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The Tiger who came to Trade? The UK, India and the ETP

By SEC Newgate team
16 February 2021

By Ciaran Gill

Trade team member Ciaran Gill sets out how the UK is deepening its relationship with India to further its global trade ambitions and looks at the likelihood of the UK striking an FTA with the South Asian country further down the line

At a time when much of the world’s business has migrated to the virtual space – complete with cat filters and the memetic questioning of political authority – the recent five-day visit to India conducted by the Secretary of State for International Trade Liz Truss MP harked back to a period when an influencer could fly to Dubai without having to excessively proclaim that it was a business trip.

The minister’s in-person visit to the vast South Asian nation illustrated the importance that the UK is placing on strengthening trade ties with the world’s most populous democracy and building upon a trade relationship that was worth £23 billion to the UK in 2019. Brexit, the Government has said, has provided the UK with the chance to embrace the opportunities that are found beyond Europe and forge a new ‘Global Britain’ identity moulded by the dynamics of modern geopolitics. Striking a trade deal with India, the world’s sixth largest economy with a population of over 1.3 billion people, would enable the UK to add substance to this nascent vision.

Upon conclusion of the India visit, a joint statement was issued by the International Trade Secretary and India's Minister for Commerce and Industry Shri Piyush Goyal which confirmed that our two countries are forming an Enhanced Trade Partnership (ETP). Essentially an agreement to deepen discussion of trade matters, the ETP paves the way for a potential Free Trade Agreement (FTA) further down the line.

A desire to diversify its trade connections is underpinning the UK’s attempt to secure an FTA with India. On the part of New Delhi, meanwhile, liberalising trade with the UK would help reduce its reliance on China (a country separated from India by a disputed border zone) and help it compete with nearby states such as Vietnam and Bangladesh which are acquiring a greater foothold in the global economy (the former being a member of the Asia-Pacific trade pact CPTPP).

Vietnam’s 2019 trade deal with the EU, for instance, reduced tariffs on Vietnamese textiles to zero, leaving India at a substantial disadvantage given that its textile exports to the bloc can attract tariffs of up to 14%.

Who benefits?

A UK-India FTA would benefit companies in both countries operating in hi-tech industries such as life sciences and technology. Indeed, on her visit to India, International Trade Secretary Liz Truss said the two countries would be “collaborating much more closely in the industries of tomorrow like science, tech and green growth”.

Opportunities for UK companies are plentiful in areas such as renewable energy. Last year, the Indian Prime Minister Narendra Modi set India a goal of installing 450GW of renewables capacity by 2030, up from the 86.3GW of capacity that was in place at the end of January 2020.

Further opportunities for UK firms may be found in the area of food and drink. Although the most recent Food and Drink Federation data showed that spirits, for instance, is the fasted growing category of UK food and drink exports to India, Scotch whisky currently attracts a tariff of 150% from the Indian Federal Government.

What are the chances?

Companies from Bengaluru to Birmingham may be eyeing up new chances for growth but how likely is it that India and UK will actually agree a comprehensive FTA?

After India bowed out of negotiations for the 15-country Regional Comprehensive Economic Partnership trade agreement in November 2020, its Minister for External Affairs Subrahmanyam Jaishankar gave an indication of the ambivalence that much of India and its Government has towards trade agreements in general. “The effect of past trade agreements”, he said, “has been to de-industrialise some sectors. The consequences of future ones would lock us into global commitments, many of them not to our advantage”.

Furthermore, Indian farmers’ ongoing protests across the country over their Government’s agricultural reforms may result in New Delhi adopting a particularly cautious approach to future trade negotiations with the UK. After what has been a chastening few months for the Indian Government, political calculation renders it unlikely that ministers would strike a trade deal which would do anything to make relations with large groups, such as farmers, worse.

The issue of immigration presents another hurdle to the conclusion of an FTA as in any negotiation, India is likely to request that the UK liberalise its immigration rules to benefit Indian professionals and students. How this would impact the UK’s new points-based immigration system remains to be seen.

The International Trade Secretary’s visit to India also led to the confirmation that the Prime Minister Boris Johnson will be visiting India in spring. Johnson, in turn, has invited Indian Prime Minister Narendra Modi as a guest to the G7 conference in Cornwall in June. Yesterday (15th February), meanwhile, COP26 President Alok Sharma arrived in New Delhi for two days of climate discussions with Indian leaders in another demonstration that the Government is deepening ties with the South Asian country.

2021, therefore, will present multiple opportunities to announce any further deepening of the UK-India trade relationship but significant complexities remain to be addressed.