Of all the deals that Boris Johnson could sign with countries outside the EU to lift UK trade, one with India is the among the biggest prizes.
After landing in the country on Thursday morning, the prime minister must be hoping his two-day trip – taking in his Indian counterpart Narendra Modi’s home state of Gujurat and then New Delhi – will add impetus to talks already under way to reach a free trade agreement (FTA) between the two countries.
India is a small dot on the imports and exports graph today. It is the UK’s 15th-largest trading partner, according to figures covering the year to the end of last September, and accounts for just 1.7% of total UK trade.
An FTA can take many forms, but would usually lift most tariffs on goods and services exports between the nations and provide a pathway to harmonising rules and regulations that can slow or prevent cross-border transactions.
At the moment the UK suffers from a negative trade balance for both goods and services. The chart showing the longer-term trend points to the slide in trade that Johnson needs to reverse.
In the years before the pandemic, between 2010 and 2019, the UK’s exports to India dropped by 3%. This contrasts with the many countries that made huge inroads over that time, including the US, which increased exports by 79%, Canada (62%) and France (58%).
“We are the only country of the G7 to actually see a decline in exports to one of the world’s largest and fastest growing economies,” says Gareth Thomas, a shadow trade minister. He argues that it is not enough to “buy the story” of the possibilities on offer to UK businesses from a nation of 1.4 billion people and a growing number of middle-class consumers.
“The government continues to hope that a few warm words will help boost trade but they need to be doing more with businesses to give them the support to trade with India and indeed all our commonwealth partners,” Thomas said.
William Bain, head of trade policy at the British Chambers of Commerce, singles out the India deal as one the most important of all the UK’s active trade negotiations. “There are already strong links between services companies in London and the south-east and India. If there was liberalisation of trade barriers on industrial goods, that would open up links to the north-west, Midlands, Scotland and Wales,” he said.
The UK India Business Council recently called on the international trade secretary, Anne-Marie Trevelyan, to push a digital services agreement higher up the agenda, arguing that it could open huge markets for companies in both countries.
It was important to have “an interoperable and harmonised data protection regime for India and the UK to facilitate the free flow of data and wider digital trade between our countries”, it said.
At a visit to a JCB factory in Gujarat on Thursday, Johnson appeared to raise expectations of a FTA being signed this year. “We’re hoping to complete another free trade agreement, with India, by the end of the year, by the autumn,” he said.
However, Bain is among the many trade experts to pour cold water on anything being signed by the end of 2022. “The history of India’s trade policy is that it is easier to achieve a memorandum of understanding than a full trade deal.”
India has had a reputation as a protectionist nation that only unlocks access to its industries cautiously for many years, regularly blocking deals in the World Trade Organization. Bilateral agreements are also hard to come by. New Delhi has a trade deal with Switzerland, but not the EU or US, and many years of talks with Australia and New Zealand have generated an MoU [memorandum of understanding] but not a FTA, Bain said.
Trevelyan has said she has a commitment from Delhi to double the current £22bn of trade between the countries by 2030. Cutting tariffs on exports of British-made cars and Scotch whisky are her priority. That appears possible, but a full trade deal seems many years away yet.
