India is demanding an exemption from the UK’s planned carbon tax as part of negotiations aiming to finalise a free trade deal before the UK election.
India’s negotiating team have spent this week in London in a surprise set of talks to try to overcome the remaining hurdles to an agreement.
Rishi Sunak is eager to get the trade deal over the line and had hoped to clinch it last month.
India has used the limited time Sunak has left before a general election as a bargaining chip. A UK government official said Indian negotiators were “saying they have five years to plan ahead, this government has five months”.
The talks are taking place while India’s six-week general election campaign gets under way from Friday. Opinion polls in India suggest Narendra Modi’s Bharatiya Janata party will win for the third time running. UK polling, meanwhile, suggests Sunak’s Conservative party is on course for a defeat.
India’s commerce minister said on Monday that there were “very few pending issues” and that a deal was close to being finalised.
The UK government official, who has been briefed on progress in the talks, said India was asking to be exempted from the UK’s planned carbon border adjustment mechanism (CBAM) on the basis that it is a developing country.
India had raised concerns about the application of a CBAM – a planned tax on the import of carbon-intensive goods such as steel, glass and fertiliser – at an earlier stage in the talks. The tax would affect Indian steelmakers looking to export to the UK.
Any decision to exempt India from a carbon tax would be controversial. The plans are designed to reduce emissions and support UK steel producers by levelling the playing field with countries that have a lower or no carbon levy.
The discussions this week continue the 14th formal round of negotiations between the UK and India. The round was declared closed last month before India’s election campaign, but a second UK government official said it was kept open at India’s request.
The discussions this week, which involve India’s chief trade negotiator, have been kept under wraps in the UK but made it into the Indian press.
India has also been asking for more concessions on visas for Indian workers and a social security agreement, both longstanding issues in the negotiations. The talks in London are due to conclude on Friday but may continue remotely next week.
Before the talks on Monday, India’s commerce secretary, Sunil Barthwal, told the media: “A team is going to the UK this week. There are very few pending issues left in the negotiation. A couple of key priority issues to seal the deal are being ironed out to have a balanced outcome.”
India is a notoriously tough negotiator on trade. Last month its government signed a £79bn trade deal with the European Free Trade Association – a bloc made up of Norway, Switzerland, Iceland and Liechtenstein – 16 years after talks began.
The UK and India launched trade negotiations in January 2022 while Boris Johnson was prime minister. Johnson said he wanted the deal to be “done by Diwali” in October 2022, but that deadline has been overshot by 18 months.
A Department for Business and Trade spokesperson said: “The UK and India continue to work towards an ambitious trade deal that works for both countries. While we don’t comment on the details of live negotiations, there are no plans to change our immigration policy to achieve this free trade agreement. The business and trade Secretary has always been clear she will only sign a deal that is fair, balanced and ultimately in the best interests of the British people and the economy.”
