Brexit could translate into an opportunity for India to reset the legal terms of its trade with the UK and EU at the multilateral level as well as through free trade agreements (FTA). This remains a formidable challenge, writes Amb Bhaswati Mukherjee (retd) for South Asia Monitor
Brexit was a game-changer for the carefully nurtured strategic partnership with India. Despite partition, post-colonial ties had blossomed into a mutually beneficial relationship. Its uniqueness was aptly summarized by Prime Minister Narendra Modi in his speech to the British Parliament on November 12, 2015, the first-ever by an Indian prime Minister.
PM Modi asked: “How is it that the statue of Gandhiji stands outside the British Parliament? My answer is: “The British are wise enough to recognise his greatness; Indians are generous enough to share him; we are both fortunate enough to have been touched by his life and mission; and, we are both smart enough to use the strengths of our connected histories to power the future of our relationship.”
Brexit: Unhappy divorce
Brexit, the prolonged and unhappy divorce of the United Kingdom from the EU casts a long shadow on UK’s future as a great power. Bereft of EU, UK has become a middle-level power, an island adrift. How to transform this challenge into an opportunity for UK and India is the conundrum facing policymakers. In the background of a pandemic that has impacted the global economy, with the UK still struggling with a new wave of infections, the stakes could not be higher.
How has Brexit impacted India? Some factors do not change. India remains an important strategic partner for the UK which has publicly supported India’s candidature for permanent membership of the Security Council. Prior to the pandemic, India and the UK had annual summits at the highest level. Prime Minister Boris Johnson was invited to be our guest on Republic Day 2021 but declined due to a surge in cases in the UK. New dates for Johnson's visit to India are being finalized, possibly in April 2021. The UK reportedly is keen for a summit meeting before the next India-EU summit in late April 2021.
Indian diaspora in the UK, a total of 1.4 million, plays a cementing role. The UK is also among India’s major trading partners. India enjoys a positive trade surplus of around US$ 3.64 billion in 2015 with the UK. Exports to the UK increased by 13.6 percent in the financial year 2017-18. Trade was sharply impacted by the pandemic. Trade balance remains in favour of India to the tune of 4.83 billion USD. The UK is also the third-largest foreign investor in India. India has emerged as the third-largest source of FDI for the UK.
Brexit impacted more than 800 Indian companies in the UK which regarded it as a gateway to the European Union. Located in crucial sectors of the British economy, these companies generate more than 110,000 jobs as well as huge flows of tourism including medical tourism as well as trade and business. More than half of the employment is through five companies from the Tata group, one of the largest foreign investors in Britain. There are high-end companies such as Jaguar, under Indian ownership, which could be adversely affected in the future.
Some crucial sectors of the Indian economy likely to be affected are automobiles, auto-components, pharmaceuticals, gems and jewelry, education, and IT-enabled services. FICCI (Federation of Indian Chambers of Commerce & Industry) had predicted that many of these sectors would be vulnerable to changes in demand and currency values.
An opportunity for India
Brexit could translate into an opportunity for India to reset the legal terms of its trade with the UK and EU at the multilateral level as well as through free trade agreements (FTA). This remains a formidable challenge.
Post-Brexit, UK’s economy is a middle-level one and far smaller than India’s almost 3 trillion-dollar economy. The UK is overwhelmingly a service-based economy. India, with about 60 percent of its economic activity accounted for by services, is not far behind. For a trade deal to be attractive to India, UK would need to make some concessions. The obstacles include the UK’s opposition to what GATS (General Agreement on Trade in Services) defines as ‘Mode IV’ delivery of services, relating to the temporary migration of business professionals.
UK’s new ‘global tariff’, that has replaced EU’s common external tariffs as the Brexit transition process ended on December 31, 2020, could be twice as beneficial for Indian exports as the EU’s existing rules, according to Elizabeth Truss, UK Secretary of State for International Trade, while speaking at a virtual session on ‘Post-Brexit UK and India’ at a recent Confederation of Indian Industry's (CII) Summit last year in December.
Truss tried to convince a skeptical audience that UK’s improved immigration standards and new points-based immigration system coming in place now will make it easier for skilled workers from India to migrate to the UK for work purposes.
Indian Minister of Railways, Industry and Commerce Piyush Goyal was noncommittal, hoping that the early harvest proposition of India, within the framework of a larger FTA, would be accepted by the UK, which would help the countries grab the low-hanging fruits. He said: “We are looking at possibilities of trade in goods and services and investments being a part of our enhanced trade partnership. We are looking at an option to see if it can be converted into an early harvest agreement”.
India’s implicit message was clear: To conclude a forward-looking FTA with the UK at this juncture looks difficult. The ‘low-hanging fruits’ scenario seems more realistic.
Time to re-evaluate FTA?
Perhaps it is time for India to re-evaluate its approach to FTA. Trade contributes to prosperity but challenges do need to be managed not avoided. Indian Minister for Civil Aviation and Housing and Urban Affairs Hardeep Puri had written in February 2017: “It is axiomatic that if an FTA results in trade expansion but is in the interest of one partner, it is a badly negotiated agreement. A series of badly negotiated agreements should result in the sacking of trade negotiators, not a turn away from free trade”.
The complexity of past colonial baggage seems to hang over such discussions like Banquo’s ghost! Homilies and sermons from leading British think tanks surface at the wrong moments and distract negotiators further. The most recent emanated from the venerable Chatham House - the Royal Institute of International Affairs. Entitled 'Global Britain, global broker: A blueprint for the UK's future international role,' the report cautions over the two countries' shared colonial history proving a stumbling block to UK’s future role. It acknowledges India's importance to the UK as being “inescapable”, but makes no substantive recommendation on a future enhanced partnership.
Time would appear to be of the essence. The clock is ticking for the UK whose policymakers remain blissfully unaware that Brexit has unleashed fissiparous forces that threaten its territorial integrity. Hegel had said: “We learn from history that we learn nothing from history.” As separatist movements from Catalonia to Kosovo simmer across the continent, the UK would be wise to take caution. Politically, Britain may no longer be part of Europe, but neither is it immune from the currents reshaping it.
PM Boris Johnson’s visit to India would be an essential step in giving a new direction to this important relationship. Policymakers in the UK who are so critical of India would do well to remember that a reinvigorated partnership with India, the former jewel in Victoria’s crown, might yet and, ironically, keep those divisive forces in check. Then only would the wheel of 170 years of the colonial yoke be complete and history could write the final footnote.
(The writer is a former Indian ambassador and an expert on European affairs. The views are personal)