India-UK Trade Deal: Past Makes Future?Tense

Free trade cannot be a one-way street. The biggest risk to the shared objective of expanding trade for growth is not in the technical issues but from random rhetoric emanating from the chaos of politics in the UK.

By Shankkar Aiyar | Published: 09th October 2022 07:25 AM |

Suella Braverman, the Home Secretary of the United Kingdom, achieved her Andy Warhol moment. She acquired 15 minutes of fame unveiling a parade of shibboleths at a conference of the Tory party this week. Braverman said she obsessed, dreamed of a flight full of refugees being sent to Rwanda.

She didn’t stop at that. In her aspiration to appease the parish of the prejudiced, she went further and declared she has “reservations” about Britain’s trade deal with India as an open borders migration policy is not “what people voted for with Brexit.” Her peeve is that “the largest group of people who overstay are Indian migrants.” The Indian High Commission refuted the claim with a terse “India has initiated action on all cases raised”.

In that Warhol moment, Braverman has put at peril the India-UK Free Trade Agreement. It’s a deal UK Prime Minister Liz Truss and Trade Secretary Kemi Badenoch have been scrambling to clinch by Diwali. Typically of the post-Brexit milieu, Braverman is obviously not alone in harbouring illusions about Britain and its ability to define the contours of what constitutes free in a negotiated deal.

Facts allow a greater appreciation of this gap in cognition. The discussions on the India-UK FTA were initiated sometime in August 2021. The approach paper put out by the UK Government arguing for the FTA in January 2022 states, “The UK and India are the world’s 6th and 5th largest economies, respectively.” The rankings are now reversed. In the past few months, India has overtaken the UK to be the fifth-largest economy.

The UK economy is in shambles. The large and unfunded fiscal package caused turmoil in the financial markets, traumatised pension funds, and pushed the debt-to-GDP ratio to 101 per cent. The growth plan has earned the sobriquet of “inept madness” from politicos, triggered a rebuke from the IMF and a downgrade from stable to negative by rating agencies Standard & Poor’s and Fitch. In the past weeks, His Majesty’s Pound has been pounded to a dollar and ten cents and the currency is forecast to slide to be on parity with the US Dollar.

The reality for Britain is lodged in the lament “True is it that we have seen better days” from ‘As You Like It’. The European Union accounts for around 40 per cent of the UK’s exports, and 45 per cent of its imports and Brexit is yet stalled at the gates. Despite the “special relationship’ the vaunted FTA with the United States is not visible on the horizon. With the current account deficit hovering around 8 per cent, access to the markets of the fastest-growing economy is critical.

The 92-page approach paper makes a robust case for the FTA, which opens up access for UK businesses in the tech domain, financial services, including insurance, specialised education and for exports of goods ranging from automobiles to whisky.?

Indeed, the House of Lords International Agreements Committee in the UK observed, “The potential economic benefits to the UK of a trade deal with India are higher compared to other post-Brexit agreements (with Australia, New Zealand and Japan) concluded to date.”

For India, the UK market arrives with the advantage of diaspora connect affording an opportunity to grow its exports in labour-intensive sectors such as textiles as also for expanding the footprint of the IT services companies. At a macro level the FTAs trigger the imperative for prospective planning for an economy expected to double in GDP in the decade.

That said, the economic potential is being stalled by classic pulpit politics. The report of the House of Lords International Agreements Committee is replete with sermonising text. It observes, “India has a notoriously difficult business environment — corruption levels are high, business permits are difficult to obtain, tax and customs processes are complex, levels of contract enforcement are low, and IP protections are limited.” It also points out that the UK Government “has not been specific about the importance it will give to human, environmental and other rights and protections, nor (in most cases) about its red lines.”

There is no disputing the challenges of operating in India. For sure, India will need to overcome political resistance to reform land, labour and contract laws, unclog regulatory cholesterol, invest in infrastructure, and enable ease of business with plug-and-play systems for investing companies. The UK, on its part, will have to move beyond misplaced notions and enable the design of relaxed mobility rules, visa-free business travel and consistent and simplified routes for highly skilled workers.

India does need to expand trade for growth, but free trade cannot be a one-way street. The very construct of a free trade agreement demands negotiated give and take located on agreed milestones. The biggest risk to the shared objective is not in the technical issues but in the random rhetoric emanating from the chaos of politics in the UK.

It is up to the people of the UK and its government whether it wants to seize the moment or be a prisoner of the past. India and the world are moving on.

Shankkar Aiyar, political economy analyst, is author of ‘Accidental India’, ‘Aadhaar: A Biometric History of India’s 12-Digit Revolution’ and ‘The Gated Republic –India’s Public Policy Failures and Private Solutions’. You can email him at [email protected] and follow him on Twitter @ShankkarAiyar. His previous columns can be found here. This column was first published here.