Six months ago, Cavendish hosted a webinar on UK-India trade and defining our strategic partnership following the May 2021 agreement by Boris Johnson and Narendra Modi on an Enhanced Trade Partnership (ETP) and launch of 2030 Roadmap – and I published a post on the bumpy and bureaucratic road from special to strategic.
Last week, the International Trade Secretary, Anne-Marie Trevelyan made her first trip to India – where she formally launched negotiations for a free trade agreement (FTA) with her Indian counterpart, Piyush Goyal.
Alongside this, the Department for International Trade published its strategic approach and scoping assessment when it comes to a UK/India FTA. Negotiating rounds began this week and will take place approximately every five weeks.
This week’s announcement and the prospect of a UK/India FTA has been received positively and welcomed by business groups in both countries – as well as the British-Indian diaspora.
I am sure there will be lots of hurdles along the way, but here are 5 key things we need to know and should be considering as the UK and India begin a process that has the potential to bring huge dividends for both countries:
1. The UK is hedging its post-Brexit success on the Indo-Pacific
As the world’s sixth largest economy, that is set to be the third largest by 2030, a population bigger than the EU and US combined, and a growing middle class – India is hugely important to the UK. Additionally, with a large Indian diaspora in the UK, which is increasingly trending Conservative, it is no surprise that the UK Government wants to prioritise India.
But it really is the UK’s recent pivot towards the Indo-Pacific as a whole where half the world live that we should be taking notice of. Why? An EU deal is already secured, and the US has said a firm no to a UK FTA.
The UK is clear that an India deal compliments any potential agreement with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which the UK has formally requested accession to and hope to secure membership of by the end of this year.
In addition to India, expect to see more commentary on the CPTPP and visits to member countries.
2. Despite the speed of this launch, securing a deal still won’t be easy
One thing that has surprised many commentators is the speed of the trade negotiation launch. Last week’s announcement came without delay and regular negotiating rounds have already begun.
However, as I said in my previous blog, negotiating a trade deal will not be easy. The Indian Government has a reputation of being a tough negotiator, and the establishment is far too often sceptical of foreign investment and the free market. On alcohol, for example, many argue that foreign brands are already dominating the Indian market, and that any tariff reduction will squeeze Indian products out because they are subject to multiple regulatory agencies and increased compliance costs.
And when it comes to free trade deals, the Indian Government has traditionally been as unenthusiastic as it can be, pulling out of the Regional Comprehensive Economic Partnership of 15 Asia-Pacific nations in 2019 – and they have not signed a new trade deal in over six years.
Both countries have expressed an openness to an interim (or “harvest”) agreement to be completed by Easter, and possibly include tariff liberalisation on 60-65% of traded goods. This is welcome, but ultimately both countries will need to work hard on securing a final deal which will have a much larger scope.
3. India wants more visas – and the UK should compromise on this
Much of the India media commentary has been focused on visas and New Delhi is unlikely to make any compromises on tariffs unless the UK removes arbitrary visa requirements on Indian citizens.
A willingness to adopt a more progressive stance on visa access for Indians will go a long way and will lead to India giving ground on whisky, cars, and renewables – and appreciating concerns about immigration, the UK should absolutely compromise on this. It is difficult for Indian citizens to get a UK visa without jumping through hoops. The UK should consider extending the youth mobility scheme even further, cutting visa fees and allowing Indian students to stay in the UK for longer after they graduate. Visas on arrival in certain circumstances could also be considered.
4. It’s not just Scotch Whisky that will benefit
A lot of coverage is on Scotch Whisky and the need to slash the 150% duty on whisky exports, boosting British distilleries and the alcohol sector – but a deal goes beyond this and has the potential to boost sectors and regions across the UK.
DIT modelling suggests that an FTA could boost UK GDP by around £3.3 billion in 2035. Trade between the UK and India already totals around £23 billion a year – and potential trade with India could increase by £14 billion (an increase of between 40% and 79%).
With India planning to install 175 GW of renewable energy capacity by 2022 and more in the decades ahead, the UK industry looks set to benefit if the 15% import tariff on wind turbine parts is slashed.
A deal also contributes to our levelling up agenda. Around 30,000 people in the West Midlands were employed via Indian investment in 2019, and the Department for International Trade suggests the region could see a boost of £300m with opportunities for manufacturers of motor vehicles and parts if the 125% tariff becomes history.
5. A deal sets us apart from the US/EU and puts India in the fast lane towards more free trade
The EU will be disappointed that they didn’t pursue negotiations with India in a more aggressive manner. Back in 2007, the launched trade talks, but suspended them in 2013, accusing India of a lack of ambition and following disagreements over tariff rules for car parts and free-movement rights for professionals.
The Biden administration may too regret their remarks last summer to India that it is not interested in an FTA.
A swift deal between the UK showcases India as an ambitious partner that is open for business. They are beginning to push for more FTAs with countries and regional blocs, setting an ambitious export target of $450-$500 billion in 2022 vs 2021. Deals with the UAE, Israel and Bangladesh are on the cards, and a ‘harvest deal’ with Australia looks close to agreement. India has also said they would like to begin trade talks with Canada this spring.