Brexit done, time to put UK-India ties on new footing

Recalibration of trade & strategic relations must be priority

Business

January 11, 2021

/ By / New Delhi

Brexit done, time to put UK-India ties on new footing

European Union loss of the UK could be India’s gain given the two countries’ historic relations

After four years of cliffhanging uncertainty, UK has finally exited the European Union, with an agreement. Now is the time for India and the UK to review bilateral ties and lay a strong foundation for bilateral trade and strategic relations on a new footing.

At the stroke of the midnight on December 31, 2020, the United Kingdom left the EU single market and the Customs Union after 47 years of membership of the European Union. While this was a cause of celebration for some, it was a sombre moment for many others not only in the UK but also in the EU member countries. With this divorce, nearly five decades of the association came to an end and now Britain is trying to chart its own trade and business policies outside Europe. It has already signed a few trade deals with nations like Turkey and the UK Prime Minister Boris Johnson has been keen on a deal with two key partner nations, the United States and India.

While the deal with the US now has to wait for the incoming administration of President-elect Joe Biden to settle down in the office, in this respect, it is natural that Britain’s “first choice and the first option” is India and vice-versa as well. As the UK is a permanent member of the United Nations, India-Britain relations is much more than business, it is strategic and India has a lot of stake in enhancing its relations with Britain.

Britain is facing an unprecedented crisis due to Covid-19 and its new variant which is creating havoc in the country and its economy. Even as the UK began preparations for a life outside the EU, this health pandemic has unsettled every aspect of life. The balance sheets of government and private sector lie in shambles and their plans for recovery in constant need of updating as the country, and the world lurches from one crisis to another during the pandemic.

Since the Brexit referendum in 2016, successive British leaders have highlighted the urgency and importance of reaching a trade deal with India and several attempts have been made to initiate negotiations for a free trade agreement. This was expected to finally get off the ground later this month during Johnson’s visit to India as Chief Guest during the Republic Day celebrations. Unfortunately, however, the visit has been called off due to the alarming situation of the new variant of coronavirus in the UK.

Despite the setback, which is essentially temporary, Britain has to focus on reaching a bilateral trade agreement with India, providing a real boost to the sluggish UK-India trade ties. For India, too, the deal would be crucial even as it struggles in reaching a similar pact with the EU, which has been pending for well over 14 years now. Britain needs to exploit its links with India to become its preferred partner in business and other fields before the latter turns its attentions elsewhere. Britain has been a big recipient of investment from India. Such private ties matter a lot and may prove more resilient than deals struck for diplomatic gain. As India liberalises its FDI rules and more economic reforms on the anvil, India is also becoming an attractive destination for UK investments.

European Union loss of the UK could be India’s gain given the two countries’ historic relations. UK-India relations which have been ‘imprisoned by past’ for too long now ought to become more dynamic with a big fillip to trade and economic relations. In this new scenario, both nations need to focus on current shared interests such as global trade and finance, counter-terrorism and energy security, rather than harking back to negative legacies of the coloniser and the colonised. As India becomes increasingly powerful on the world stage, the UK will need to position itself carefully to ensure that both countries are partners in progress.

Beyond economic and military parameters, residual strengths continue to provide areas of sustained strategic convergence and co-dependence. Core economic values maintain their relevance, particularly in the post-Brexit era. These linkages underpin dialogues on sustainable development and climate change and forging collaborative policies in international negotiations.

The relationship between India and UK has undergone a change over the decades and they can partner across sectors. Over the years, the UK’s membership of the EU may have acted as an obstacle to developing trade and investment partnerships with the rest of the world. But now with Brexit story finalised and closed, the UK will be in a better position to forge closer trading ties with India.

Based on current and future needs, the sectors that interest the UK are aerospace, chemicals, automotive, food and drink and life sciences. the sectors that interest India is IT and related professional services. This sector is by far the largest export from India to the UK. Medical tourism can also become another key area of interest. Financial services of course is an area of increasing prominence for India which can also explore opportunities in sectors like architecture, research and development and engineering, in the post-Brexit.

It is no secret that UK-India relations have a history of strong business partnership. In 2019, trade between them hit GBP 24 billion, up by almost 10 pc over the previous year. Both have robust investment relationship, with British and Indian investments supporting over half a million jobs in each other’s economies. The UK is the second-fastest-growing G20 investor in India over the last ten years, driving investment over GBP 21.48 billion. There are 842 Indian companies based in the UK, employing more than 110,000 people and their revenues in the last fiscal were almost GBP 41 billion. India is currently the second-biggest investor in the UK, with 120 new projects and more than 5,000 new jobs in 2019-20.

Amongst the reasons that Britain wants its relationship with India to be as warm as possible is the cooling of its ties with China – this has been more significant than with many EU countries — in part because of Britain’s historical ties with Hong Kong. Arrests of democracy activists and leaders in Hong Kong and China’s blatant refusal to respect Hong Kong’s sovereignty has unnerved the UK’s patience and it is growing every day. Another reason behind UK’s keenness is to allow its companies to gain greater access to the Indian market of about 1.3 billion consumers, potentially the biggest in the world in about a decade from now.

Ever since Britain decided to leave the EU single market and Customs Union, there has also been a significant shift towards India by Britain, as tensions have grown with China, particularly since the Covid-19 outbreak. Also, with UK banning the Huawei technology in the 5G, UK has been pushing new warmth in ties with India. Given the significant investment in Indian telecoms and technology by UK-headquartered companies, UK’s keen interest to set up the India-UK Tech Partnership comprising young CEOs from the two countries is a good business policy.

It is important to highlight the India-UK cooperation during the coronavirus pandemic, with India’s large pharmaceutical sector supplying more than half of the world’s vaccines. At least a billion doses of Britain’s Oxford-AstraZeneca vaccine are being manufactured at the Serum Institute in the Indian city of Pune.

Brexit is set to provide a massive boost to trade ties with India. New opportunities for the UK and India to cooperate more closely and develop stronger trading links would emerge as the UK re-aligns its foreign policy and trade priorities. Brexit would allow businesses to set up by Indians in the UK to build on trade deals with India-based organisations. This would also be the case for other British businesses looking to enter the Indian market, allowing for increases in investment partnerships. The UK shares India’s outward-looking worldview and is keen to work more closely with India to support its ascent. In closer partnership together we can support more free trade and cooperate on other issues such as international security.

Brexit is set to enhance the strengthening of India-UK economic relationship in the longer run. It is going to increase UK’s focus on being seen as an independent market with a renewed focus to build scale and new markets, which in turn could work in favour of India. India’s focus on innovation, entrepreneurship and high-end work, renders it a very attractive partner from a talent standpoint, and equally in terms of market access. This could work to the benefit of the IT sector in India since the UK currently accounts for about 17 pc of India’s IT exports worldwide. Brexit would make the UK less dependent on intra-EU immigration into UK and this could make UK more open to high-skilled immigration from non-EU countries such as India. Further, UK would be under no obligation to adopt restrictive EU data localisation norms which it does not subscribe to in their entirety. All these factors could benefit India-UK bilateral economic relations.

There is immense potential for enhancing trade and economic relations between the countries but what is required is a willingness by both to embrace change and new opportunities arising out of Brexit and think of new areas of cooperation. It needs a political drive and strong leadership. Due to complicated structure of the EU it was not possible to set up business advisory councils between EU and India to offer input into the FTA negotiations, it should be possible for Britain and India to move with setting up such councils which should go deep into the business and trade and tariff issues and jointly recommend to their respective governments how to address the issues that will come into the future negotiations of free trade agreements between them. The FTA will be of strategic importance to both as this will change the dynamics of UK-India relations.

Sunil Prasad is the Secretary General of the Brussels based Europe India Chamber of Commerce (EICC). He is trade specialist and an economist by training. Prasad is also the President of Global Organisation of People of Indian Origin (GOPIO) Belgium.

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