During PM Narendra Modi’s visit to Chequers in November 2015, David Cameron’s efforts at repairing UK-India relations have now borne fruit. Boris Johnson’s idea of an FTA with India went on the back burner during the tussle for liberating Britain from the EU. Since 2019 with Boris Johnson as PM and during PM Narendra Modi’s second term, India’s Minister for Commerce Piyush Goyal and UK’s International Trade Secretary Anne-Marie Trevelyan have picked up the baton to capitalise on Brexit and beat the European Union and the United States to an FTA with India.
Excitement is high but details are slim, what do we know?
According to Grant Thornton (GT) there are 572 UK companies in India, with 416,121 employees turning over US$26.7 in goods and services with the UK in 2020; paying INR173billion in tax in 2019-20. GT identifies the fastest growing sectors as the Industrial Sector, followed by Business Services, the Technology and Consumer, Retail and E-commerce.
The Department for International Trade reports total trade in goods and services (exports plus imports) between the UK and India was £19.8 billion in the four quarters to the end of Q2 2021, a decrease of 7.0% or £1.5 billion from the four quarters to the end of Q2 2020, most likely a Covid related decrease. In 2021 the UK reported a total trade deficit of £5.2 billion with India. India has maintained a trade surplus with the UK since 2004 and this has increased over the years.
India was the UK’s 15th largest trading partner in the four quarters to the end of Q2 2021 accounting for 1.6% of total UK trade. In 2019, the outward stock of foreign direct investment (FDI) from the UK in India was £15.3 billion accounting for 1.0% of the total UK outward FDI stock. In 2019, the inward stock of foreign direct investment (FDI) in the UK from India was £9.5 billion accounting for 0.6% of the total UK inward FDI stock.
The top 5 goods exported from the UK to India in the four quarters to the end of Q2 2021:
• 28 - Metal ores & scrap (£438.8 million or 11.6% of all UK goods exported to India)
• 71MI - Mechanical power generators (intermediate) (£271.5 million or 7.2%)
• 68 - Non-ferrous metals (£265.9 million or 7.0%)
• 74K - General industrial machinery (capital) (£213.5 million or 5.6%) • 87K - Scientific instruments (capital) (£194.3 million or 5.1%).
The top 5 service types exported from the UK to India in the four quarters to the end of Q2 2021:
• Other Business Services (£1.7 billion or 47.8% of all UK services exported to India)
• Travel (£543 million or 15.3%)
• Transportation (£402 million or 11.3%)
• Telecommunications, computer and information services (£327 million or 9.2%)
• Financial (£149 million or 4.2%)
GBC anticipates improved tariffs on Scotch whisky - The government would like to see a reduction in duties of up to 150% on whisky exports; and boosts to the travel, transportation, healthcare, clean energy and renewables sectors, business and financial services and growth in FDI. India opens up a market of 1.4 billion people to UK, therefore visas for Indians to work and/or study in UK with almost free movement is required for those that qualify.
It is likely India will not participate in the CPTPP if China’s application is accepted, following the disruption in supply chains due to Covid, the UK and others in the Indo Pacific are desiring to decrease dependence on China, India is well placed to leverage the opportunity to become a critical partner not only for pharmaceuticals and therapeutics. Some sectors of interest for UK investors in India are fashion garments and textiles, homewares, electrical products, food processing, chemicals, internet technology, software and business process management, cars, aerospace and defence, retail and e-commerce. Leading investment destinations for UK companies are Maharashtra, Haryana and New Delhi, followed by Karnataka, Tamil Nadu, Telangana, Gujarat and Uttar Pradesh.
The top 5 goods imported to the UK from India in the four quarters to the end of Q2 2021:
• 84 - Clothing (£794.8 million or 11.2% of all UK goods imported from India) • 54 - Medicinal & pharmaceutical products (£533.8 million or 7.5%)
• 65 - Textile fabrics (£405.9 million or 5.7%)
• 68 - Non-ferrous metals (£378.3 million or 5.3%)
• 69 - Miscellaneous metal manufactures (£353.1 million or 5.0%)
For trade in goods show that UK exports of goods to India increased by 39.8% in the 12 months to October 2021 compared to the same period the previous year. UK imports of goods from India increased by 24.2% over the same period.
The top 5 service types imported to the UK from India in the four quarters to the end of Q2 2021:
• Other Business Services (£4.0 billion or 72.7% of all UK services imported from India)
• Telecommunications, computer and information services (£730 million or 13.4%)
• Transportation (£237 million or 4.4%)
• Travel (£191 million or 3.5%)
• Financial (£99 million or 1.8%)
GBC anticipates progress in the satellite, aerospace, space and defence sectors, healthcare and life sciences; India expects to see growth in leather, textile, jewellery, marine products and processed agri-products, all tied in with the prospect of increased jobs for Indians in India.
The UK’s market share for India in 2020 was as follows:
• The total UK market share in India was 1.7% in 2020 for goods and services, unchanged from 2019.
• The UK market share in India was 1.1% in 2020 for goods only, a decrease of 0.1 percentage points from 2019.
• The UK market share in India was 3.2% in 2020 for services only, an increase of 0.1 percentage points from 2019.
The next statistics on trade and investment between the UK and India will be released on 21 January 2022.
The above figures show room for improvement, India has a lot to offer the UK, according to the World bank Data the ease of doing business with India in 2019 improved to 63rd position, but with PM Modi’s initiative Atmanirbhar Bharat (Self-reliant India), business leaders are optimistic for further easing, especially if improved business processes with accountability is introduced.
All intelligent FTA’s are reciprocal which means mutually beneficial, and take time to cook, while the deal is baking both Governments will explore an Interim Agreement that generates early benefits for both countries. In parallel to trade negotiations, the India-UK Joint Economic and Trade Committee will continue to work in improving the India-UK trading relationship and addressing market access barriers outside of a trade agreement, the next JETCO meeting will be held in London.
The GBC will bang the drum to drive further interest, greater understanding and to bring together those who want to level up our trading relations with the world’s biggest democracy and in turn strengthen free democracies, free trade and free enterprise.
Antonia Filmer 19 January 2022