Bilateral economic relations between India and UK hold immense significance at this crucial juncture of global economic uncertainties vis-à-vis geopolitical developments. Signing of FTA between the two dynamic economies—India and UK would go a long way to multiply bilateral trade and investment trajectories. Strong complementarities between the two economies have potential to create immense employment opportunities, enhanced incomes, and improved living standards. Bilateral trade trajectory is expected to increase many fold with proper trade negotiations and efficiency inked give and take between the two economies.

India and the United Kingdom have emerged as significant players in the global trading system. Recently, both countries are striving to strengthen bilateral trade trajectories. The Growth prospects for trade and investments between the two countries are very compatible and sustainable, not only for the next few years but for the next many decades. Mr. Rishi Sunak, the newly appointed Prime Minister of the United Kingdom, has already expressed his readiness to strengthen the Comprehensive Strategic Partnership between the two countries. Both the nations recognize the criticality of reaching an early decision on a comprehensive and balanced FTA.

The partnership between the world's largest democracy, viz. India and the oldest democracy in the world, i.e. UK is characterized as oriented and accentuating. India has consistently worked to advance its relationship with the UK from being two just bilateral trading partners to close strategic allies. In recent years, both countries have sought to develop a framework of basic concepts including a wide range of products and investment areas in order to improve their cooperation.

Areas and opportunities- A significant amount of potential exists in fields like education and skill development, smart cities and technology collaboration, advanced manufacturing, and engineering, among others. India's enormous and highly qualified people capital is in perfect alignment with the UK's technological prowess, and UK companies are capable of providing India with the infrastructure it needs, particularly in the logistics and construction industries. India and the United Kingdom have a modern alliance that is rooted in significant historical ties. The partnership between the two dynamic economies is already vast due to their inherent strengths, with collaboration ranging from agriculture to space, and holds enormous potential to grow even further.

In July 2022, India and the United Kingdom (UK) completed the fifth round of free trade agreement (FTA) discussions to advance trade and investment relations. For this round of negotiations, technical experts from both sides met in 85 different sessions to debate detailed draft treaty text discussions covering 15 subject areas. In order to achieve the goal of wrapping up the majority of negotiations on a thorough and balanced Free Trade Agreement by the end of October 2022, Indian and UK officials continued to work intensively throughout the summer, even though India and the UK missed their Diwali deadline (October 24) for an FTA, as set by Prime Minister Boris Johnson. The proposed trade agreement has benefited from political support on both sides, but final discussions are stalled over matters related to immigration and the alcoholic beverage industry, among others.

Trade Dynamics- Economic relations between the two countries are dynamic as the society is evolving in consonance with the economic interests and perceptions of the people. India’s trade with the UK has expanded from USD 5 billion in 2001 to USD 17 billion in 2021. India’s exports to UK were around USD 10.4 billion, and imported from UK were USD 6.7 billion.

Source: PHD Research Bureau, PHDCCI, Compiled from Trade map Database.

Nearly 57% of all Indian exports to the UK are consumer goods. On the other hand, raw materials and consumer products account for roughly 31% of total UK imports. While India's market penetration in the UK has been steady, the UK's penetration rate has recently shown signs of a significant resurgence. Furthermore, India's exportable product basket remained extraordinarily varied, making Indian exporters significantly less exposed to fluctuation in a volatile trading environment. Due to recent provisions taken by India and the expansion of FDI in several sectors, it is projected that investments from the UK will soon begin to increase at a new rate.

As India-UK Free Trade Agreement (FTA) advances quickly, both countries should keep looking for methods to enhance their current trade relationship. Aside from developing the bilateral enhanced trade partnership (ETP), the deal should also remove market access restrictions to help promote the movement of products, services, capital, technology, and people between the two economies.

Investment Scenario between India and the UK – The UK is the sixth-largest investor in terms of FDI, with USD 32.18 billion flowing into India between April 2000 and June 2022. 5.4% of all FDI to India came from the UK. UK is the second-largest FDI source in India. In the UK, manufacturing receives the majority of investments, followed by financial, insurance, and business services, transportation, storage, and communication services, retail, and dining establishments, among others. According to the Department for International Trade's (DIT) data on inward investment for 2020–2021, Indian businesses established 99 FDI projects in the UK and added 4830 new employment. The entrepreneurial ecosystem in both countries can significantly be changed through collaboration in the business and investment sectors.

Potential benefits of India-UK FTA- The FTA with the UK is expected to provide openness, predictability, and clarity while also building a framework for services that is more conducive to competition on a bilateral level. The FTA, which solves market concerns and eliminates trade barriers on both sides, is expected to grow businesses and industries while boosting exports. The agreement will give UK exporters better access to the Indian market. ICT, financial services, food and beverage, fruits, automobiles and pharmaceutical companies would all benefit greatly from increased access to the UK market. This Free Trade Agreement will be crucial for India since it will increase the exports of industries like textiles, leather goods, and footwear, improving job prospects in India. The India-UK FTA will enhance the bilateral trade trajectory manifold.

To strengthen India's current trade trajectory, it is crucial at this point for both countries to move decisively and swiftly to finalize the bilateral agreement. To address bilateral trade concerns, and enhance trade and production opportunities in significant aspects like the production of food and beverages, renewable energy, engineering goods, pharmaceuticals, fashion design, skill development, among others. However, regular meetings and discussions between the two countries are required to create more and more awareness among the businesses. Furthermore, there is a need to address the pervasive issue of national regulatory organizations agreeing on common product standards and technical specifications. The FTA will lead to the realization of a mutually beneficial strategic economic cooperation.

Source: PHD Research Bureau, PHDCCI compiled from various sources.

To conclude, bilateral economic relations between India and UK hold immense significance at this crucial juncture of global economic uncertainties vis-à-vis recent geopolitical developments. The signing of the FTA between the two dynamic economies would go a long way to multiply the bilateral trade and investment trajectories. Strong complementarities between the two economies have the potential to create immense employment opportunities, enhanced incomes, and improved living standards. To promote sustainable engagement and improved trade and investment trajectories, both economies should exchange experiences and look into new opportunities. Cultural and educational cooperation should play an important role in further developing relations between the people and societies of India and the United Kingdom. The UK can operate as a catalyst for India's ambitious programs such as Digital India, Skill India, Make in India, startups, and other recent developmental projects. Given that global value chains are currently re-establishing with the growth-oriented and promising growth partners, a well-negotiated Free Trade Agreement (FTA) between India and the UK with effective give and take would go a long way to enhance and strengthen the bilateral trade and investment trajectory between the two countries.

(Dr. S.P. Sharma is Chief Economist & Director of Research • PHDCCI (PHD Chamber of Commerce and industry, India)

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