13/04/2017 11:42 AM IST | Updated 17/04/2017 9:15 AM IST

Why Britain's Trade Diplomacy With India Can Only Go So Far

How much can it really offset the impact of Brexit?

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As Britain withdraws from the European Union (EU), it stands to lose out on the tariff and non-tariff benefits related to the single market and customs in the EU countries and also in the countries the Union has preferential pacts with (in Africa, the Caribbean, Pacific, the Mediterranean).

To offset this impact the UK is hoping for reduced trade barriers for its exporters in the US, China, India, Japan and Australia.

India—a long-time trade partner of Britain—seems to be a particularly bright spot as it sets out on its path towards financial transformation, driven by measures like the initiation of the goods and services tax (GST).

In 2015 India outperformed China and the US as an FDI destination thanks to the open door policy of increasing the caps on foreign holdings in a number of key sectors and improved measures of ease of doing business.

Britain needs to dispel a lot of fear around Brexit before it makes any headway with the Indian business fraternity.

Prompted by this optimism in the Indian business scenario a trade "heavyweight" mission between India and the UK was recently led by the British Chancellor of the Exchequer Philip Hammond.

Strengthening trade ties and promoting the UK's fintech sector featured on top of the agenda.

Among the top agreements signed during the summit was an investment of up to £240 million in an India-UK fund for India's energy sector—the National Investment and Infrastructure Fund (NIIF).

A host of financial agreements—including cooperation to combat cross-border tax evasion, enhance financial services and boost investments by encouraging Indian companies to raise funds through masala bonds—were also signed.

But reducing trade barriers with India may be a "hard sell" believe the experts.

For one, the actual trade talks with India will commence only after Brexit is formalised — by March 2019.

Second, bilateral trade has declined from $15.7 billion a year to $14 billion over the past five years. India receives only about 1.7% of the British exports.

Speculations are rife about the implications of Brexit on Indian businesses which have been conducting business with the EU, with London as their headquarters.

The decline of the pound value—loss of 18%—adds to the anxiety of the Indian business community.

However, Britain may be more than willing to take customised measures to create a positive build-up around doing business with India post-Brexit.

Recently the Theresa May government had moved to restrict the issuance of work visas that would have impacted 30,000 Indians working under the tier-2 short-term visa category.

Hammond allayed the fear saying the measures to reduce migration are for countries sending less-skilled labour, rather than by India, whose citizens currently receive 60% of the work visas granted by the UK government.

There are also talks that post-Brexit commodity prices like that of crude oil will fall enabling India to save on import bill which will positively impact the nation's trade and current account deficits (CAD).

However, quite clearly, Britain needs to dispel a lot of fear around Brexit before it makes any headway with the Indian business fraternity.

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