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UK-India Free Trade Agreement from an Anglo-Indian Perspective

Britain is facing a paradox. Should Britons fear to leave the single market and continue to trade only within the EU?

On the 23rd June 2016, I voted ‘remain’. The outcome was not what I, like many other Britons, had expected it to be. With respect, it may be contradicting but we must accept it!

Some of you might be familiar with my work on International Trade (click here to learn more) and my journey through India – an experience that has allowed me to find an alternative strategy for The Great British PLC.

Those people will know that, despite my scepticism of Brexit and my disapproval of the current counter-intuitive withdrawal approach, I still continue to view Brexit as the catalyst that will finally present an opportunity for The Great Britain PLC to grow its trade.

Colonial Legacy

You may argue that Britain’s colonial legacy has left a stain on our reputation amongst our commonwealths, which would make countries like India reluctant to trade with The United Kingdom.

You may also question why I – as an Anglo-Indian – would support such initiatives. The colonisation of India has had some major repercussions on my motherland in Punjab, dislodging my own family, as well as tens of millions of citizens who subsequently died from famine.

Yet, following the partition of India, most of the Indian Diaspora fled to Great Britain, including my grandparents.

My father explained that Britain provided them and their children with opportunities that India could not offer. These included compulsory education, universal healthcare and the reinforcement of sports, which are fundamentals to success in the eyes of many Non-Resident-Indians (NRI).

My answer to those questions is that I want to see the best for both my countries.

India is set to become a global super-power. Perhaps even the highest and the mightiest of all the great nations. But with respect, it cannot financially achieve such initiatives alone.

India’s Call for Help!

It must be as a result of marketing myopia that the West has not foreseen such an opportunity, whilst the East – Japan in particular – have already successfully sensed the market.

India is engaging in the ‘Make in India’ initiative, which seeks to modernise the nation into a hub for manufacturing – vehicles, electronic systems, and pharmaceuticals – as well as a hub for hydrocarbon and nuclear energy.

The key purpose of this initiative is not only to transform the country’s economy but also to generate new jobs. In a land of 1.3 billion inhabitants, managing unemployment can be a frightening task.

At the moment, the Agricultural (agro) Industry employs 49% of the nation – 502 million citizens – but only accounts for 14% of the economy. The Service Industry, on the other hand, employs 31% of the population and is responsible for 54% of the country’s GDP.

What I find even more daunting is that despite those statistics, India is currently developing satellite farming. In the future, this agricultural precision system will have a deep influence on the Indian economy and its labour force.

Imagine a robotic tractor monitoring soil by employing satellites and UAVs. As new and immediate data gets collected, it will advantage farmers in states like Haryana and Punjab by decreasing their operation costs and cultivating more products with fewer acres of land.

However, given that half of India’s citizens are employed by the agro-industry, this practice will gradually increase the country’s unemployment. In twenty years, India will see millions of semi-skilled people pursuing employment in alternative sectors, such as manufacturing.

The ‘Make in India’ initiative seeks to increase the manufacturing sector’s share of the economy from 16% to 25% by 2022. The government credits that this could create about 100 million new jobs.

The problem is that in order to become a manufacturing hub, the Indian government needs to invest about $1 trillion in modernising their railways, ports, roads, motorways, bridges and more.

This would mean an annual sum of $200 billion. The dilemma is that India’s current national budget stands at approximately $289 billion. In other words, the central government does not have enough money to modernise the infrastructure by itself.

This is India’s call for help: Indian Prime Minister Modi desire that most of the initiative be funded through Foreign Direct Investment (FDI). His mantra to the world is ‘First Develop India’.

In 2016, the country acquired a record-breaking $60 billion in FDI, with The UK being the third largest investor. Nonetheless, $60 billion is not sufficient enough to modernise India. Annually, India requires about $120 billion in FDI.

Britain’s Brexit Dilemma

After the Royal coat of arms of the United Kingdom has been unshackled and untamed by Eurocrats, Britain’s objectives are to re-enter the International stage, establishing its influence and cultivating its trade. Again, Britain cannot achieve those objectives alone, but only through collaboration.

To erode confidence in Britain’s capability to contest in the global markets, the government has an obligation to protect their industries, exporters and importers.

Britain needs enhanced relations to achieve such initiatives. Brexit grants the unique opportunity to increase exports and imports to countries that the EU had failed to partner with.

What this means is that we now have the opportunity to reconnect with our commonwealth. This market accounts for 2.3 billion citizens and 53 countries. The most important to consider is India, as it currently offers an important strategic advantage to the United Kingdom.

With a population of 1.3 billion people, India has a rapidly growing middle class, with a preference for goods and services designed in the West. The UK has a competitive advantage with its common law, historical links and an Indian Diaspora network that could help it gain tariff-free deals with no quota access.

‘Tariff-Free Deal with No Quota Access’ – What Does This Mean?

Given that the UK is able to seek trade agreements tailored to their interests following Brexit, the suitable approach would be to seek and negotiate Free Trade Agreements (FTA).

An FTA is an accord between two or more countries to establish a free trade area, where trade in goods and services can be conducted within their shared borders, without tariffs or interferences.

Establishing an FTA is a vital step when deciding to trade with a country. Indeed, once there is a free trade agreement, it makes it much easier for countries to exchange commerce respectively and work out compliant deals, by rethinking the following barriers:

a.  Reducing trade barriers helps industries to enter new markets, increase their scope and the sum of people they can sell their commodities to.

b.  Lessening trade blockades and forming a more secure and transparent trading and investment ecosystem generates an easier and cheaper method for companies to export their products and services to trading partners’ markets.

Agreements can be particularly problematic to negotiate and frequently call for laws in the two dissimilar jurisdictions in order to align a final contract.

The reason for this is that FTAs cover areas such as government procurement, intellectual property rights, and competition policy.

UK’s Trade Dilemma

It is vital to understand that, developing international integration with non-EU countries – in particular emerging markets – involves distinct challenges than those encountered within the EU.

European economies are fairly similar to the UK’s, in terms of education, labour costs, and environmental regulations, whereas India’s labour abundant economy isn’t.

There is a risk that Great Britain will have a reduced bargaining power with alternative trade partners, and therefore will have less influence to discuss an FTA with India – our long-term interest partner.

Great Initiative in India

An FTA between the United Kingdom and India would provide significant economic growth.

For the UK

a.  Our consumers would benefit from new selections of consumer goods; our workforce would benefit from India’s growing sectors, and the decrease of trade barriers and non-tariff-barriers would allow us to gain access to the moderately rapid-growing markets in India and South Asia.

For India

b.  Indian citizens would benefit from better compensations and jobs; the nation would gain better access to the EU market and to the technological spin-offs from services, trade and investment – especially from more FDI inflows, which are presently stalled by no transparent custom measures and a lack of Intellectual Property Right enforcement.

UK’s Impact in India

This is not the first time that the UK is entering the Indian market. We are only seeking to further our presence responsibly.

Great Britain has been contributing towards the economic and employment growth of India for decades.

At the moment, about 530 UK businesses such as BP, Vodafone, G4S, JCB, GlaxoSmithKline and Unilever together with numerous SMEs, employ almost 700,000 citizens in India, producing about $54 billion revenue annually.

When Will the UK See the Light?

I will maintain that there is a catch in the negotiation stage between the UK and India. My advice, and what I have heard from my Indian counterparts is that:

  • The British cabinet needs to agree on FTA agendas (so no in-fighting).
  • The UK needs to consider GTA Mode 4 reforms, which will be immensely beneficial to India’s labour force. This is one aspect the UK should be interested in. There must be more relaxation on the movements of people (mode 4), to overcome shortages of high knowledge experts in engineering, ICT, and medicals in the UK.
  • Our areas of interest should include India’s domestic priorities (i.e. Make in India, Clean India (SB), Skill India and Smart Cities).
  • And I would like to suggest that The UK and India should commit to a top-down approach: not facilitate between embassies, but only with high representatives.

What Will The Trade Look Like?

Let me make the assumption that the trade talks have begun between the UK and India. I can see ‘The UK-India Trade Accord’ going down the following route:

  1. Consumer-Focused Products – There is a pint-size trade in foods, drinks, beauty products, and FMCG. When in India you will find youthful, ambitious consumer class with attachment to British brands.
  2. Make in India – A manufacturing sector that offers considerable opportunity for UK-India innovation.
  3. Healthcare – India is seeking to roll-out universal healthcare. (We can utilise our NHS expertise, by sending over Indian Diaspora expertise).
  4. Services – The EU currently accounts for 60% of the UK’s import of commercial services. These services will survive if substituted by India at more modest rates.

I would suggest that the following industries are the most reasonable and socially responsible. They will permit the UK and India to tap into many different sectors within those. Once companies have established their presence in those sectors, both countries will begin to receive mutual benefits – i.e. employment, GDP growth – but with no sin-stocks involved.

Fear-not UK, we could benefit from Brexit by going to prosperous countries like India (and other commonwealths), where we will gain more than what the EU has to offer.

About Pardeep Ghuman

Profile photo of Pardeep Ghuman
Pardeep is an Anglo-Indian Marketer / International Trade Adviser specialising in enhancing Post-Brexit UK-INDIA Trade Relations.

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