Voices on Inclusive Trade

The future of UK-India trade and development – part two

Published on 30 April 2021

Amrita Saha

Research Fellow

Ingo Borchert

UK Trade Policy Observatory

Mattia Di Ubaldo

UK Trade Policy Observatory

As the Covid-19 crisis continues across India, the pandemic has highlighted a new dimension to the UK-India partnership, particularly in health and vaccine supply and distribution.  And despite the UK Prime Minister’s intended trip to India being cancelled due to the second wave of Covid-19, the two countries’ ‘Enhanced Trade Partnership’ (ETP) remains at the centre of attention as a roadmap to a potential Free Trade Agreement (FTA). But the road towards a UK-India FTA will not be straightforward.

In this, the second of two blogs (first here) on the distinct bilateral characteristics that set the UK-India negotiations apart from the usual trade talks, we examine the strong business-to-business links, important geopolitical factors including vaccine supplies, and the potential for development gains.

UK-India business-to-business linkages

The fact that India exports nearly as much services to the UK as merchandise goods, is facilitated in part by strong investment links. Further, India’s rapidly expanding demand in sectors such as financial services will be of central interests to UK businesses. Indeed, there are significant business relationships between the countries. Business-to-business and business-to-government relations have been facilitated over the years by extensive policy and advocacy efforts across sectors, backed by a huge Indian diaspora in the UK, and through strategic advisory businesses and non-profit organisations, such as the UK India Business Council, British Chambers of Commerce and Confederation of Indian Industry among others.

However, there are certain issues. First, domestic commercial interests in both countries need to better correspond with the ambitions for an FTA; and, while there is much promise, there has been scepticism, as India lamented the lack of flexibility from the UK on movement restrictions, though the recent easing of visa rules is seen as a stepping stone towards progress.

Second, while UK companies are cautious of recent barriers to bidding for tenders, and there are worries about trade protectionism, many suppliers also built on the prospect to expand their business with a local presence in India. Finally, while the opportunity to negotiate an FTA with the UK is promising, insofar as the UK is the final destination for Indian goods and services, many Indian companies that had their base in the UK for wider EU operations may face significant trade barriers arising from the UK-EU Trade and Cooperation Agreement. These new frictions could deter Indian investors from undertaking new export-platform FDI in the UK or induce current investors to downsize their operations.

UK-India Enhanced Trade Partnership: Quick wins

The ETP aims to land initial gains on tariffs, trade in goods and services, and investments. Several of both countries’ trade objectives are complementary, particularly in finance, and especially in healthcare and pharmaceuticals, where India is a leading global player. On the UK side, immediate targets include cutting tariffs on products such as whisky and automobiles. For India, the demand for lower movement restrictions to the UK remains underlined.

There is also a mutual interest in easing certain non-tariff barriers like stringent quality standards that have been stumbling blocks in EU-India negotiations. In the past, the lengthy process of securing business permits and the absence of GDPR equivalent law in India were sticking points for the UK. On the other side, Indian businesses in the UK were constrained by the impact of visas on workforce hiring and mobility, difficulties with the registration of new pharmaceutical companies, and food standards such as restriction on food with dairy content.

The geopolitics of a UK-India trade agreement

The Covid-19 pandemic has added new dimensions to the UK-India partnership, with the urgent need to expand healthcare provision. This has in fact become a key area of collaboration between the two countries: the UK committed 548 million pounds to the COVAX Advance Market Commitment, with the Serum Institute of India as one of the main suppliers.  At the same time, the bilateral partnership has been questioned – as while the UK has pledged to donate its surplus Covid-19 vaccine doses to help vaccinate the world, and India has already supplied doses to other countries, there are still several valid concerns of massive inequality in global vaccine allocation. And the recent surge in coronavirus cases in India is very likely to affect global vaccine supplies.

Further, with the recently announced cuts in UK overseas development assistance, and the underlined priority to trade goals, the UK could continue complimenting south-south trade and development goals, through its commitment to triangular cooperation. For instance, the UK has been a key partner in India’s growing participation in triangular cooperation, through initiatives such as ‘Supporting Indian Trade and investment for Africa’. And such partnerships could also help address some of the global impact from the current health crisis.

Additionally, the UK has requested to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), whereas India had rejected joining the Regional Comprehensive Economic Partnership (RCEP) as well as the CPTTP. As CPTPP members are still interested in an Indian accession,  a successful UK-India partnership has been hailed as a positive signal for India to join in.

Prioritising development goals for UK-India trade

A long history of collaboration on development has been a core part of the wider UK-India relationship towards sharing knowledge and expertise, supporting innovation, and building capacity and skills to promote prosperity and combat poverty. UK companies created more than 400K jobs in India since 2000, and India is the second-highest investor in the UK, with 120 new projects, creating 5,429 jobs in 2019-2020. For example, Tata Consultancy Services (TCS), India’s largest IT services firm servicing the life insurance and pensions industry, announced that it will recruit 1,500 technology employees across the UK.

An important development is the UK-India Tech Partnership agreed in 2018, aimed to identify and pair businesses, venture capital, universities and others to provide access routes to markets for British and Indian entrepreneurs and small and medium enterprises. Recently, grants have been announced under a new Innovation Challenge Fund as “Tech Clusters” to drive innovation-led inclusive growth.

Yet, as with any trade agreement, there will be winners and losers from expanding bilateral trade between UK and India. Hence, it will be critical to further trade while identifying and protecting displaced workers, and with priorities such as technology and innovation, skill-building, and contribution to poverty alleviation.

In summary, with ongoing global economic challenges, the complementarities between the UK and India present a compelling case for tackling some of these challenges through a stronger partnership. Examining these aspects, our three-year project Unlocking the Potential for Future India-UK Trade and Development, aims to understand the key factors that stimulate or hamper trade relations between the UK and India through analysis at various levels.  It will especially examine the transition from the GSP to an FTA and the dynamism for services trade, but also on the likely effects on development outcomes – skills, jobs, and poverty, focusing on mutually beneficial partnerships for effective development. With much potential at stake for both countries by securing an FTA, we will continue to monitor and analyse the situation during the many months of negotiations ahead.

This blog is part of our blog series ‘Voices on Inclusive Trade’. Other blogs in this series: 

For more on inclusive trade and development, Watch our Inclusive Trade event series

The views expressed in this opinion piece are those of the author/s and do not necessarily reflect the views or policies of IDS.

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