Brexit: A new path to prosperity for Britain and India?

By |2018-12-18T22:41:08+01:0018th December, 2018|

There is no consensus on such a complex and divisive issue of how Brexit will affect UK-India relations going forward. However, there can be no doubt that in a dynamic partnership such as that between Britain and India, there will be every effort to maximise the potential gains from Brexit for both countries. The question is whether differences between them over regulations and immigration can be overcome

The biggest potential obstacle to a free trade deal lies in the contested issue of immigration.

The generally robust British economy has seen growth slow down considerably over the past two years, and the possibility exists of a major hit to GDP, especially if there is no deal between London and Brussels. A ‘No Deal’ Brexit may make it even harder for Indian companies to export into Europe via Britain. It would probably discourage further Indian economic engagement with Britain until the issue of the exact relationship between London and Brussels can be sorted out. Time will tell, and the wait for the British people to find out will be over soon.

Either way, India being the fastest growing economy in the world is a major partner for every major power centre on Earth. Averaging over 7% GDP growth per annum, it is clearly too big to ignore, a point which Prime Minister Narendra Modi subtly reminds the large Non-Resident Indian diaspora abroad during his visits. India’s rapid growth is exactly the engine that could power British exports in an ever changing and challenging global macroeconomic environment. The possibility for mutual collaboration in the areas of IT, infrastructure, and security is substantial.

There are two main strategic challenges to achieving a closer British-Indian partnership in the realm of trade. One is the considerable task of negotiating a free trade deal between London and Delhi. This is heavily linked to the issues of how much access the British services led economy will have in the post Brexit era to India’s market, and regulatory alignment.  The other is the important issue of immigration, which has been a significant challenge to an otherwise mature and mutually valued relationship.  Both are weighty issues that will continue to impact on the post Brexit trade relations between India and the UK.

The core challenge of negotiating a new India -UK free trade deal is fraught with difficulties. The British want more access to India’s services markets. This is something that is being met somewhat coolly by India, as so much of the booming Indian economy is services led. Recently, the Tony Blair Institute published a report making this exact point; large and increasingly sophisticated economies like India’s are not going to allow British companies to establish themselves onto areas that have long been dominated in India by Indian companies. Nor are they going to harmonise their regulations to sync with the needs of British companies.   The first step towards a strong trade deal may be to replicate the proposed UK-EU Free Trade Agreement, applying its main provisions to India as well. This way disruption is minimised as India will not have to worry so much about dealing with two sets of market rules in trading with Britain and the EU in future. This would provide a solid foundation for future economic engagement.

A UK-EU Free Trade agreement is something that will take some time. Trade agreements are naturally subject to disagreements over issues such as tariffs, protecting local industry and jobs. Non-tariff barriers such as differing regulations will still be a bigger issue.  In the India-UK context, India will want guarantees that any free trade agreement with Britain will protect Indian exports such as certain foodstuffs, which are restricted under domestic British health and safety regulations. According to the India-UK Trade Review, the current strategy of the British government is to align with EU trade law to the maximum extent possible. This will cause huge problems with non-tariff barriers. For example, the use of fungicides in basmati rice exported by India is restricted under EU trade laws, restrictions which India wants softened by Britain after Brexit. Concessions on food and chemical safety are unlikely, which means that Brexit may not necessarily give a boost to British-Indian trade ties.

A possible alternative path to more robust India-UK trading relations is through the Commonwealth. This is a potentially major economic bloc including other Anglophone countries like Australia and Canada as well as many of the fast-growing economies of Africa. By engaging India as the potential de-facto leader of the Commonwealth in the post 2020s, Britain could maintain sizeable ties resulting in gains for British business and trade.  However, engaging India through the Commonwealth will still be a challenge. India has shown little enthusiasm for it as an institution.  It has long been focused on increasing its own status at other institutions such as the UN where it covets a permanent Security Council seat. Enticing India to join a free trade framework in the Commonwealth could work if it appeals to Delhi’s status as a major bloc leader, and if Britain could make progress in trade negotiations with Canada and Australia. This is not unfeasible and may be an approach worth taking. In order to succeed, India may need convincing by Britain that the Commonwealth is a worthwhile investment.

The biggest potential obstacle to a free trade deal lies in the contested issue of immigration. It is important to note that perceived uncontrolled mass immigration is widely considered to be the main reason why the UK voted to leave the EU in the first place. By contrast, the Indian demand for more visas for skilled workers may seem reasonable. Nonetheless visas for skilled workers are capped by the British government, with the Tier 2 visa capped at 20,700 people annually. However, the pressures faced by the NHS, Britain’s vital health service, have caused a rethink. As of June 2018 doctors and nurses from outside the EU are now exempt from the monthly limit of 1,600 people immigrating to the UK. This is an important boost to Indian medical professionals looking to work abroad.

The majority of Indian immigrants in Britain today tend to work in the skilled services sector, such as medicine, IT and engineering. Clearly such professionals are a major asset to the British economy, contributing to overall economic growth as well as the established economic culture of disruptive innovation which has powered Britain ahead in the great economic race. They are subject to a ‘hostile environment’ to immigration, which includes a net migration target that has long been criticised by British businesses for being economically damaging.

A more liberal visa scheme would be considered a great Brexit gift by India which is struggling to generate formal employment, and is actively looking to send people abroad to acquire key skills and experience. Given the general scepticism toward immigration shown by the British public, this would be clearly hard for the British government to sell. What could be done in the meantime is to slowly lift immigration caps upwards, as has been done for doctors and nurses, with an emphasis on allowing more talented people in from both science and arts backgrounds. This would be supported by business but would not necessarily be high profile enough to merit media attention. More Indian immigration post Brexit could then theoretically slip under the radar. That would keep both Delhi and London happy, meeting the objectives of both.

It is also notable that economic competitors of Britain, like France, are trying harder to attract Indian immigrants and are building their own trade ties. The UK may no longer be the destination of choice for Indian immigrant workers if Indian ties with economies like France also take off. This would pose a dilemma for the Home Office in the years to come. To restrict Indian immigration, and lose talented workers to Europe, or allow more Indian workers to come to the UK when the public mood is anti-immigration?

Brexit poses setbacks as well as strategic opportunities. It represents a leap into the unknown, albeit one potentially anchored by the old partnership between Britain and India. If Britain were to be more accommodating of India on the core issue of immigration then there will be space to negotiate a free trade deal post Brexit boosting both major economies. However, if Britain is perceived as being anti-immigration after Brexit, Delhi may well choose to go elsewhere for business. The ball is now squarely in the British court.

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