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Britain Needs To Rethink Its Priorities If It Wants To Make Headway With India

The "Empire 2.0" mindset fails to see that the shoe is now on the other foot.

26/04/2017 1:32 PM IST | Updated 01/05/2017 9:03 AM IST
Adnan Abidi / Reuters

According to the International Monetary Fund, India and the United Kingdom will reach a historic turning point in 2022: as Britain's economic power wanes, India's 7-8% yearly growth will propel it past the former colonial power to become the fourth largest economy in the world.

The news that India will soon supplant Britain comes at a tense time. As the United Kingdom prepares to leave the European Union, British officials have been travelling around the world looking to forge new trade and investment relationships. At the centre of this strategy lies the Commonwealth, and officials in Whitehall half-jokingly refer to their approach as "Empire 2.0." In a sign that old habits die hard, India—now the world's fastest growing major economy—is once again being regarded as the "crown jewel" in London's Brexit strategy.

India's unwillingness to meet the British halfway can be traced to one policy: visa liberalisation for Indian citizens.

That "Empire 2.0" mindset, however, fails to see that the shoe is now on the other foot. As a growing economic power, India has significant leverage in ongoing trade talks. UK Chancellor Philip Hammond learned this lesson up close on a recent trade mission to India, where he arrived to "bang the drum" for British business but was instead overshadowed by a lapsed bilateral investment treaty on legal protections for international investors.

That Narendra Modi's government decided to let the deal lapse should not have come as a surprise. India has little incentive to unconditionally conclude agreements with the UK, and the expired investment deal is merely the latest episode in a complex courtship pursued not only by Theresa May but also by David Cameron.

Above all else, India's unwillingness to meet the British halfway can be traced to one policy: visa liberalisation for Indian citizens. Trade agreements between the two countries have achieved little progress not because of Indian obstructiveness or the EU, but because Britain's desire for better market access for its banking and financial services has not been matched by concessions for easier movement of students and highly qualified workers from India.

The importance New Delhi attaches to this issue can hardly be overstated. When Britain's foreign minister Boris Johnson visited New Delhi, he was reminded by S Irudaya Rajan, an advisor to the Indian government on migration issues, that "we cannot separate free movement of people from the free flow of goods, services and investments." Proving that the ball is in London's court, India's Finance Minister Arun Jaitley said that a free trade deal will take a "long time" unless the visa question is resolved to India's liking.

Even if India has a strong hand in negotiations, however, it cannot put off making arrangements indefinitely. Now that Article 50 has been triggered, one of the main impacts of Brexit could be to deprive Indian companies of their main entry point to the European trading bloc. Some of those companies are vitally important to the UK: Tata Group alone had over 69,000 employees in Britain in 2016, with 33,000 of them working for Tata Motors and over 30,000 for Tata Steel. India is also the third largest source of foreign direct investment in Britain. How the exit from Europe will impact those numbers, not to mention iconic British brands like Jaguar Land Rover, is an important question for both sides.

Now that Article 50 has been triggered, one of the main impacts of Brexit could be to deprive Indian companies of their main entry point to the European trading bloc.

Of course, the success of Brexit will not be decided by India alone. Making headway in talks with New Delhi would be a boon for Theresa May's Brexit plans, but other members of the Commonwealth have proven much more open to expanding their trade relationships with the UK. This is especially true of Australia, which has been eager to start sketching out a future trade deal and has promised to aid the UK smoothly exit the EU. Even so, Australia has its own priorities, such as deeper integration into the Asia-Pacific economic zone. Australian exports to China are worth over 10 times as much as exports to Britain, and the extent to which British exports going the other way will be able to rise further is unclear.

Ironically for the Britain's Commonwealth ambitions, the one region where London has been most successful has been the Persian Gulf. The Gulf Cooperation Council, which includes Saudi Arabia and its neighbours, could provide Britain with its first agreement. Already, commercial ties between the UK and the GCC countries stand at about £30 billion annually. With several of the GCC states embarking on economic diversification programmes that prioritise non-oil growth, Britain has found its most enthusiastic trading partners in the Gulf (but outside of the Commonwealth).

British outreach to the region has been as active as it has been to India, but the results have been much more positive. Theresa May chose Riyadh, Britain's biggest trading partner in the Middle East, as her first overseas destination after triggering Article 50. She even brought the CEO of the London Stock Exchange with her to pitch London as a host for Saudi Aramco's IPO.

As a growing economic power, India has significant leverage in ongoing trade talks. UK Chancellor Philip Hammond learned this lesson up close on a recent trade mission to India

Beyond finance, infrastructure projects are also a driving factor in this mutual interest: the economic reforms being made in the Persian Gulf include expanding but also privatising both transportation and telecommunications infrastructure, which is currently owned by the individual states. Countries like Saudi Arabia often look to British firms and engineers to build and manage these projects, and May sees opportunities for additional market share.

The UK reached a similar understanding with India last year: one of the bright spots of Theresa May's November visit was an infrastructure development fund that would help British businesses win Indian contracts while chipping in toward India's $1.5 trillion in financing needs. Until a compromise on visa liberalisation is reached, though, it will remain difficult to translate these individual agreements into momentum for a broader trade pact. If the British government wants to make the same headway with India that it has with Australia or the GCC, it will need to rethink its priorities.

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