An agreement with India could be the biggest post-Brexit deal for the UK
An advantageous UK-India bilateral free-trade agreement (FTA) and closer cooperation in the Indo-Pacific region, will help close a billion dollar deal and work as a bulwark against a rising China.
Britain’s international trade secretary Liz Truss arrived in New Delhi for talks with commerce and industry minister Piyush Goyal this week and to work out further details around a proposed Enhanced Trade Partnership between India and the UK.
UK Prime Minister Boris Johnson, who had to cancel his visit to India last month due to the emergency COVID situation here, is keen to firm up a £100 billion UK-India trade deal. The reason being, forging closer ties with India has both economic and political advantages, especially with a rising and aggressive China in the Indo Pacific region.
With the UK forging a new post-Brexit trading relationship with the world and India establishing itself as a major global player, especially in manufacturing, this can be a win-win partnership. India and the UK are already working together on the production of a COVID-19 vaccine. India’s Serum Institute will produce over a billion doses of the COVID-19 vaccine developed by Oxford University and AstraZeneca to be distributed across the world via the global Covax initiative. This is a classic example of how British R&D and Indian (low cost) production expertise can not only be a good business solution but also a force for global good.
India will become the world’s third largest economy by 2030, according to the Centre for Economics and Business Research (CEBR). Huge domestic population with a rapidly growing middle class is an attractive proposition for any international company.
Combined manufacturing prowess
The UK and India are also among the top manufacturing countries in the world with a combined manufacturing output of more than US$ 500 billion. The UK’s expertise in advanced manufacturing and its well-developed innovation programmes alongside the scale and ambitions of India’s manufacturing sector present an opportunity for both countries. Greater collaboration – especially in R&D, digitisation, developing new platforms and technologies can help increase bilateral trade and investment. The UK’s advanced manufacturing can also provide the underpinning technology to deliver solutions to the challenges faced by India, including access to renewable energy and food security. Defence also remains a sector where both countries are open to forging deeper ties.
According to the Society for Motor Manufacturers and Traders (SMMT), over the past decade, the total number of UK-built cars exported to India has increased twelvefold, despite high import duties. India is already a major market for British-built parts, for which future sales are expected to grow by as much as 15 per cent a year to 2022. Moreover, an increasingly digitised automotive sector offers more opportunities to collaborate with partners abroad to exchange skills and expertise.
Supply chain alternative
India also offers a compelling alternate to China for supply chain purposes. In October 2020, five international electronics manufacturing applications from companies such as Foxconn, Wistron, Pegatron, Samsung and Rising Star were approved by the Government of India to set up production worth US$122.5 billion over the next five years. The manufacturing sector of India has the potential to reach US$ 1 trillion by 2025.
Meanwhile, the UK remains a favoured destination for Indian businesses.
India is the second largest FDI investor in the UK. And despite Brexit uncertainty, the number of Indian companies doing business in Britain increased from 800 in 2018 to 842 in 2019. They also created 110,793 jobs in 2020, over 6,000 more than 2019.
Since 2016, Indian companies have also raised $15 billion in masala, dollar and green bonds on the London Stock Exchange, and New Delhi is aware of London’s position as the leading global financial centre and destination for long-term institutional investment.
A favoured destination for Indian businesses
From Tata to Wipro, Indian businesses view the UK as a favoured manufacturing market. British brands are also very popular with Indians – from Rolls Royce to Marks & Spencer.
Indian industrialist Anand Mahindra is investing in the revival of the BSA which will start with the production of traditional internal combustion (IC) version this year in the UK, to be followed by an electric BSA. The planned factory will create 100 jobs.
UK-India bilateral trade has increased steadily in the years since 2000. It was worth £24 billion in 2019. In order to speed things up with the goal of nailing a FTA in the future, both countries need to remove additional barriers, including the existing barrier on several British exports to India and supporting Indian and British legal professionals looking to work in each other’s countries.
Luckily many of the sticking issues which held up a Indo-EU FTA such as duties on dairy products, European agricultural produce, and automobiles do not affect the India-UK relations. We are seeing commendable progress already: the UK’s new Global Tariff (UKGT) schedule serves as a ‘building block’ towards an increasingly open trade partnership and could boost trade flows by reducing tariffs on Indian exports by up to £40m per year.
Some points of contention are Britain’s desire to have a larger access to India’s financial market. UK’s Lloyds’ had started a reinsurance office in Mumbai some years ago, expected to eventually turn into an insurance trading hub. The UK also wants India to scale down its steep duty on imported wines and spirits in order to allow Scotch Whiskey makers to sell more to a market which has already become their third largest.
India, meanwhile, is looking for easier movement of professionals between the two countries. Immigration remains a sticking point. The UK’s new point-based immigration system and Graduate Immigration Route (which will make it easier for Indians to come to work and study in the UK) is a step in the right direction. A speedy, efficient and transparent customs approvals, competitive taxation and support for digital manufacturing will work towards firming up a preferred trade deal. An advantageous UK-India bilateral free-trade agreement (FTA) and closer cooperation in the Indo-Pacific region, which will help close both a billion dollar deal and work as a bulwark against a rising China.
Neeraj Kanwar is London based Vice Chairman and MD of Apollo Tyres, a multi-billion dollar international manufacturer with operations in Europe, India and the US.