The other two – with Oman and with the European Free Trade Association (a four-nation bloc comprising Iceland, Liechtenstein, Norway and Switzerland) – are also important but perhaps not as significant as the British trade deal.

All three are however considered vital as they would help position Indian manufacturers within the global supply and trading chains as these three countries process finished products for a wider global market.

Hectic negotiations with a high-level British team is expected this month to settle niggling issues such as India’s demand for easier movement of high-skilled workers necessary to boost its service sector exports and Briain’s desire to see steeper duty cuts on Scottish whiskey, high-end passenger cars, electric vehicles and easier entry of its financial firms including insurance. More than half the chapters being discussed have been successfully negotiated and the January talks are crucial to concluding the deal.

Top officials said that while India is reviewing earlier FTA deals with Asean, Sri Lanka and Japan to better understand how to restructure negotiations, there is a need to push exports as these have been stagnating for some time. “We cannot continue to blame Covid and the global crisis for a lacklustre foreign trade effort,” one of the officials said.

India’s overall trade during the first seven months of this fiscal between April and November 2023 stood at US$ 499 billion, marginally lower than US$ 506 billion during the same time last year. The service sector – had a better showing, notching up US$220 billion this year against US$ 206 billion in 2022.

“Naturally besides trying to work out favourable openings for our manufacturing sector including traditional areas like textiles where we have lost our edge compared to countries like Bangladesh and Vietnam, a lot of our efforts are directed at giving our services sector – IT and IT-enabled services – an edge in exports. We need to consolidate there,” said a top commerce ministry official.

“We need to position ourselves in the high value-added export merchandise – engineering goods, automobiles, high-end textiles, branded gold jewellery sectors for instance - and for that we need favourable import tax regimes to be negotiated while doing these FTAs,” said Anil Johri, an independent merchant banker specialising in export credit.

India and the UK have an annual bilateral trade of about US$ 48.74 billion, with India enjoying about US$ 8 billion as trade surplus. Analysts estimate that this overall trade could be ratcheted up to US$ 75 billion within a few years in case a trade pact could bring down barriers on both sides.

The UK, a US$ 3.1 trillion economy, is globally regarded as a financial and service sector powerhouse with the city of London being recognised as a top rated banking, financing and insurance marketplace.

Currently, a little more than half the exports from both the countries to the other is accounted for by services and naturally both nations want to promote that even as merchandise trade is opened up.

Sticking Points

At one time in 2000-2001, UK’s share in India’s total trade was nearly 6 per cent, it has declined since then to less than 2 per cent. Both sides complain of non-tariff and tariff barriers as sticking points.

“That is where we have sticking points. Britain is sensitive about an easier visa regime, our companies who want to ship IT and other experts on temporary work visas want to push that. Britain also wants duties cut drastically on some goods like whiskey. The give-and-take will mean tough negotiations,” said Prof Biswajit Dhar, former head of the Centre for WTO Studies at the Indian Institute of Foreign Trade and member of several Indian delegations at trade negotiations.

“Tariff reductions on key products, issues related digital trade and free flow of data, government purchases and labour and environment standards etc., remain sticking points which have to be sorted out,” said Dhar.

A British diplomat in New Delhi who has been involved in the negotiations pointed out that average tariffs faced by UK exports to India were nearly 15 per cent, while Indian exports faced an average of just 3 per cent with 60 per cent of Indian merchandise exported going in duty-free to the UK.

However, with political backing for the deal from both British Prime Minister Rishi Sunak and India’s Prime Minister’s Office, officials expect a “win-win deal to come through, possibly this year itself.”

Officials said a comprehensive economic partnership agreement with Oman would be easier to work out as “trade barriers in Oman were few and far between.”

India’s exports to Oman in the financial year 2021-2022 stood at US$ 3.148 billion, while imports from the sultanate stood at US$ 6.840 billion.

The agreement being worked on could help Indian exports such as refined fuel, iron and steel products, electronics, engineering goods, textiles, plastics, meat products and automobiles, said officials. Oman currently has duties ranging from 0-100 per cent, with nearly 80 per cent of its imports coming in the low single digit taxation rates.

The deal with EFTA countries will however be a complex one just as the Indo-UK free trade agreement (FTA) and many sticking points are still to be worked out. “They too have sensitivities about movement of people plus a need to protect some domestic sectors,” pointed out Johri.

In the year 2022, the total India-EFTA merchandise trade was over US$ 6.1 billion. This can be pushed to US$ 10 billion rapidly if a deal is clinched, said officials.

India, on its part, needs to clinch a few major trade deals after it junked a deal – the Regional Comprehensive Economic Partnership (RCEP) – with the world's largest trading bloc in Asia, including China, Indonesia, Japan, and South Korea. The RCEP was signed three-and-a-half years back and has the potential to create a global supply chain network that favours South East and East Asia, bypassing India.