A trade deal between the UK and India isn’t guaranteed any time soon – and this is why
With his heritage and large extended family in the country, Prime Minister Rishi Sunak will receive a warmer welcome than most of the other world leaders arriving in India this weekend for the G20 summit.
Unfortunately though, a free trade agreement between the UK and India is not guaranteed any time soon.
Last year, India leapfrogged the UK to become the world’s fifth-largest economy – and in April, overtook China to become the world’s most populous country.
Its growing prosperity makes it a country that the whole world wants to do business with. Before long, it is likely to be the third biggest economy globally after the US and China.
A free trade agreement with India was, in particular, held out as one of the great potential prizes of Brexit. Boris Johnson described a free trade agreement with India, if achieved, as “the biggest of them all”.
India is already the 16th-biggest destination for British goods exports – ahead of South Korea, Turkey, Sweden, Australia and Saudi Arabia and on a par with Canada – and that is only expected to grow.
With the UK a predominantly services-oriented economy, though, it is services that promises the greatest opportunity.
The value of the UK’s services exports to India are already close to the value of its services exports to Japan, Italy and Hong Kong.
In all, Mr Sunak’s aim is to double trade between the UK and India – currently worth some £36bn – by 2030.
At present, though, a deal remains elusive.
This is partly because Mr Sunak is thought to want a more comprehensive and far-reaching agreement than has so far been on offer.
Both he and Kemi Badenoch, the trade secretary, are thought to believe that a shallow deal – of the kind that could have been achieved by now – would make it harder to come up with a deeper deal in future.
But it is also because a number of sticking points remain. The most obvious is India’s desire for the UK to make more visas available for its students and employees of Indian companies, particularly its software businesses, which are among its biggest exporters.
This adds a layer of complexity because one of the biggest beneficiaries of such an agreement could be Infosys, one of India’s biggest software and outsourcing companies, which was founded by Mr Sunak’s father-in-law and in which his wife retains a significant shareholding.
Yet visas appears to be a red line for Mr Sunak, as the PM’s spokesperson made clear this week: “The prime minister believes that the current levels of migration are too high.
“To be crystal clear, there are no plans to change our immigration policy to achieve this free trade agreement and that includes student visas.”
For the UK, the key priority is for India to reduce its tariffs, which are seen as among the world’s most protectionist. Just 3% of UK exports to India are tariff-free – while by contrast, about 60% of Indian exports to the UK incur no tariffs.
Some of the UK’s biggest exports are heavily taxed, most famously Scotch whisky, which attracts a 150% tariff.
Another stumbling block, as negotiations between the two countries enter a 13th round, is India’s approach to intellectual property.
One of India’s biggest exports is generic drugs – sometimes described as “copycat” drugs – cut-price versions of medicines that were once protected by patent, but which are no longer.
The UK, with its rich history of scientific innovation and which boasts one of the world’s most dynamic pharmaceuticals sectors, wants longer patent protection for drugs than India provides under its existing trade agreements.
India argues this would make medicines unaffordable to a big chunk of its population.
Mr Sunak can console himself with the thought that Britain is not the only one struggling to conclude a free trade agreement with India.
The EU is understood to be deeply frustrated at the length of time it is taking to negotiate with a notoriously tricky partner.
But the danger is that, with elections due in both India and the UK during the next year, a free trade agreement could yet be kicked into the long grass.