What a trade deal with India means for the UK
The UK government is heralding a “new era” for British business: after three years of negotiations, a free trade agreement has been signed with India.
This is the third agreement the UK has brokered since Brexit and it is also the biggest of them all, given India is the largest single economy that the UK has clinched a deal with.
President Trump’s ‘Liberation Day’ jolted Prime Minister Keir Starmer into writing a column in which he declared that globalisation had ended.
But the UK’s deal with India suggests otherwise. It signals the UK’s ambition to open up its economy when isolationist policies are in vogue.
India has also been expanding its trade network as of late, touting deals with Australia and the United Arab Emirates.
In response to the deal, Starmer noted “reducing trade barriers” was a key part of the government’s plans.
Industry leaders at the Premier League, UPS and Standard Chartered all praised the government’s deal as crucial to boosting trade.
Toasting the trade agreement
George Riddell, a managing director at a leading trade advisory, said the agreement was “definitely a big deal.” While India is not the UK’s biggest trade partner, “it’s definitely a trade corridor that a lot of UK businesses are using at the moment.”
“If you’re a British trader at the moment, having preferential access to new markets is something to be welcomed,” says Riddell.
The government is keen to impress on the devolved nations that this deal is good for them as well; Scotland’s iconic spirits industry stands to gain massively.
And so the deal may be marked with a celebratory dram, as tariffs of 150 per cent on whisky have now been halved. Scotch Whisky said earlier this year that India was the number one buyer of the drink. Scotch Whisky Association chief executive Mark Kent has now said there was potential for an increase in exports of £1bn in the next five years.
Sparking orange favourite Irn-Bru may also see a further boost in sales, Business and Trade Select Committee member and Labour MP Gregor Poynton told City AM.
UK carmakers may also breathe a sigh of relief after having been dealt a blow of 25 per cent tariffs on exports to the US. The new deal with India will see tariffs on British cars come down from 100 per cent to ten per cent, with quotas set on which cars can be sent to and from India.
Society of Motor Manufacturers and Traders chief executive Mike Hawes said: “We appreciate the considerable effort British negotiators have devoted to secure the first partial liberalisation of the Indian automotive market.”
“We trust the deal will be fair and deliver on essential UK industry priorities, with major tariff reductions on most UK automotive exports, favourable origin requirements and a workable agreement on future bilateral trade of electrified vehicles.”
The sense of optimism among business leaders was captured by William Bain, who heads up trade policy at one of the country’s biggest industry groups, the British Chambers of Commerce (BCC).
“Against the backdrop of mounting trade uncertainty across the globe, these tariff reductions will be a big relief,” Bain said.
“Products from Scotch whisky to clothing will benefit and this will give UK companies exporting to India a clear edge on increasing sales.
“Both governments should be congratulated for their strong engagement with business and hard work throughout long, but ultimately successful, negotiations.”
It has still not been agreed on how Starmer and Prime Minister Narendra Modi might mark the occasion, but any meeting will likely be overshadowed by the elephant in the room: President Trump’s own appetite for a trade deal.
Both India and the UK are believed to be at the front of the queue over a trade deal with the US, which may allow them to avoid ten per cent tariffs on all goods, which are due to come into effect in over two months’ time.
The optimism sounded out by UK business leaders reflects – perhaps paradoxically – the sense of desperation felt within the economy. S&P Global suggested on Tuesday that exports by UK services providers saw its fastest decline in more than four years due to wobbly global trade.
The Institute of Directors (IoD)’s policy advisor Emma Rowland called for more celebrations over the new free trade arrangement amid all the disruption.
The Department for Business and Trade believe that the deal with the soon-to-be fourth-largest economy in the world, as the IMF have recently predicted, could favour UK companies more than Indian ones as UK exports will rise by 59 per cent by 2040, compared with a 25 per cent boost the other way.
Overall trade could rise by £25.5bn, wages in the UK will grow by £2.2bn in real terms and £4.8bn is set to be injected into the UK economy as a result of the deal, which is otherwise a lift of 0.1 per cent to GDP.
Poynton points out the relationship with India has been historically difficult to establish: “Labour has succeeded where others failed, securing comprehensive access to the world’s fastest-growing economy.”
Trade deal not without its critics
The loosening of controls on Indian immigrants has drawn criticism from opposition voices.
Successive governments have wrangled with their Indian counterparts over immigration and worker visa agreements.
India was the most common country of birth among migrants in the UK, according to latest census data provided by the Office for National Statistics (ONS). Modi’s government has consistently pushed the UK to offer friendlier terms for those wishing to move to Britain.
It appears that they have won some key concessions as Indian workers temporarily living in the UK will not have to make national insurance contributions for three years, a controversial move given the recent national insurance hikes in the UK
It may not be a trade deal with India that determines whether the UK economy gets a much-needed boost. Expected deals with bigger trading partners such as the US and European Union could have a more substantial impact – though this latest signing could help focus minds. The UK is also yet to confirm a separate investment deal with India as negotiations are still ongoing.
But it won’t be every day that the UK government, whose tax hikes have been blamed for low growth, gets the thumbs up from business leaders.