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UK’s passage to India: Stronger business engagement strengthens bilateral trade outcomes

The commitment of the UK and India to strengthen their business engagement itself bids fair to generate higher trade outcomes.

The UK has committed to $1 billion of investments for climate-related projects.
The UK has committed to $1 billion of investments for climate-related projects.

UK prime minister Boris Johnson pragmatically side-stepped contentious issues, like India not condemning Russia for its offensive in Ukraine, to focus on strengthening ties with fast-growing India as part of a wider outreach to the Indo-Pacific region. The outcomes of his first two-day visit broadly follow the directions laid out in the virtual summit between him and India’s PM Narendra Modi in May 2021, when they outlined a roadmap 2030 on India-UK relations on trade and investment, defence and security, health, climate change and people-to-people contacts to bolster a comprehensive strategic partnership. To double bilateral trade, they agreed on an enhanced trade partnership towards a comprehensive and balanced free trade agreement. At their in-person meeting, both leaders expressed satisfaction at the implementation of roadmap 2030, including the launch of negotiations for an FTA in January, and set a target to conclude the majority of discussions by end-October. On defence, PM Johnson sent a strong signal on furthering cooperation by streamlining export licensing requirements to facilitate strategic collaboration for modern fighter aircraft and jet engine advance core technologies, among other areas. The UK has committed to $1 billion of investments for climate-related projects. Another takeaway is the finalisation of a Global Innovation Partnership in which India and UK will co-finance up to $100 million to transfer climate-smart innovations from India to third countries.

However, considering the long historical association, the growing stakes Indian companies have acquired in the UK, and the presence of a 1.6 million-strong Indian diaspora, the economic component of the bilateral relationship is somewhat underwhelming. Over the last decade, two-way trade has been stagnant, averaging $14-15 billion, with a trade surplus of $3 billion in India’s favour. If two-way trade is to double by 2030, both partners must step up investments in each other’s economies. India is the second-largest source of inward investments into the UK, with 99 investment projects that created 4,830 jobs in 2020-21, according to the UK’s department of industry. The UK is the sixth-largest investor in India with investments of $1.4 billion in 2021-22 (till December). The sort of investments by the UK that strengthen bilateral trade outcomes are exemplified by Johnson—on the first day of his visit—inaugurating a new export-focused facility of JCB India that will fabricate parts for global production lines. Or Switch Mobility, the electric vehicle arm of Ashok Leyland, lining up investments across the UK and India to develop electric buses and LCVs. All of these could be part of the investment deals of 1 billion pounds announced by Johnson in various industries, from software engineering to healthcare, including collaboration in satellite launches.

Besides investments, bilateral trade is bound to look up even more if both partners also agree to remove trade barriers on the path to full-fledged FTA. Negotiations entail a process of give and take for greater access to each other’s markets. Despite the advantage of a trade surplus in India’s favour, an ambitious deal is not on the cards so long as the simple average tariffs on goods imported into India from the UK are three times higher than tariffs on Indian goods exported to the UK. If India seeks greater market access, it must also allow the UK to sell more of its goods and services. Trade thus can be a win-win situation for both partners. PM Johnson has signaled flexibility on visas for skilled Indian professionals. As a global power in financial services, there is much that the UK can do for India. The commitment of the UK and India to strengthen their business engagement itself bids fair to generate higher trade outcomes.

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