The £1bn India trade boost is hardly a game-changer for UK plc | International trade

Closer Anglo-Indian economic cooperation makes sense, so it is not hard to see why Downing Street has trumpeted up to £1bn of new trade and investment deals with India, ahead of Boris Johnson’s virtual meeting on Tuesday with Narendra Modi, his Indian counterpart.

There are four big reasons why the UK wants to boost trade with the world’s second most populous country: the historic links between the two countries ought to make a deal easier; India’s large and well-educated middle class provides a potentially lucrative market; the desire to pivot away from China makes the need for an alternative partner in Asia more pressing; and the realisation that there is plenty of scope for improvement.

The last point is significant. Lord Karan Bilimoria, the CBI president, said the enhanced trade partnership would “usher in a new era of UK-India relations” and demonstrated to the world the “strength of our relationship”.

Yet, given that one in six of the world’s population lives in India, it is surprising how modest the trade flows are in either direction.

At the moment, the UK conducts £23bn of trade – exports plus imports – with India every year, supporting more than half a million jobs across the two countries. Of the total trade flows, figures compiled by the House of Commons library show Britain exported almost £8bn of goods and services to India in 2019 – just over 1% of the global total.

India was the UK’s 19th biggest export market, just below Singapore, Sweden and Saudi Arabia, and exports actually fell slightly in 2019. By contrast, exports were up strongly to China, which came sixth in the league table at £30bn. In comparison, UK exports to the EU totalled £293m.

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The government unveiled 19 deals involving Indian companies investing in the UK and creating thousands of jobs, alongside 20 export deals struck by British businesses in India.

They range from big technology firms to healthcare companies – and an Indian takeaway and meal kit business based in west London. Not all the deals announced are new: Cambridge-based CMR Surgical started exporting its keyhole surgery robotics to India two years ago, although it hopes to make a further £200m installing its tech at more Indian hospitals over the coming years. Overall, the deals are expected to create 6,500 jobs in Britain and contain more than £533m of new Indian investment into the UK.

Another investment comes from the Serum Institute of India, the world’s biggest vaccine manufacturer, which has pledged to pour £240m into its UK vaccine business, including creating a new sales office here. The office is expected to generate new business worth more than £720m .

As a result, an extra £1bn (a 4% increase), barely moves the dial and underlies the importance of a more comprehensive trade deal.

Ruth Gregory, UK economist at the consultancy Capital Economics, said: “The government’s announcement of an extra £1bn of UK-India trade investment and the ambition to begin work towards a comprehensive free trade agreement is welcome news. But it is unlikely to be a game-changer for the UK economy as a whole.”

Gregory said trade deals did no harm and for companies importing and exporting to India the agreement would certainly matter. This just may not provide a very big boost to the UK economy, given the benefits may only be felt over many years.

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According to Shanker Singham, trade fellow at the free market Institute for Economic Affairs thinktank, it’s relatively easy to see what the two countries would want out of an agreement. For Britain, the wins would be improved access for finance and legal services firms, together with lower duties on Scotch whisky. India would like London to make it easier for Indians to work in the UK and increased access for agricultural products.

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While such a deal would have benefits to both countries, striking one will be far from simple. India is a relatively closed economy with a long history of protectionism and a record for being one of the emerging economies most wary about opening up its market in World Trade Organization talks. Proposed trade agreements between India and the EU, Australia and New Zealand over the past decade have all stalled.

While calling the acceleration of trade talks “excellent news”, Singham said a particular problem could be India’s recent actions against the property rights of foreign investors.

The UK is clearly keen to improve links with India. It welcomes the increased inward investment from software companies such as Mastek Technology, which has had a presence in Britain for 28 years and helped with the implementation of London’s congestion charge.

Even so, Boris Johnson knows what Modi expects from a deal. A Downing Street briefing paper noted that “mobility” will be India’s big ask and a “sensitive issue”. The UK government therefore has a choice: it can have a big bang trade deal with India or it can have tough immigration controls that make it hard for Indians to work in Britain. On this occasion, the prime minister won’t be able to have his cake and eat it.

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