A stronger trade relationship with India is a durable investment we should urgently make
We should bring a laser-like focus to our negotiations with India for a trade agreement. If we score the right deal, our stock market, start-ups and many other industries and sectors will benefit, writes Deji Alonge
The UK and India have a longstanding relationship dating back several centuries. Both countries share strong political, economic, and cultural ties. Yet the potential for greater trade and investment between the two nations hasn’t been achieved – at least not fully. With India’s continued growth as a global economic powerhouse, there is significant opportunity there for the UK.
According to the IMF, India’s growth is projected to be 5.9 per cent in 2023, ahead of China, which is projected to grow at 5.2 per cent. India’s economy will be the fastest-growing among all major economies in 2023. This is remarkable, especially considering that global growth is expected to increase by only 2.8 per cent in 2023, from 3.4 per cent in 2022. On the other hand, the UK is forecasted to have a GDP slump of -0.3 per cent in 2023.
India’s economic growth has largely been driven by economic liberalisation, a positive demographic dividend, strong domestic demand, building core competencies in technology, and efforts by the government to drive international investments on the home soil. Since the liberalisation of its economy in 1991, the country has grown at an average of 5.9 per cent annually — a strong pace. It has also overtaken the UK as the fifth-largest economy globally in 2022, moving up five spots within the last eight years.
Looking forward, India’s growth in the coming decade will be supported by the creation of a single national market, an industrial expansion brought on by the switch to renewable energy sources, a shift in supply chains away from China, and a high-tech welfare safety net for the hundreds of millions left behind.
There are ample opportunities for the UK to strengthen its investment and trade ties with India.
Collaboration on various high-tech projects, such as the production of machinery, drones, and aircraft, as well as pharmaceutical and IT research, could help both sides. For India, it is an attempt to become self-sufficient; for the UK, it is a search for growth and new trading partners post-Brexit.
Both countries have thriving start-up ecosystems. The UK could collaborate with Indian start-ups to create new products and services specifically for the Indian market. Similarly, Indian start-ups might collaborate with UK companies to gain access to new technologies and expertise.
For example, the success of the UK-Israel Tech Hub, which fostered 175 tech partnerships and enabled deals worth £85m between 2013 and 2018 could be replicated with India.
India is the UK’s twelfth-largest trade partner: a strategically important trade relationship already exists. India’s overall trade grew by 20 per cent in the last year, with total trading volumes reaching almost $1 trillion. However, trade barriers remain. Businesses find it challenging to operate in each other’s markets due to various rules and limitations.
These trade barriers can be addressed. We should be negotiating new trade agreements that reduce or eliminate tariffs, harmonising regulations and creating a more favourable business environment in both countries.
The UK could unlock significant opportunities for British exports to India by negotiating reduced or eliminated tariffs currently applied to its goods. As it stands, £5.2bn of the £5.4bn worth of UK exports to India each year are subject to duties that average 19 per cent, with some commodities facing even higher tariffs. The UK would benefit from greater access to India’s thriving services sector, which accounts for 54 per cent of the country’s economy.
Trade negotiations are ongoing under the India-UK Free Trade Agreement, but progress is slow, and early commentary notes that it lacks sufficient scope, with a disproportionate focus on tariffs on Scotch whisky.
Other key trade issues, such as cross-border data transfer restrictions (which would enable the UK service sector to expand to India) and non-tariff barriers, such as the harmonisation of governance and standards between the two countries, haven’t been prioritised.
City investors have an opportunity to benefit by allocating greater capital to India’s burgeoning stock market. Over the past five years, India’s two largest stock market indexes, the Nifty 50 and BSE Sensex, have grown impressively, with the Nifty 50 up around 70 per cent and the BSE Sensex up 76 per cent. This growth has been driven by robust corporate earnings and positive investor sentiment about India’s economic future.
With the implementation of a more expansive trade agreement and increased investment the UK has the potential to significantly enhance its relationship with India, and become a major part of India’s latest growth story. This would result in a mutually advantageous partnership, bringing benefits for both countries for years to come.