Unhelpful and with no purpose: Why Brexit offers nothing positive for India-UK relations

by Peter Kyle

The cards will be heavily stacked in favour of India when negotiating any free trade deal with the UK, writes a prominent campaigner against a hard Brexit.

Jawaharlal Nehru’s famous declaration on the eve of Indian independence that, “at the stroke of the midnight hour, when the world sleeps, India will awake to life and freedom”, is not going to be matched anytime soon in the UK.

Since the vote to leave the EU on 26 June 2016, the UK has, if anything, been sleepwalking towards disaster in political, economic and social terms. Brexit will do absolutely nothing for the country’s standing in the world, or indeed for India-UK economic relations.

Brexit has opened up huge questions for countries outside the European Union, such as India, as to what kind of future relationship, in particular on trade and commerce, they will be able to have with the UK post-Brexit. At first glance, it might appear Brexit would open up many opportunities for the UK and India to strike an ambitious free trade deal. Indeed, one of the core aims of many of the lead Brexiters in the UK, has been to leave the EU so, they say, they can agree trade deals with other countries without having to negotiate as part of the European bloc.

However, this does not take into account the realities of the importance of EU trade for the UK in comparison with the relative weight of non-EU trade, nor does it take into account the realities of current India-UK trade.

According to the UK’s Office for National Statistics (ONS), in 2016 the UK imported £9.7 billion worth of goods and services from India and exported some £5.7 billion worth of goods and services to India. This makes India the UK’s 14th largest trading partner on imports and the 24th largest when it comes to exports.

To put this into perspective, however, the UK imported £26.2 billion and exported £15.9 billion to Belgium in goods and services over the same period[1]. Belgium is a country with a population of just over 11 million people in comparison to India’s 1.3 billion, and in economic terms, Belgium is an economy of $466 billion in comparison to India’s $2.264 trillion. This goes to show that despite India’s large economy, in relative terms for the UK, the priority for a long time to come is likely to be preserving the UK’s trade links with Europe in the face of the damaging Brexit might do.

Indeed, taking the other 27 members of the European Union as a whole, the UK’s trade with them completely and utterly dwarfs the UK’s trade with India. This is logical – firstly, the UK, having been part of the EU’s Customs Union and its internal Single Market has allowed UK companies to import and export to 27 other countries on the same standards and tariff and quota-free. There is also the gravity model of international trade, which dictates that countries which are geographically close to each other, tend to trade more with each other rather than with countries which are more geographically distant.

In comparison, when it comes to the relative importance of UK trade with India, the United Kingdom accounted for just 3.3 per cent of all Indian exports in 2016, in comparison with just under 12 per cent going to the UAE and over 16 per cent going to the United States.[2] When it comes to imports, the UK is not exactly a large player on the Indian market, accounting for just over 1 per cent of Indian imports, where India imports more from Kuwait, Nigeria and Iran.[3]

Looking ahead to any future UK-India trading relationship post-Brexit, both sides will have their own interests but this will not be a partnership of equals, if anything, the cards will be hugely stacked in India’s favour. For the UK, trade with India will not make up for the loss of trade and subsequent loss of GDP which the UK will suffer from exiting the European Union and Indian trade negotiators will be aware of this. Whilst the UK will be desperate to strike trade deals quickly, the Indian side will have the luxury of being able to take its time. The key thing, though, will be to understand what both sides would be looking for in any future commercial relationship.

From the Indian side, there is a clear demand for visa liberalisation and for access for Indian professionals and students to the UK. However, this will become a sticking point in itself. For many in the UK, the vote for Brexit was to bring down migration levels, not to increase them and any kind of UK immigration policy which were to lead to an increase in the number of visas on offer would be anathema to any kind of Brexit path which was promised during the 2016 EU referendum.

Indeed, the issue of increased Indian visas to the UK coupled with existing Indian tariffs on Scotch whisky have made previous attempts at any free trade agreement between India and the EU (of which the UK is still a part and to whose commercial policy it will still adhere to 29 March 2019 at the very earliest) hard to achieve.[4] Thus, it would seem if anything, it has been obstacles on the British side that have led to problems in any agreement on an EU-India free trade deal. And herein lies the crux: It is the very same United Kingdom which, now desperately looking for trade deals of its own, which would also like to pursue an agreement with India. However, with the UK on its own having less negotiating leverage than as part of the EU, whilst at the same time desperate to cut immigration, it seems hard how an obvious liberalisation of trade and boosting of commercial ties between the UK and India would actually come about.

Separately, as regards timings, it is completely unclear as to when the UK would actually be in a position to negotiate any kind of new trade terms with India. Firstly, the UK just does not possess the capacity to conduct its own trade deals right now, having a dearth of trade negotiators of its own, where, as part of the EU all trade deals will have been carried out by highly skilled trade experts at the European Commission. Secondly, post-Brexit, the UK will also have to spend a considerable amount of time working out its future trading relationship with its largest trading partner, which will remain the European Union. It is completely unclear as to when this particular future UK-EU relationship will be decided and the outcome of any such negotiations will also impact any future UK-India trading relationship as the Indian Ministry of Commerce and Industry will be none the wiser as to what the UK’s future trading options will be until the UK has concluded its own negotiations with the EU.

Brexit throws open many unknowns and will cause a great deal of uncertainty. It offers no obvious opportunities to countries outside the EU, especially a country like India, growing in confidence and strength to be dealing with a country which will be weaker and less sure of itself. For India, as for all non-EU countries, many will conclude that the best hope is the British people decide that any Brexit deal they are offered is not good enough after all and on balance opt to stay with the EU. This would provide certainty for Indian businesses and companies and would allow them the chance to grow their investments in the UK into the foreseeable future on terms and conditions well known to them.

It is this uncertainty and the certain prospect that, if Brexit does go ahead, that promises made in the referendum campaign will be broken, that makes me a supporter of the campaign for a People’s Vote on any deal Prime Minister Theresa May might bring back from the negotiations.

I want to see the deal referred back to the people and for them to be the ultimate judge of whether what they have offered matches the promises made in the referendum campaign.

To leave the European Union will be an enormous decision for Britain’s future. One that, if it happens, will set the nation’s path for generations to come. Almost by definition it is too big a decision to be left to us parliamentarians alone: it has to be in the hands of the people.

Peter Kyle is the Labour Party MP for Hove and a leading supporter of Open Britain, a campaign lobbying against a hard Brexit.

2018-05-28T07:35:55+00:00May 24th, 2018|2017/2018, Expert Views, UK Edition- May 2018|

About the Author: Peter Kyle