India – UK FTA

The FTA presents an enormous opportunity for these two close geopolitical allies - one that builds on a profitable relationship. India is already a large market for UK goods and services and the UK is a major destination for both Indian talent and investment.

I’m now in what I call my second innings in the UK. I haven’t lived here since 2001 but I am thrilled to be back at a time where both countries want to sign a landmark agreement. I know from my work the complexity of working between India and the UK, and so I’m eagerly awaiting the signing of a Free Trade Agreement (FTA).

The big questions are, when will the FTA happen, and why hasn’t it happened yet?

Removing barriers to markets

India is a more closed economy than the UK, with high tariffs on imports of products and services. An FTA with India will reduce tariffs across everything from British cars to Scotch whiskey.

Thus, from a UK standpoint the FTA is largely about access to the Indian market. Many British companies are excited about the deal, those in liquor, gaming, and education to name just three. And there are companies like Jaguar Land Rover which already have Indian owners (Tata) that will see massive benefits as their custom duties will go down.

In addition to the challenge of lowering tariffs designed to protect local industries, a major sticking point from India’s standpoint is the source of origin. Without proper safeguards you could manufacture a car in Germany, import it to the UK and then export it to India. You want to make sure the benefit goes to the country that’s adding value, without the UK becoming a low-tariff platform for the rest of the world. For businesses that are truly British from the ground up, where the primary value add happens here, the research, development and production happen here. Those businesses will benefit massively.

Talent mobility

India produces about a million graduates every year. In the past, most of those graduates would leave India and permanently emigrate to other countries. The likes of Satya Nadella and Sundar Pichai, heads of Alphabet and Microsoft respectively, show how well India’s graduates have done abroad. However, India doesn’t want to keep losing its workforce. It wants the talent to go out, be exposed to new ways of working, and then come back because the growth is in India.

There is a balance that needs to be created for both countries. Any business that benefits from mobility of staff will profit from greater reciprocity in terms of movement of accountants, lawyers etc. The UK must be careful to find the right balance on migration within the deal, something that has been a continual stumbling block in negotiations.

As India continues to grow, I see the traffic increasing both ways. I look forward to seeing more British talent benefit from the additional mobility that an FTA would bring.

Inbound investment and geopolitics

India is the second largest Foreign Direct Investor (FDI) in the UK, but the UK is the 16th largest FDI into India. Although there are large British companies like JCB and GSK active in India, mid- to large-cap companies are still not fully exposed to the Indian market and Prime Minister Modi wants to change that.

India has been growing at over six and a half percent for two decades now. I believe predictions that it will be the third largest economy by 2030 and the second largest by 2047. That growth can be financed in three ways: government spending, domestic savings, and institutional investment.

Indian government spending and domestic savings are already being addressed. The fiscal deficit is under control and Indians have traditionally been strong savers. The FTA makes India a more attractive investment prospect for the UK, not just for companies, but also institutional investors like pension funds, which will provide long-term capital.

The geopolitical angle concerns China. India needs to be seen as a country that gives access to its allies. Thanks to the China plus one (C+1) policy, organisations are diversifying some of their manufacturing to other territories. India through the FTA would provide greater access to its market, creating a jurisdiction for people to invest long-term capital so they can set up factories, research centres and the like in India. As British companies look to move some of their manufacturing out of China this would directly benefit both nations.

The countdown to 2024

I think progress over perfection is the mantra. Agreements can be re-examined, but they must be signed first. India and the UK have general elections next year (2024) and Prime Ministers Rishi Sunak and Narendra Modi would both see the FTA as a big win. Signing it sends a strong message to those businesses I regularly work with who are waiting on the sidelines, eager to get started.

Success or failure of the FTA boils down to how important this is to both Sunak and Modi. I have a very strong sense that it will happen. There are just one or two items left to negotiate, and at some point, you have to say, “let’s get on with it!”.

The only caveat, if it’s going to happen, it must do so before Christmas. If we get to 2024 everyone will be in election mode in both countries and the focus will be somewhere else. Let’s hope both countries have a huge opportunity to celebrate as we head into 2024.

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