade barriers:In today’s world, free trade policies are frequently implemented by a formal and consensual agreement between the countries concerned. A free-trade policy, on the other hand, might simply be the lack of any trade barriers.
  • To support free trade, a government does not need to take specific actions. The term “laissez-faire trade” or “trade liberalisation” refers to this laissez-faire approach.
  • Governments that have implemented free-trade policies or agreements do not have to give up all control over imports and exports or forsake all protectionist restrictions. Few free trade agreements (FTAs) in modern international trade result in entirely unfettered trade.

About the India-UK Free Trade Agreement:

  • The FTA is intended to help India and the United Kingdom achieve their goal of tripling bilateral trade by 2030, which was announced by the Prime Ministers of both countries in May 2021.
  • Given that the United Kingdom was a major trade partner of India, with a significant bilateral volume of goods and services trade, the partnership was expanded to include areas including as-
  • tourism,
  • technology,
  • startups,
  • education,
  • climate change
  • The two countries hoped to reach a mutually advantageous trade agreement with balanced concessions and market access packages in a variety of industries.
  • It was also agreed to look into the potential of an interim agreement during the FTA discussions to bring immediate benefits to both countries’ enterprises. The goal is to achieve a comprehensive, balanced, fair, and equitable FTA that benefits both countries’ small, medium, and microbusinesses.

Need of Free trade agreement:

  • The two countries announced plans to finalise an interim trade agreement by mid-2022 as a preliminary to a free trade agreement in May 2021, with the goal of facilitating market access in specific industries.
  • Following the UK’s exit from the European Union, it is part of the country’s efforts to strengthen trade connections with countries across the world (EU).
  • Britain will expand its fisheries industry to include more Indian players, expand nursing jobs, recognise Indian seafarers’ qualifications, and engage in a cooperative discussion on a social security deal.
  • In exchange, India eased limitations on British fruit producers’ ability to export their products to the country and facilitated access to medical devices by accepting “UK Certificates of Free Sale.”
  • The two sides will also try to offer up legal services to each other.
  • In India, these initiatives are expected to result in the creation of 25,000 new direct and indirect jobs.

Significance of FTA:

  • Democracy and diaspora: Both India and the United Kingdom are dynamic democracies with shared history and culture, and the diverse Indian diaspora in the United Kingdom, which serves as a “Living Bridge,” contributes to the vibrancy of their relations.
  • Increased productivity: The FTA with the United Kingdom is expected to improve the services sector’s clarity, predictability, and transparency, as well as provide a more liberal, facilitative, and competitive environment.
  • Export: As a consequence of FTA discussions with the United Kingdom, India’s exports of leather, textiles, jewellery, and processed agricultural products are set to increase, while India’s exports of marine items are predicted to explode as a result of the recognition of 56 Indian marine units.
  • Market access: Pharmaceutical Mutual Recognition Agreements (MRAs) may offer up new commercial options.
  • Service Sector: There is a lot of room for growth in service industries like IT/ITES, nursing, education, healthcare, including AYUSH, and audio-visual services, and India will also demand particular arrangements for its people’s transportation.
  • Employment: The agreement will help both countries create direct and indirect jobs.
  • Value Chains: The FTA will also help with value chain integration and complement bilateral efforts to improve supply chain resilience.
  • Skilled Labor Access: India will seek concessions on the use of Indian skilled labour in UK markets.
  • Defence Strengths: The United Kingdom could help strengthen India’s domestic defence industrial base. Through the sharing of logistical facilities, the two sides might also enhance India’s regional reach.

Concerns associated with FTA:

  • A Harsh Past: Partition’s bitter legacies, anti-colonial animosity, and Britain’s prejudices and perceived lean toward Pakistan have long plagued India-UK relations.
  • Political Negativity: While it is impossible to completely separate South Asian and British domestic politics, the British Labour Party’s growing political hostility to India has exacerbated India’s challenges.
  • Domestic Politics: The UK’s huge South Asian diaspora transmits the subcontinent’s internal and intra-regional disputes to the UK’s domestic politics.
  • Engagement with the EU: The UK must resolve its own internal debates over the future of its relationship with the EU.

Way forward:

  • With increasing globalisation, as has been clearly indicated during on-going pandemic, India cannot remain aloof anymore from the world market in the name of protectionism.
  • It is all the more necessary to tap more markets across the world particularly African continent with vast potential for exports with a vision to realise $5 trillion economy
  • It is very imperative to foster conducive environment and protection to foreign investment in the country and remove the fear of domestic laws. In this regard the revocation of Retro tax law is a welcome step.
  • It will also help in resolving issues of trade deficits.

Mains oriented question:

A Free Commercial Agreement (FTA) between India and the United Kingdom can open up new trade opportunities and bring people, ideas, and institutions from both countries together. Examine. (200 words)