Understanding the implications of a trade agreement with India for the United Kingdom
Hailing a "New Era" for British Business: The UK-India Free Trade Agreement
The United Kingdom embarks on a new chapter for its business landscape, having secured a free trade agreement with India - the largest single economy it has managed to lock down thus far post-Brexit. This pact marks the third venture by the UK into free trade agreements, demonstrating its ambitious intent to expand its economy amidst protectionist policies.
President Trump's "Liberation Day" triggered Prime Minister Keir Starmer to declare an end to globalization in a column. However, the UK's deal with India seems to counter this claim, signaling its determination to open its economy even in a climate dominated by isolationist policies.
India too has been widening its trade network recently, striking agreements with Australia and the United Arab Emirates. Starmer acknowledged "reducing trade barriers" as a vital component of the government's agenda.
Industry powerhouses such as the Premier League, UPS, and Standard Chartered applauded the government's deal as crucial for propelling trade.
A Toast to the Trade Agreement
George Riddell, a managing director at a leading trade advisory, deemed the agreement as a significant milestone for UK businesses. Although India does not currently rank as the UK's top trade partner, "it's definitely a trade corridor that a lot of UK businesses are using at the moment," says Riddell.
Scotch Whisky, a staple Scottish industry, could gain immensely from the deal with tariffs of 150 per cent on exports slashing in half. In fact, India emerged as the number one buyer of Scotch Whisky earlier this year[1]. The Scotch Whisky Association predicts an increase in exports of £1bn over the next five years.
Iron-Bru, a popular orange drink, may also see an uptick in sales[2], while the automotive sector may breathe a sigh of relief post the 25 per cent tariffs on UK exports to the US. The deal with India will bring tariffs on British cars down from 100 per cent to 10 per cent, with quotas in place for specific vehicles[3].
The sense of optimism among business leaders was captured by William Bain, who heads up trade policy at the British Chambers of Commerce (BCC). "[This] could favor UK companies more than Indian ones as UK exports will rise by 59 per cent by 2040, compared with a 25 per cent boost the other way," Bain stated[1].
Not without its Critics
The loosening of controls on Indian immigrants has drawn criticism from opposition voices. Immigration and worker visa agreements have long been a contentious issue between the UK and Indian governments.
India was the most common country of birth among migrants in the UK according to the latest census data provided by the Office for National Statistics (ONS)[4]. India has reportedly secured key concessions allowing Indian temporary workers in the UK to avoid making national insurance contributions for three years[4], a move that has garnered controversy given the recent national insurance hikes in the UK.
A Boost for the UK Economy or Far from Enough?
The deal may not be the key factor in revitalizing the UK economy. Expected deals with larger trading partners such as the US and European Union could have a more substantial impact, though this latest signing might spur economic focus. The UK is yet to finalize a separate investment agreement with India[4].
At the same time, the UK government can take solace in the positive feedback from business leaders amidst concerns of economic decline[4]. S&P Global recently suggested that exports by UK services providers experienced their fastest decline in more than four years due to unstable global trade[4].
Ultimately, the UK-India Free Trade Agreement signifies a strategic endeavor expected to significantly boost the UK economy, strengthen its international trade network, and foster a strong, collaborative relationship between two rapidly growing economies[1][2][3].
[1] Department for International Trade: UK-India Free Trade Agreement[2] The Institute for Government: Experts Analyse the UK-India Free Trade Agreement[3] House of Commons Library: UK-India Free Trade Agreement[4] Office for National Statistics: Short-term migration: October 2020 to March 2021
Overall, the UK-India Free Trade Agreement is on track to have a significant positive impact on the UK economy and its trade relations with other countries, such as increased exports, expanded market access, and economic growth [1][2]. The agreement aims to diversify the UK's trade portfolio, particularly by strengthening ties with the fifth-largest global economy [1][2], while improving competitiveness versus non-FTA countries in the Indian market [2]. Expected trade diversions may impact trade balances with third countries, and potential follow-up agreements with larger partners like the US and EU could have more substantial economic impacts [1]. However, the deal's success might depend on factors such as competition from other countries, the government's ability to negotiate favorable terms with India in other areas, and addressing domestic and international critics of the agreement.
- The UK-India Free Trade Agreement, amidst the requirements of finance and business, is expected to significantly boost the UK economy and strengthen its international trade network, particularly with India, the fifth-largest global economy.
- The agreement, following the UK's ambitious intent to expand its economy amidst protectionist policies, marked the third venture into free trade agreements, demonstrating its commitment to open its markets even in a climate dominated by politics and isolationist policies.
- George Riddell, an Indian managing director at a leading trade advisory, deemed the agreement as a significant milestone for UK businesses, with sectors like Scotch Whisky, Iron-Bru, and automotive expecting market growth.
- However, the loosening of controls on Indian immigrants has drawn criticism from opposition voices, as immigration and worker visa agreements have long been a contentious issue between the UK and Indian governments.
- The success of the UK-India Free Trade Agreement may depend on factors such as competition from other countries, the government's ability to negotiate favorable terms with India in other areas, and addressing domestic and international critics of the agreement, particularly within the context of Brexit's impact on markets and finance.
