After several days of bad news stories following the recent local elections, PM Keir Starmer was able to announce some good economic news on 6 May, with the conclusion of a free trade agreement between the UK and India – the world’s sixth and fifth largest economies respectively.
When a deal with India was first mooted, many of us in the Trade Department had our doubts this day would ever come. India has a record of negotiating on and off on deals for years – in fact I once met the Canadian lead negotiator for their planned trade deal with India who had been retired for several years but was kept on in that role, just in case!
So to conclude the deal is a major coup. Based on earlier economic modelling, the deal is estimated over time to add £4.8bn to UK GDP, increasing UK exports to India by almost 60% (just under £16bn) and imports from India by 25%, almost £10bn.
Top UK sectors to gain from the deal include whisky and gin, where current 150% tariffs will be halved initially, reducing further over time; and automotive, where the UK will get a quota with a tariff of only 10%, compared with 100% today. A range of other sectors ranging from aerospace to chocolate will also see tariff reductions.
UK tariffs have also been reduced in for instance the clothing and footwear sectors, making Indian goods cheaper for UK consumers to buy.
The deal will need to be ratified by Parliament. Opposition MPs are calling on the Government to strengthen scrutiny of trade deals, but the Government is so far sticking to the position adopted by the previous Government, under which Parliament has no “up and down” vote. Some aspects of the deal, such as relief from UK NI payments for temporary Indian workers in the UK, are exciting some controversy. However there is little doubt, given the Government’s majority, that the deal will go through.
The agreement clearly provides new opportunities for UK exporters in the world’s most populous country, with a rapid growth rate of 8% in 2023. But what wider conclusions can we draw from this deal ?
First, the Trump effect. Negotiation had been going on for some three years, not in itself an exceptional length of time, but India has been notoriously cautious about opening up its domestic economy. It withdrew at the last minute from a major Asia Pacific trade deal in 2021, and political pressures could have been thought to have intensified following PM Modi’s loss of his majority in last year’s elections. To conclude negotiations requires political will to make compromises in the interests of a deal, and that will has been fortified for both sides by the prospect of trade disruption as a result of Trump’s tariffs.
Second, the domestic political narrative is interesting. Had it been agreed under the last Government, this deal would have been trumpeted as a major benefit of Brexit, given that the EU doesn’t yet have a deal with India. This will not be the current Government’s line, but they have been quick to point to it as the most significant trade deal since the UK left the EU (ie bigger than the last Government’s efforts). It is also the case that if the UK was in the EU Customs Union (CU) as some commentators (including the Lib Dems) have urged, this deal could not have happened: it is almost wholly a matter of tariff reductions, over which the UK would have no independent say as a member of the CU.
In conclusion, this deal further cements the UK’s track record in striking comprehensive trade agreements and signals a determination by this Government to press ahead with an independent trade policy, looking to secure growth opportunities around the world, even as it also looks to reset relations with the EU.
