1. India pushes UK to figure out an economic future: Mihir Sharma

India pushes UK to figure out an economic future: Mihir Sharma

It’s hardly surprising that Theresa May’s first bilateral summit outside Europe was with India’s Narendra Modi.

By: | Published: November 8, 2016 3:19 PM
The prospect of a revived “special relationship” with India was one slightly Orientalist leitmotif of the victorious Leave campaign. (PTI) The prospect of a revived “special relationship” with India was one slightly Orientalist leitmotif of the victorious Leave campaign. (PTI)

It’s hardly surprising that Theresa May’s first bilateral summit outside Europe was with India’s Narendra Modi. Like almost everything else May has done since taking office, the visit has been all about Brexit. Nor is it surprising that May flies back to London disappointed and chastened. It was painfully visible on her trip that post-Brexit Britain still hasn’t learned that it no longer carries the economic heft to win deals on its own terms. And until Britain works out what sort of economy it intends to be, nobody is going to be interested in investing in its future either.

QuickTake Brexit

The prospect of a revived “special relationship” with India was one slightly Orientalist leitmotif of the victorious Leave campaign. Great Britain hardly needs these cantankerous continentals, the Leavers argued; the grateful nations of the Commonwealth — and especially its most populous and dynamic component, India — would once again open their bustling bazaars to British goods, easily making up for any lost markets in Europe. May flew to New Delhi with 33 captains of British industry, hailing the dawn of a new “age of opportunity.” She promised that deals would be signed on the visit that “created and secured jobs at home” and “demonstrated market confidence in the strength of the British economy.”

It’s true that India should find it easier to sign a trade deal with the U.K. than with the entire European Union. While negotiations over an India-EU free trade agreement have almost broken down, few of the objections came from Britain. Modi has a penchant for big announcements; May is desperate for someone to show faith in post-Brexit Britain.

There’s also lots of room for the Indo-U.K. trade relationship to grow. Financial links between the two countries run deep. The U.K. is the largest G-20 investor in India, for example, and Indian companies have made high-profile purchases in Britain. But trade with the U.K. only represents 2 percent of India’s total. During the time period Leavers venerate, misty-eyed, the numbers were indeed very different: India bought a third of British exports in the 1950s.

Yet it beggars belief that anyone could think that the only thing that’s happened in the interim was that Britain joined the European Union and abandoned its old imperial trading links. Those developments pale into insignificance when compared to the rise of Asia and the growth of world trade in general. India now makes a lot more at home, and — like everyone else — buys the rest from China. The British brands that were once household names in the former colonies are swiftly being forgotten. There’s little reason why any Indian should prefer them to Korean, American — or yes, German — products.

In any case, this fond hope that Britain can once again be a goods-exporting powerhouse mistakes the kind of economy the U.K. needs to become post-Europe. The global economy today hardly needs or can support another high-cost location for manufacturing. Instead, a Britain freed of European regulations could well seek to become the world’s premier location for free-wheeling entrepreneurship, for high-end services exports and for innovation. It already has many advantages — the English language, a well-known legal framework — if it seeks to go down that path.

But there’s simply no way to square that vision with the kind of immigration restrictions the Brexiteers are demanding. For that sort of dynamism to take root, the U.K will need to lower barriers to students and to skilled migrants. To beat the best in the world, companies and start-ups will have to hire the best in the world, without worrying about visa restrictions or government “lists” of their employees. And yes, as in California, lower-skilled migration will also continue to be necessary in order to keep the economy in balance — otherwise costs will explode and render it uncompetitive.

Yet currently, citizens of countries like India have to jump through hoops for British visas, which take ages to get and are far more expensive than their European or American equivalents. In recent years, Whitehall has disallowed Indian companies from transferring employees in and out and has made it drastically more difficult for foreign students in British universities to look for work after they finish their degrees. The number of Indian students dropped 10 percent last year as a result.

No less than Europe, India doesn’t for a moment intend to allow favorable market access to a Britain that shuts itself off to migrants. As one of India’s top civil servants said to May in Delhi: “There’s no such thing as selective free trade.” If Britain wants Indian markets, it will need to open itself up to Indian migrants and Indian service providers.

And if a Britain outside Europe wants to imagine itself as an Atlantic Singapore, it will have to be, like Singapore, open to all sorts of ideas, to free trade, to international capital — and to immigrants. Unless it realizes that the only future it has left is as a crossroads of the world, it will condemn itself to becoming a backwater of Europe.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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