After Brexit

Boris Johnson's visit could be an opportunity for India

British Prime Minister Boris Johnson will enjoy a triumphal visit to India as chief guest at the Republic Day celebrations after pulling his country back from the brink with a Brexit deal, which partially ends four years of uncertainty over the UK’s future relationship with the European Union (EU). For many Indian companies, such as Jaguar Land Rover, with UK investment targeted at EU markets, tariff- and quota-free trade between the EU and the UK comes as a relief. Additional paperwork at customs borders entails costs that are yet to be calibrated, but UK-based exporters to the EU have been spared the complications of meeting different standards for each market. Gains for the services sector remain unclear, however. UK-based financial institutions lose the “passporting” rights that gave them automatic access to the EU’s single market. A separate services deal, which the British government says will include provisions to support financial and legal services, is still to be discussed. At the very least, the Indian information technology sector sees opportunities in the post-Brexit restriction on the movement of professionals between the EU and the UK, which could limit the access of the EU’s ITeS competitors to India, such as Poland.

But the major perceived post-Brexit opportunity for India is the prospect of a trade deal with the UK and Mr Johnson’s visit to New Delhi is freighted with those expectations. Talks with the EU were stalled in 2013 and resumed in 2018, but many unresolved issues persist, such as safeguards on intellectual property rights, agricultural subsidies, drug standards, and rules of origins. The Indian government’s cancellation of bilateral investment protection treaties with individual EU member-states is also a major sticking point. The criticality of these issues in talks with the UK remains an open question, though the controversy over Vodafone’s Indian acquisition may well influence negotiations. Doubts about an early Indo-UK trade agreement also arise from the fact that the Johnson administration’s priorities lie in striking deals with Australia and New Zealand. But an agreement with New Delhi may be in the UK’s interests since the Indian economy is predicted to overtake the UK and Germany to become the world’s third-largest by 2030, according to the Centre for Economics and Business Research.

Having opted to stay out of the Regional Comprehensive Economic Partnership with Asia-Pacific nations, India may be keen for an agreement with the UK, which has been the country’s largest trading partner within the bloc, accounting for about 17 per cent of India’s overall trade with the EU, and with which India enjoys a trade surplus. The UK is also the third-largest source of foreign direct investment in India. On its part, India is the UK’s third-largest FDI investor. But it is an entry point to the EU that many of the investments were made, and the challenges that afflict the EU-India deal may well prove stumbling blocks here too. With the UK-EU accounting for a quarter of India’s IT exports, it is in services that talks could stagnate. India may seek to push its long-standing agenda to grant more visas to its software professionals. Given tightening immigration regimes in both the UK and the EU, it is unclear whether the Johnson administration will soften its stand on India. In short, many uncertainties surround the Brexit deal, which commentators across the board have described as a hard bargain for the UK. Mr Johnson’s Republic Day visit may mark an important move towards clarifying some of those issues.