Finally a FTA?
India and the UK’s talks to create a free trade agreement (FTA) have accelerated this week. These talks have been ongoing for two years (are in their 14th round) and began in Boris Johnson's tenure as PM. This comes as India signed a trade agreement with Norway, Switzerland, Iceland, and Liechtenstein worth £77.8 Billion signalling India may be more open to further trade liberalization with other nations. The Government expects the deal to boost annual trade between the two nations by £28Bn by 2035. FTA
India's economy - Baby Elephant India is regarded as one of "the world's most protectionist states" yet still receives huge amounts of FDI due to the availability of skilled labour and growing ease of doing business. The largest contributor to FDI inflows in 2023 was the US stock of FDI at $103 Billion dollars in FY23 according to the RBI directed mainly to production facilities and capacity. It seems India's ambition is to become the new manufacturing mammoth of the world and taking China's spot is clearly endorsed by the US. Recently the Indian IT minister stated that India would soon begin to produce semiconductor technology and Foxconn continues to ramp up its investment in India potentially highlighting the shift away from China.
Recent news: Toys R us will begin manufacturing in India by mid 2024. Vinfast to build EV plant in Tamil Nadu. Saab starts building new factory in India. It is not only US firms flocking to India but globally India's potential is being realised. Tariffs and import duties in India have two main roles:
1) Increase local government incomes and curb inflation
2) Encourage domestic demand and support local industry
Despite this flurry in manufacturing activity, India very much remains a mixed economy with the service sector accounting for over 50% GDP. The UK remains a service driven economy with the service industry accounting for over 82% of employment and 80% of output. UK exports to India (Q3 2022- Q3 2023) = £14.9 Billion - 8.6 Bn (58%) = services UK imports from India (Q3 2022 - Q3 2023) = £23.2 Billion - 14.6 Bn (63%) = services = £38.1 Billion UK exports to India (Q3 2022- Q3 2023) = £14.9 Billion - 8.6 Bn (58%) = services UK imports from India (Q3 2022 - Q3 2023) = £23.2 Billion - 14.6 Bn (63%) = services = £38.1 Billion A good deal? A mutually beneficial deal would mean import/tariff cuts on UK exports especially on food/beverage products like cheese, whiskey and vehicles so British firms have better access and renewed competitiveness in one of the world’s largest markets. Late last year, India signalled it would reduce tariffs on EV's to encourage more FDI, its believed that this policy was primarily tailored for Tesla despite denial from the government. India expects better visa conditions and migration policy for professionals/students as well as removal of custom duty for certain products such as textiles and processed rice.
Election Cycle
The election period is due to begin in India with a general election expected between April and May. There are also calls for a general election in Britain amidst dwindling faith in the current government.
The BJP (RW) is expected to sweep the Indian election with the Congress Party coming 2nd, In the UK the race is slightly tighter but Labour is expected to win hence why the hastiness of the current Conservative government to reach a deal and showcase to voters how capable they are. Both countries seem to be dealing with worsening socio-political issues.
India - Farmers PROTESTS, rising marginalisation of Sikhs, Muslims and also violence against Christians in Manipur
- India enacted a citizenship law which excludes Muslims but no other faith groups fleeing persecution from gaining fast track citizenship.
- Pro- independence Sikh "Khalistan" activists globally fear being assassinated as the list of assassinations grows.
- Farmers continue to protest for legislation introducing minimum crop prices amidst Twitter and internet blackouts.
Casteism still remains an issue in India with huge gaps in treatment of lower caste workers and denying them jobs
U K- Rising levels of Antisemitism, Islamophobia and Racism
- UK antisemitism levels are at their highest in 40 years with record amounts of hate incidents reported since the period marking the beginning of the Israel-Hamas conflict. The government have announced a £70Mn pound package to combat the rising levels of hate.
- The UK government recently announced a package of £117Mn to supposedly protect mosques/Muslim schools, this comes in light of George Galloways Rochdale by-election victory which is being described as swayed by the "Muslim Vote” Galloway’s main campaign pledge seems to be demanding a ceasefire in the Middle East. Similarly controversial statements from former Conservative and now Reform party MP Lee Anderson describing Sadiq Khan as "being controlled by Islamists" further highlight the growing Islamophobic sentiment.
- Earlier this week reports about racist comments made by a key Conservative donor emerged. Frank Hester reportedly stated that MP Diana Abbott should be shot and that she made "you hate all black women". He has donated over £10Mn to the Conservative Party so there’s no surprise that Tory MPs are practically playing down the incident. At the same time this is fuel for the Labour party campaign
Final Thoughts
A trade agreement between these two leading economies is almost definitely more beneficial for the UK than it would India due to the sheer size and opportunity the Indian market represents for British Firms and is expected to boost the UK’s GDP by an estimated $3.3Bn but even as ease of doing business grows in India levels of corruption remain high and IP protection remains restricted.
One of India’s main demands in this deal is a more relaxed approach to migration, currently a very dominant theme in British Politics and for policymakers, it’ll be interesting to see how the UK government plays this out. Elections usually exacerbate social problems and racial tensions; in the UK it seems as if politicians are politicizing and simultaneously polarizing groups ahead of the speculative election. However, in India such marginalization seems to be more deeply rooted in society as well as in government, rising levels of intolerance and nationalism appear to be endorsed by the BJP.
As India’s manufacturing power grows it will be interesting to observe Sino-Indian relationships as India also vies for semi-conductor foundry alongside being the new recipient of redirected FDI that would have once gone to China despite both nations being BRICS members. Will the US be able to maintain control of its “baby elephant” ally before it gets too big and starts trampling over US interests in the global south and starts aligning itself more closely with BRICS.