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India and the hard reality of a post-Brexit world

Arthur Sullivan
January 18, 2019

If Brexit is one day to be seen as a success for Britain, the country’s economic ties with India would need to flourish in the years ahead. But the EU’s relations with both countries will overshadow everything.

Theresa May visiting Narendra Modi
Image: Getty Images/D. Kitwood

At the core of many ardent Brexiteers' vision of a post-EU future is a glorious renaissance of its former colonial trade links, powered by a curiously nostalgic view of the British Empire.

"Global Britain" is the buzz term that Brexit supporters, and indeed the UK government, have given to this reverie. The governing idea is that once the UK manages to finally cast off the EU's yoke, it will be able to strike its own trade deals with countries around the world.

Such a vision inevitably places India high up the wish list. Its population is 1.3 billion and its rapidly growing economy is, by IMF and UN estimates, the seventh-largest in the world.

If "Global Britain" is to be realized, the future India-UK relationship, one would imagine, is critical. That's why it was the first country outside of Europe that Theresa May visited as UK prime minister, back in November 2016.

The jewel in the post-Brexit crown?

Yet, in trade terms, the India-UK trade relationship does not look particularly special.

In 2016, the UK was the fifth-largest export destination for Indian exports, behind the USA, the UAE, Hong Kong and China (see graph). It accounted for 3.3 percent of Indian exports, valued at $8.66 billion (€7.6 billion) — not insubstantial.

India and the World

Yet it is small in comparison with the almost 16 percent of Indian goods which were exported to other EU countries in that time. In terms of imports, the UK is not a significant exporter for the Indian market and overall, it barely scrapes into India's top 20 trade partners.

Yet this is not the full picture of the economic relationship between the countries, says Kevin McCole, chief operating officer of the UK India Business Council, based in London.

He told DW that while the India-UK trade relationship "is not as strong as it could be," the key to the overall relationship is the bilateral ties which include the level of investment from both countries into each other, and the level of shared innovation and research projects companies and institutions from the countries work on.

"Despite the vast distance in geography between them, India and the UK have a lot of investment going in either direction, which could be argued as the reason why the trade isn't so high because people aren't selling into each other's markets, they are setting up and producing domestically," he said, highlighting the example of British machine builder JCB, which has such a big market in India that it produces its machines there directly, in Faridabad (Haryana), Jaipur and Pune.

Get in line

So what are the prospects of developing these links into something stronger after Brexit? McCole believes that growth in trade and investment between Britain and India will be driven by the tech sector and he highlighted the ambitious UK-India technology partnership, agreed by the countries when Indian Prime Minister Narendra Modi visited Britain in April 2018.

Theresa May sampling a samosa
Theresa May has courted India since becoming the UK prime ministerImage: Getty Images/AFP/J. Giddens

But what are the prospects of a future trade deal between India and the UK?

A key factor is that the EU has been in negotiations with India over a trade deal since 2007. While little progress appears to have been made since the Brexit vote, the EU is still eager for a deal to be done, European Commission sources told DW.

"As highlighted in the new EU Strategy for India adopted in November 2018, the EU remains committed to a balanced, comprehensive and ambitious trade agreement with India which results in benefits for both sides," a source within the EU Commission for Trade told DW.

"Trade negotiators continue their talks in order to bridge current gaps between the different levels of ambitions, in particular on market access for goods, public procurement and services, and on sustainable development. Meanwhile, the EU believes there is plenty of room to expand our trade and investment relations and make them more fruitful."

Currying favor

Ultimately, the future of the UK-India trade relationship will depend on both the future India-EU relationship, and arguably most importantly, the future EU-UK relationship. For example, if Indian goods don't meet EU standards in certain cases, then depending on the nature of the future EU-UK relationship, India-UK trade could be affected.

Narendra Modi,Donald Tusk & Jean-Claude Juncker in Brussels
The EU says it remains committed to striking a trade deal with IndiaImage: Reuters/Y. Herman

To take one example: in a joint working paper drawn up by New Delhi and London last year, India identified EU rules on safety standards around food and drink as a major barrier to exporting more to the UK after Brexit, assuming UK rules are aligned with EU ones.

Such cases will not be specific to India in Britain's post-Brexit trading future. In another food safety example, the issue of things such as chlorine-rinsed chicken, banned by the EU, may affect future UK-US trade relations.

Yet overall, business sentiment within India is not as anti-Brexit as might be thought. Shortly after the 2016 Brexit vote, the Federation of Indian Chambers of Commerce & Industry (FICCI) conducted a survey of 45 Indian companies that do business in the UK.

While 28 percent said Brexit would have a negative impact on their business within the UK, 41 percent said it would be either good for business or would make no difference. Similarly, 48 percent said their primary reason for being in the UK was the UK market, rather than access to the EU market as a whole.

This is a view that certainly can be found within some of India's major export areas. Clothes and textiles are one such area, accounting for a whopping 13 percent of all Indian exports. The EU is the largest apparel market for India, with the UK taking in the biggest share of that and accounting for more than 10 percent of all Indian exports in apparel.

Indian trade with Britain

Dr. A Sakthivel, vice chairman of the Apparel Export Promotion Council in Indian (AEPC), told DW that the industry body welcomed Brexit.

"We welcome the UK's decision to leave the EU as we see that it would give India better chances for forging preferential access into the UK," he said, suggesting the industry would pivot away from the EU and towards the UK after Brexit.

Different priorities, different memories

Yet as appealing as the advancement of UK-India business ties are to Brexit-supporting politicians or to those businesses with a particularly strong India-UK basis, they can hardly be seen in isolation from the central question currently gripping the entire Brexit debate — the future EU-UK relationship.

Although the Indian government did not respond to requests for comment for this article, the future EU-India relationship may well be one that takes priority for the Modi government, given the far greater volume in trade between the EU 27 and India.

Another important point to consider is the Hindu nationalist origins of the current Indian government — a political philosophy that is unlikely to be in step with the pseudoimperialistic rhetoric that has been evident throughout the Brexit debate.

A messy UK exit from the EU may not necessarily chime with such realities.

BRICS nations for free trade

Arthur Sullivan
Arthur Sullivan Reporter and senior editor focused on global economic stories with a geopolitical angle.@drumloman86