Whisky, cars and visas at the heart of India-UK trade deal

FOR two countries, which were quarrelling not so long ago over a bus stop outside the Indian High Commission in London as a security hazard and the removal of 12 police barricades outside British diplomatic properties in New Delhi, the bilateral Free Trade Agreement (FTA) clinched this month is a portentous change.

Reactions to the FTA in India have hinged on the kind of connections the respondents have with the UK. Scotch lovers are mighty pleased that tariffs on whisky — and gin — will be halved immediately from the present 150 per cent, eventually down to 40 per cent. Others who have been looking to garnish their hors d'oeuvre with blue cheese or cheddar are disappointed that dairy products have been excluded from the FTA.

Many Indians will take it in their stride that duty on cars manufactured in the UK will go down from 100 per cent now to a mere 10 per cent under a quota system that ranges from internal combustion engine cars to electric vehicles. This attitude is a sequel to the widely prevalent misconception that Tata-owned Jaguar and Land Rover are desi in character. They are the best-selling British automobiles in India. Marquee brands like Rolls-Royce or Bentley stand apart from these two.

For the anointed desi car brand, it has been a windfall week. In a trade deal negotiated by the UK with President Donald Trump's administration in the US, tariffs on 1,00,000 cars like Jaguar exported in a year will go down to 10 per cent from the 27.5 per cent that Trump slapped earlier.

For the ordinary folk who seek a better life through employment in the UK, the FTA offers big relief. They — and their Indian employers — will no longer have to pay the hefty social security contributions to the UK government. These contributions were a huge loss, especially for the large number of Indian tech professionals going to the UK on short stints of a few years.

Until the FTA incorporated the commendable clause for a Double Contributions (Avoidance) Convention, these temporary Indian expatriates neither got their money back at the end of their contracts nor any long-term social security benefits. They have been clamouring for such a relief ever since India's information tech boom triggered professional mobility to the UK — indeed globally — in big numbers.

It must not be lost on those who are rejoicing over the FTA that only the bilateral negotiations have been completed. The legal text of the FTA will have to be completed hence and a legally binding treaty is yet to be produced.

There are several steps — more on the UK side than India's — which will have to be completed before the FTA can enter into force after ratification by both countries. The Leader of the Opposition in the House of Commons, Kemi Badenoch, is likely to oppose the FTA with India in its present form when the treaty goes to Parliament for approval.

Badenoch, who was Secretary of State for International Trade in the two previous Conservative Party governments, had opposed many clauses in a draft FTA with India when she oversaw the negotiations.

Jonathan Reynolds, her successor in the current Labour Party cabinet, has defended the social security clause in the final FTA against Badenoch's criticism. It is significant that Reynolds endorsed her opposition to Indian demands for more student visas. It is also significant that Reynolds had to reassure Britons that "there is no impact on the immigration system of the deal that we have agreed" with India.

Even on business mobility to the UK, the Secretary had to reassure that there will only be "modest changes."

The Labour government can only ignore at its peril that in the same week that the FTA talks were completed with India, the right-wing Reform UK Party increased its representation in the House of Commons through a closely fought byelection.

In addition, Trump supporter Nigel Farage, the Reform UK leader, widened his appeal by capturing many local councils and some mayoralties. Conservative politicians are defecting to Reform UK. Prime Minister Starmer's government has recorded the fastest decline in popularity for any new government in British history.

So, despite the FTA, which is to the credit of the Labour government, it would be unwise for India to put more eggs into Starmer's basket.

It is entirely possible that India-UK agreement on the FTA on May 6 played a role in Washington and London settling for a limited trade deal three days later instead of an all-encompassing one, which Starmer favoured all along.

Notwithstanding the curious spectacle of leaders and officials of the UK pervasively flattering Trump in public at every step to gain concessions, they did not get everything they hoped for. The limited deal covers the sectors in the UK most hammered by Trump instead of their entire bilateral trade basket. Egocentric Donald Trump would doubtless have been miffed that India reached a deal with the UK before him. Trump has a special feeling for Britain, which, as he seldom fails to mention, was his mother's birthplace. Besides, he adores the British monarchy.

Commerce Secretary Sunil Barthwal has said the FTA with Britain "is the most comprehensive free trade deal ever entered into by India and will be the gold standard for our future engagements."

He will be vindicated only if ongoing trade negotiations with the Trump administration produce anything similar in India's closely watched efforts to win concessions from Washington. A doubling of India-UK trade to $120 billion in five years is a medium-term goal.

Going beyond geo-economics, PM Narendra Modi's hope is that the FTA "will further deepen our Comprehensive Strategic Partnership" with the UK. He needs it in the government's search for moorings in multi-polarity in a rapidly changing global order. Starmer, on the other hand, needs a bigger share of the Indian market for UK products. Indian negotiators will be guided in matching the objectives of the two leaders by the perception in New Delhi that the foundations of India-UK relations have changed. They firmly believe that the time has come when the UK needs India more than India needs the UK.

KP Nayar is a strategic analyst.