Liz Truss, as the UK’s new prime minister — she will assume office on Tuesday — will likely stick to the plan of her predecessor Boris Johnson to clinch a free trade agreement (FTA) with New Delhi by Diwali in October, given that both sides have more or less concluded the negotiations already, and are equally keen to strike the deal at the earliest.
Though India is still not among the UK’s major economic partners — it accounts for barely 2% of its trade in goods and services and just 0.6% of its inward FDI stock — the scope for expansion on both these fronts are tremendous and much bigger than with any other country. Also, the FTA is seen to bring significant economic benefits to both sides rather quickly.
For Truss, who has inherited an economy with sluggish growth, addressing the intractable issues of low wages and high energy costs are paramount. She will have to rely on external trade in a big way in the medium term in battling the Brexit’s adverse effects on its economy, which is estimated at a considerable 2-2.5% of its GDP.
An ambitious target is set by both sides to raise bilateral trade in goods and services between the two countries to about $100 billion by 2030. While this looks a tall target, the FTA will definitely lead to substantial incremental growth of trade between the two countries, besides enhanced, broader economic cooperation, which would, among other things, result in much higher two-way investment flows.
The pact, which will likely be a full-fledged one (an earlier plan was to have an interim deal first), could cover more than 90% of tariff lines. Besides, it could lead to a spurt in India-UK services trade, which is currently 60% of overall annual commerce between the two countries. Johnson had agreed to a regime that will multiply visas to Indian skilled IT professionals to tide over a shortage in the UK; Truss will likely go by that plan.
The FTA encompasses a wide range of areas including tariffs, sustainable growth, product and service standards, SMEs, government procurement, data flows and intellectual property.
