Brexit: Both India and UK will gain

When Manmohan Singh told parliament that Indians “must get rid of the illusion that we are still fighting the East India Company”, it was seen as the proclamation of a brave new world in which complexes and inhibitions would no longer suppress buoyant trade. Logically, therefore, India should welcome Brexit and the opportunity of a new and separate free trade agreement with a country with which we have close historical links at every level. Yet, when all’s said and done, India is not a trading nation in the way China is. Perhaps because of its East India Company experience, independent India sees trade as an instrument to achieve political or social objectives.

Hence the unfruitful decade-long FTA negotiations with the European Union. Negotiations between India and the United Kingdom might be even more tortuous because New Delhi links buying and selling with visas. The external affairs ministry is more than a little disgruntled because of Theresa May’s decision as  home secretary restricting the rights of Indian students to continue living in the UK after graduation. They now have four months to gain practical experience while an ordinary tourist visa for a Chinese is valid for two years. Despite flattering New Delhi by choosing India to launch her international economic diplomacy as Britain’s first post-Brexit prime minister, Mrs May is seen as viscerally opposed to immigration, especially from South Asia. Her decision on student visas rankles deeply. The Indian side says there has been a marked decrease in the number of Indian students at UK universities since then, something that the British deny. Whatever the truth, trade remains hostage to travel.

“If India has an FTA with the UK post-Brexit they are both going to gain,” says Dr Rashmi Banga, adviser and head of trade competitiveness at the Commonwealth Secretariat. “It’s going to be a win-win situation.” She claims that her study titled “Brexit: Opportunities for India” identifies “the specific opportunities of a bilateral agreement for India and the UK to boost trade in goods as well as services, benefiting both their national economies.”

The report argues that an FTA would increase bilateral trade by 25 per cent. If implemented post-Brexit, British exports to India – particularly cars, beverages and spirits — would increase by 50 per cent, from $5.2 billion to $7.8 billion, according to research estimates. The Commonwealth study also predicts a 12 per cent annual increase in India’s exports to the UK, especially of 13 identified products, including textiles and clothing, footwear, turbojets and transmission shafts, compression-ignition internal combustion piston engines and taps, cocks and valves. The current value of these Indian exports to the UK is around $404 million which could go up to $2.1 billion, an increase of $1.7 billion. Trade in commercial services, construction services and financial services will also experience a boost. But many believe that clothing will take pride of place once trade is streamlined and rationalised. Britain’s relatively new, relatively low priced high street shops like Primark and Matalan are proving extremely popular, and augur well for Indian exports.

But Rita Teotia, the Union government’s commerce secretary, may not have stated the whole truth when she said at the meeting where the report was presented, “Brexit has induced a degree of uncertainty. We have already chosen to engage, look at the opportunities and to deepen our relationship and to explore the opportunities that both countries offer to each other.” It may be quite true, as she said, that “India provides both on the goods side and on the services side, win-win situations for its partner countries” in the health sector. But this is to overlook well-reported flaws in quality control as well as notoriously unattractive packaging. Delving into history, Ms Teotia might also have mentioned that the concept of “import substitution” soared above its obvious economic advantages to become a patriotic creed whose resilience is another disincentive for free trade.  Prohibitive duties on motor cars, for instance, were expected to serve a social and cultural purpose that was identified with the national ethic and was quite distinct from the mundane objective of conserving foreign exchange.

Of course, “the UK has a very very robust and very strong national health service” as she also pointed out. But it doesn’t follow that the UK would benefit from relying on what the commerce secretary called India’s “world class pharmaceutical generics industry.” First, Western governments complain that the Indian drugs industry’s reverse engineering infringes their patents. Second, many Indians would not use domestically manufactured drugs if they did not live in a protected environment. The appeal and effectiveness of Indian medicines can be judged properly only in a free market with full choice. Both sides complain of tariffs that are high because of the absence of any substantial agreement between India and Britain and other EU states. British exports to India must surmount an average tariff wall of 14.8 per cent, while Britain imposes an average tariff of 8.4 per cent on Indian imports.

So far as the EU is concerned, Brussels is quite clear that Germany is the group’s largest trade partner with India. Indeed, in 2015 Germany ranked as India’s sixth biggest trading partner, while despite its historic advantages, the UK lagged behind in the 18th position. What’s more, the UK has the largest trade deficit of any EU state with India, while Germany posts a trade surplus with it. In any case, Mrs May is far too busy trying to cope with turbulent juniors like Boris Johnson, the foreign secretary she dare not sack, and other ambitious colleagues, to spend much time or thought on an FTA with India. However significant Britain’s political and cultural ties with India may be, she must first work out her divorce settlement with the EU and ensure that she will be in Number Ten to push it through. Playing for time, her recent speech in Florence gave little clue to the kind of agreement London and Brussels would both find acceptable. But, then, London doesn’t even know as yet what Edinburgh and Belfast – capitals of Scotland and Northern Ireland — really want.

The former has inspired the possibility of a trade deal with Scotland – or the EU rather than the UK acting for Scotland – to facilitate exports of Scotch whisky to India which is regarded as the world’s largest market for the drink. If it happens – which is unlikely — that would be the supreme irony for a country where the BJP has, if anything, improved on the old Congress craze for desi. But if the hallmark of India’s Gandhian austerity was the crippling import duty on Scotch, the ease with which quantities of the liquor was smuggled into the country and openly sold, to say nothing of the flourishing industry in bogus Scotch, demonstrated that the spirit of free trade will never be quenched. There is hope after all for an India-UK FTA ultimately emerging.

The writer is the author of several books and a regular media columnist.