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At a time when so little international business is face to face because of the pandemic, the UK is flying ministers to India to lay the groundwork for a deal on free trade.
In a sign of the importance that the UK attaches to reaching what is being described as an 鈥渆nhanced trade partnership鈥� with India on the back of Brexit, the international trade secretary, Liz Truss, Piyush Goyal, the Indian commerce and industry minister.
It is a British wide charm offensive with the subcontinent that already saw Foreign Secretary Dominic Raab in December. So what is at stake and what are the chances of success?
India is already the UK鈥檚 non-EU trading partner after the US, China, Japan, Switzerland and Norway, and the relationship now supports UK jobs.
, bilateral trade in goods and services between the two countries were respectively worth US$15.7 billion and US$18.9 billion (拢11.5 billion and 拢13.8 billion), and becoming increasingly important. The UK鈥檚 services exports to India have grown at 7% a year between 2013 and 2018, and yet India a trade surplus with the UK. The UK is also the second largest investor in India.
Meanwhile, India is the in the UK after the US. India 120 projects and created 5,429 new jobs in the UK in 2018-19. Indian companies in the UK turn over an excess of 拢40 billion. Steel to car-making giant Tata is easily the largest, but other major Indian employers, such as Firstsource (contact centres), Tenon (facilities management), HCL (IT services) and TVS (logistics).
The UK鈥檚 need for a deal
When Dominic Raab visited India before the turn of the year, it of a ten-year road map towards upgrading the nations鈥� into a new 鈥渃omprehensive strategic partnership鈥� involving closer military ties, cooperation in the Indo-Pacific region, and measures to counter terrorism and fight climate change.
Prime Minister Boris Johnson was due to visit the subcontinent in January, but postponed until the spring to deal with the latest wave of the Covid-19 crisis. His counterpart Narendra Modi is to attend the G7 summit in Cornwall, south-west England in June, and there is no question that the economic realities of the pandemic and changed geopolitical priorities following Brexit provide an incentive for both sides to negotiate a fast-track trade deal.
For the UK, this reiterates the government鈥檚 鈥溾�� strategy of in Asia Pacific 鈥� in line with the to join the . A trade deal with India is an opportunity to foster post-Brexit and post-Covid-19 recovery, giving British businesses greater access to a market of 1.3 billion people when the prospects for global growth after the pandemic still remain uncertain.
UK companies already have a growing market share in India in several sectors, including despite high tariffs and other trade restrictions. Notably, India is the third largest market for Scotch whisky, for instance.
The business potential has also just been enhanced by the fact that on February 1, the Indian national budget raised the maximum stake that foreign investors can take from 49% to 74%, while also offering new opportunities in .
India and free trade
From India鈥檚 perspective, a deal would reduce its reliance on trade with China at a time of between the two countries, while helping to maintain its global geopolitical weight. In particular, it would reiterate India鈥檚 commitment to free trade after the decision in 2019 to to join the Regional Comprehensive Economic Partnership (RCEP), Asia鈥檚 other major trade bloc. India decided it had more to lose than gain by joining the China-led bloc, whose members also include Japan and South Korea.
And of course, a deal would also ease the pain of from the pandemic.
Meanwhile, the fact that the UK and India are both primarily services exporters potentially makes them a good fit, not to mention their common language.
India is likely to demand liberal access for skilled professionals and students as part of the negotiations, while the UK will want enhanced access to India鈥檚 financial and professional business services market, including insurance and technology. Other sectors likely to be the subject of negotiations might include renewable energy, IT, life sciences and healthcare.
Given India鈥檚 recent scepticism to the benefits of free trade, a decision may ultimately come down to whether the post-Covid-19 economic realities convince the Modi government that a deal is a necessity. The UK might be more likely to succeed if it pushes for negotiations that focus on individual sectors rather than a full-bilateral deal. This might offer some low-hanging fruit that eases the two sides into closer integration for an enhanced trade partnership in the fullness of time.
, Professor of Economics,
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