Eastern Promise: Assessing the Future of UK-India Trade

Abstract

India is at a crossroads. As the UK Prime Minister prepares to meet Indian leaders virtually, he promises an Enhanced Trade Partnership, possibly leading to a full Free Trade Agreement (FTA). There are important commercial reasons for this agreement, but more importantly, there are powerful geopolitical reasons. India could be brought into an alignment of nations, including the CPTPP members, as a bulwark against the negative impact of China’s market distortions and security policies. The UK may just have the right combination of offensive and defensive flexibility to be able to do a deal with India. The contours of that deal are emerging and involve key UK asks, such as financial services and legal services access, as well as Scotch whisky tariff reduction, and key Indian asks, such as movement of natural persons supplying services and the UK committing not to impose bans on Indian agriculture in violation of the WTO SPS agreement. There is a developing alignment of nations, which collectively promote pro-competitive regulation where countries interact with each other through equivalence and mutual recognition as opposed to regulatory harmonisation. India has to choose whether to align with these nations or others, such as China, which have a very different model. There are strong geopolitical reasons for India to join this grouping – which could be started with an FTA with the UK – relating to its difficult relationship with China and its need to secure support in the Indian Ocean. However, a number of obstacles remain for this future to be reached. India has recently taken actions against the property rights of foreign investors. Property rights form the bedrock of economic systems that leverage the forces of competition to generate economic growth. But India’s market signals on property rights are negative and risk undermining its global reputation and potential. When the Prime Minister meets the Indian PM, he should make it clear that while the UK welcomes a deeper relationship with India, this will depend on whether India endorses, in both word and deed, property rights protection, market competition, and open trade.