The post-Brexit trade deal between the European Union and the UK could pave the way for the much-awaited trade deal between the latter and India. This will however happen only if the Modi government, which has gone into a deep political funk over free trade agreements, shows some heart.
Prime Minister Narendra Modi’s invitation to his UK counterpart Boris Johnson as the chief guest for the Republic Day (26 January) could be the perfect occasion for both sides to start some preliminary discussions for a trade deal, as the UK has prioritised Australia and New Zealand over India for signing free-trade deals. So, New Delhi, in the coming weeks, will be waiting and watching for overtures from London.
The Boris Johnson government has been keen on a free trade agreement with India. Formal talks on such a pact can only begin after 31 December, but some talks on exploring ‘building blocks’ have begun. Information and communications technology (ICT) and services, food and drink, life sciences and chemicals are among five sectors identified as key areas for closer cooperation in trade arrangements to address non-tariff barriers.
A study carried out by the Commonwealth Secretariat has found that a well-negotiated bilateral trade deal between the UK and India has the potential to increase bilateral trade by 26 per cent. The UK is India’s 14th largest trade partner with more than $14 billion two-way trade. India has a $2 billion trade surplus with the UK.
According to officials, British ministers have emphasised to Indian interlocutors that the country would not become protectionist, but more open after leaving the EU. But the UK’s eagerness for an FTA with India has been met with a wait-and-watch approach in New Delhi, where a review of FTAs with various countries is being envisaged to protect the interests of Indian industry and traders.
In the long-stalled EU-India free trade talks, easier mobility of Indian professionals (the so-called Mode 4) is one of the key areas New Delhi has been insisting on. Brussels believes that there will be better chances of reaching the agreement with India after Britain leaves the EU.
Pro-FTA groups believe that India may emerge as a net gainer from the Brexit trade deal as services exports from Asia’s third-largest economy are likely to benefit from the curbs on the free movement of professionals between the two markets. According to the Brexit trade and security deal, UK nationals will no longer have unrestricted freedom to work, study, start a business or live in the EU and vice versa, although both sides will have tariff-free and quota-free access to each other’s market.
“So far as goods are concerned, there is no change,” says Ajay Sahai, director-general, Federation of Indian Export Organisations. “It may sound selfish, but had there been a Brexit without a deal, India would have got better market access in some sectors. The current situation is also good because Indian exporters who were catering to the EU and UK markets will not have the challenge of meeting different standards and registrations for the markets".
Favourable impact
The gains for India are, however, more likely in the services sector because bilateral services trade between the UK and EU is substantial. “In sectors such as IT, R&D, architecture and financial services, we may gain in both the markets but particularly in the UK,” Sahai adds. “For example, in the IT sector, India’s competitor in the EU, particularly in the lower segment of services, is Poland. Now, because Poland will have restrictions on the free movement of professionals, that may be to the advantage of India".
However, Indian companies which have based their headquarters either in the UK or the EU to serve both the markets may face some challenges due to restrictions on the movement of professionals. Jayant Krishna, group CEO, UK India Business Council, says his organisation had conducted a survey of large and small UK-based firms to evaluate the impact of Brexit on their business ties with India. “One-hundred per cent of them said Brexit would either cause their businesses in India to grow or have no impact. For the majority (69 per cent), it will have no impact. For 31 per cent, Brexit has caused their companies to plan to do more business with India, which is highly encouraging. Overall, Brexit would certainly have a favourable impact on the business footprint of UK firms in India," Krishna adds