Updated: Jun 2, 2022
We have heard about a new trade deal between the UK and India during the past weeks. But how will this change the current political and economic equilibrium and what will happen?
Brexit has now come into effect as of 31 January 2020 and the UK government issued the “Global Britain” strategy to launch new trade deals. Negotiations between Japan, the Indo-Pacific region, Canada, and the Mexico gulf have continued. However, a key role is played by India.
On the 13th of January 2022, UK and India launched negotiation for an independent Free Trade Agreement (FTA). The bilateral trade relationship is already strong, worth £23.3 billion in 2019, but an FTA could strengthen it even more, with UK exports rising to £16.7 billion by 2035.
The main benefit of the deal will be in terms of reduced barriers to trade in goods, and increased opportunities for services and investment. In 2019, India imported £5.35 billion worth of products from the United Kingdom, paying £5.24 billion in tariffs. The elimination of tariffs will help UK businesses become more competitive in industries that India relies on in exports, such as the British automotive, agri-food (particularly whiskey), machinery, and pharmaceuticals.
On the other hand, the UK is well-positioned to be a partner in India's growth providing world-class financial and commercial services. A trade deal might reduce cross-border friction and promote regulatory consistency, allowing UK financial and professional services firms to offer expertise, boost trade, and stimulate the Indian market.
Furthermore, India and the United Kingdom recently signed a Memorandum of Understanding (MOU) on migration and mobility, with the goal of implementing the India–UK Comprehensive Migration and Mobility Partnership (MMP) by April 2022. India would like to take advantage of these ties to boost export competition in IT/computer and business services.
The UK wants to minimize its reliance on China, which gives India an opportunity to grow its share of supplies in areas where China dominates, such as fashion (including accessories and footwear), homeware and furniture, electrical machinery, and general industrial machinery. In this way, the FTA could possibly change not only the economic outlook of both countries but also strengthen their political power as world leaders in the long run.
The FTA will send a strong message to the rest of the world that the UK is a self-contained trading nation that will reduce trade obstacles wherever possible. On the other hand, India, one of the world’s biggest economies, will trade on the side of the UK during its current run as the third biggest economy country.
Edited and Reviewed by Deborah Ikomi