'To fully capitalise on FTA with UK, India must outperform Chinese exports'

India and the UK have finally inked a landmark Free Trade Agreement (FTA) after prolonged negotiations. The deal, formalised in London by Commerce Minister Piyush Goyal and his UK counterpart Jonathan Reynolds, is expected to boost bilateral trade by $35 billion annually.

But while the agreement opens up enormous market access, it also throws up critical challenges—ranging from labour standards and regulatory compliance to domestic competitiveness. Trade economist Biswajit Dhar breaks down the potential, pitfalls, and policy gaps in this wide-ranging conversation with The Federal.

What is the biggest takeaway for India from this FTA with the UK?

The biggest gain for India is that tariffs on almost 99% of our exports to the UK will now drop to zero, making them duty-free. This effectively covers almost the entire trade basket.

In the services sector, there’s a major benefit through the double contribution convention agreement, which exempts Indian workers and employees in the UK from social security contributions for the next three years.

This is the first major comprehensive economic and trade agreement India has signed with a P5 country. It sets the stage for similar engagements with the European Union and the United States. When large economies become trade partners, it opens up enormous opportunities for Indian businesses to expand globally.

With tariffs on Scotch whiskey and British cars coming down, how should Indian industries prepare for this influx?

This was anticipated. The liquor and automobile industries have had ample lead time to prepare. Talks around reducing whisky tariffs have been going on for years. As for automobiles, tariffs are expected to fall to 10%, although the final agreement text is still awaited.

If the UK pushes us to amend this law and strengthen patent protections, it could hurt our pharmaceutical sector. That would be a red flag.

Importantly, British car imports will be regulated using tariff rate quotas, so we won’t see an uncontrolled surge. But some concerns remain—particularly around regulatory standards like labour and environmental norms. A carbon tax is on the horizon in the UK, which will eventually impact Indian exports. We need to watch how it evolves sector-wise.

Labour standards are more pressing. The UK expects India to conform to International Labour Organization (ILO) standards, but India currently prefers a flexible labour market aligned with industry demands. Our export model—especially in labour-intensive sectors—relies on wage arbitrage. If we are to align with ILO norms, this low-wage model will be unsustainable.

What about intellectual property rights? Could this be a pain point?

Yes, that's another area of concern. Like the US and other developed countries, the UK prefers stronger IPR frameworks that favour innovators. But India’s Patents Act has built-in flexibilities to support the generic drug industry and keep medicine prices affordable.

If the UK pushes us to amend this law and strengthen patent protections, it could hurt our pharmaceutical sector. That would be a red flag.

Which Indian sectors are best placed to take advantage of duty-free access to the UK market?

Textiles, engineering, and electric vehicles are getting zero-duty access. But historically, Indian businesses haven’t capitalised well on such opportunities due to a lack of preparedness and poor competitiveness.

Most service sectors—except IT and IT-enabled services—also lack global competitiveness. Even in manufacturing, the Production Linked Incentive (PLI) scheme hasn’t delivered uniformly across all 14 targeted sectors. Electronics and mobile phones have seen some success, but that’s about it.

Unless we double down on improving competitiveness, this will turn into another missed opportunity, like in previous FTAs where we’ve ended up requesting reviews due to underperformance.

But the government argues that the PLI scheme has been a major success in electronics. Is that not a fair assessment?

Success in just one or two sectors out of 14 isn't enough. These sectors were handpicked because they face stiff competition from countries like China.

If we want better access to the British market, we must first outperform Chinese exports. So the goal now must be to ramp up our competitiveness—not just celebrate limited success.

Is agriculture part of this export strategy as well?

Yes, agriculture is also in the spotlight. But it's a struggling sector, long mired in crisis. To improve market access in agriculture, we need to upgrade product quality and meet food safety standards—another area governed by strict regulatory norms.

If we want better access to the British market, we must first outperform Chinese exports. So the goal now must be to ramp up our competitiveness—not just celebrate limited success.

So again, the burden is on us. The agreement is done; now the ball is in our court. The British economy is growing, and we must align ourselves to make the most of this opportunity.

India has been aggressively signing FTAs recently, but we walked away from the Regional Comprehensive Economic Partnership (RCEP). Can these bilateral deals match what we lost with RCEP?

India backed out of RCEP largely due to fears of Chinese competition, as well as concerns about Australian wheat and New Zealand dairy imports. The fear of overwhelming competition across multiple sectors held us back.

But now that we’ve taken this leap with the UK—a G7 economy—we must act swiftly to strengthen our domestic ecosystem. Incidentally, the UK’s own estimate suggests they will gain 60% more in goods and services trade from this FTA than India. That should push us to take this as a challenge and close the gap.

Why do you think these negotiations take so long? What holds us back?

The core issue is our deeply entrenched protectionist mindset. Despite over three decades of trade liberalization, we still hesitate to open up our markets. We prefer to stay behind tariff walls and exploit the domestic market. That mentality must change.

To compete globally, we need a strong partnership between the government and industry to enhance competitiveness across manufacturing, services, and agriculture. If smaller economies can succeed globally, why can’t India?

Our trade strategy also needs to shift from defensive to offensive. We should be demanding market access abroad—not just worrying about protecting our turf.

Does the FTA have provisions to boost foreign direct investment (FDI) into sectors like green tech or education?

Yes, this is certainly possible. But we need to walk the talk on ease of doing business. Entrepreneurs—Indian and foreign—often say that the cost of doing business here hasn’t come down.

Infrastructure, internet bandwidth, port modernization, and connectivity all need urgent improvement. Foreign investors come to make profits, not to develop India. So we must ensure that while they make money, we extract maximum domestic value—through world-class infrastructure and skilled manpower.

Services account for over half of India’s GDP. What does this FTA offer for sectors like IT, legal services, and BFSI?

We’ll have to study the detailed services schedules to assess market access. But the double contribution exemption on social security payments is already a big win for Indian professionals in the UK.

Ultimately, for Indian service exports to thrive, the UK economy itself needs to keep growing. A protectionist or stagnant UK economy won’t help our workforce.

How will this deal help Indian MSMEs and startups looking to expand into the UK?

MSMEs are crucial for exports, but they face persistent headwinds—especially in accessing credit and scaling up. While we expect a lot from them, we haven’t provided enough support.

Many MSMEs operate in labour-intensive sectors. The old model of low wages and cheap exports won’t fly in the UK anymore, especially with labour standards kicking in. So the only path forward is to make them more competitive through technological upgrades.

India’s innovation ecosystem needs a revamp. If we can strengthen it, MSMEs can reap huge benefits. That would be a win-win.

Post-Brexit, does this deal improve our access to the broader European market?

Yes, I believe an India-EU FTA isn’t far off now. In fact, the EU is more than ready—they would’ve signed it yesterday if they could. The UK has essentially borrowed the FTA template from the EU. We’ve been negotiating with the EU since 2007, so both deals will likely mirror each other.

Together, they will give us significant preferential access across the entire European market.

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