Brexit futures: Huge opportunities possible from trade deal with India

First of an occasional series looks at international prospects for prosperity thanks to Brexit

Montage © Facts4EU.Org 2022

As the post-Brexit era opens up for the UK we shall be taking an occasional look at some of the opportunities that are there for the taking if the UK Government and the British people apply their talents to deliver change. Today, with the help of former MEP David Campbell Bannerman, who takes a special interest in India, we are looking at what a Free Trade Agreement (FTA) with India might mean for both countries.

A UK-India Free Trade Agreement will be an important step in achieving the Government’s aim of establishing FTAs covering 80% of UK trade by the end of 2022. According to the IMF's figures for 2021, India is now the World's 6th-largest economy, just behind the UK at No.5. France now trails in 7th place. At current growth rates India is expected to overtake the UK this year.

The Indian population

India has successfully reduced absolute poverty from 21.6% in 2011 to 13.4% in 2015. India’s middle class is also growing fast – it is half the EU’s population and is set to overtake the United States in terms of expenditure before 2030 to become the second-largest middle-class market in the world; one suitable for more luxurious British brands.

Britain’s population of 67 million compares to India’s 1.37 billion, but India’s is significantly younger: with only 6.6% of the population aged 65 or older in contrast to 19% for the UK and 9.3% for the world as a whole.

The current trade landscape

Trade grew from 2011 to 2019, but mainly in UK imports, with goods and services received from India up by 51% from £9.8 billion to £14.8 billion whilst UK exports increased only 3% from £8.2 billion to £8.5 billion.

Already, the UK and India are among the top investors in each other’s economies, bringing long-term benefits to both. Think of Indian owned Jaguar Land Rover and Tetley Tea (Tata), Cobra beer (Lord Bilimoria), Norton Motorcycles (TVS), and the conversion of the old War Office in Whitehall (gazed down upon by James Bond in Skyfall) into luxury hotel and apartments (the Hindujas). FTAs always benefit Foreign Direct Investment (FDI) too, following on from closer relations.

The UK exports more in goods (54%) than services (46%) to India currently – in marked contrast to services exports to the USA and EU for example, where the ratio is reversed with greater emphasis on services – suggesting the export of services to India has huge potential. UK investment into India reached £15.3bn in 2019, whereas Indian Foreign Direct Investment into UK increased to £11.6bn between 2017 and 2018.

A note by the UK’s Department for International Trade has stated, “[India’s] growing middle-class is expected to spend more on services (such as healthcare and education); seek premium offerings and new product categories (such as organic food); and have consumption preferences significantly driven by digital connectedness – trends that are likely to benefit UK businesses.”

The challenges and opportunities that India presents

India is very protectionist. The UK’s average import tariffs on Indian goods is around 4.2%; but India’s is 14.6% on UK goods, so there is much opportunity to balance out tariffs or cut to zero per cent. India has substantial, even eye watering, tariffs on luxury goods – up to 150% on luxury cars and 150% on Scotch whisky. In attempting to negotiate an FTA with the EU, India feared the larger German car and mechanical equipment manufacturers – but sees the UK as less of a threat – and, helpfully, Jaguar Land Rover is Indian owned.

The UK offers great expertise in energy equipment for example and mechanical machinery is a big UK export now – JCB is a great success story for UK and India. In defence, with the common threat of China building a massive military, India and the UK could be natural partners in developing common warships, military aircraft, tanks and troop vehicles.

As well as luxury goods the UK is also well placed to offer services, the markets for both being likely to grow alongside India’s middle class. FTAs can help break down barriers to trade such as excessive bureaucracy – some of which we gifted to India, but which India has often gold plated with over-the-top licensing and technical requirements. Business services, especially legal, insurance, accounting and management consulting services could be a natural for the UK and the City of London, especially as India and the UK share the same common law legal basis.

What can the UK offer?

Indians are very exercised at tariffs and quotas on Basmati Rice, which could easily be lifted, reducing costs for our favourite curry restaurants and supermarkets. Mango imports became a cause celebre under ill-thought-through EU barriers – so tariffs could be eased. Textiles and clothing could see cuts to EU-style tariffs, reducing costs to consumers. Again, there are many proud Indian owners of textile mills in the UK who could benefit using lower textile costs in India. These bonds can be built upon.

The UK could allow Indian students – who are genuinely studying – to stay on and work after graduating at our universities. Britain is losing many major future entrepreneurs and billionaires to Silicon Valley – with reports that 40% of Silicon Valley is now run by Indian entrepreneurs. This could benefit the UK’s growing Tech industries (reported by Facts4EU last week). The aim would be manageable numbers, especially through post-Brexit controls and high wage visas, and offering real long-term benefit to our universities and economy.

A Mutual Recognition Agreement on professional services, such as for doctors, architects, midwives and nurses might be a possibility, as in the UK’s Canadian, Australian and New Zealand agreements. India and the UK already share far more common training standards than it had through the EU with, say, Romania or Bulgaria.

[Sources: Interview with David Campbell Bannerman | IMF GDP figures ] Politicians and journalists can contact us for details, as ever.

Brexit Facts4EU.Org, Monday, 24 January, 2022

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