India, UK Agree to Immediate ‘Enhanced Trade Partnership’
Op/Ed by Chris Devonshire-Ellis & Bob Savic, Dezan Shira & Associates
- Agreement to fast-track free trade and market access
- Full free trade agreement could be in place by June
- An interim deal could be agreed with immediate effect
- UK exporters should be assessing the India market
The British Foreign Secretary Liz Truss, and Piyush Goyal, India’s Minister for Commerce and Industry released a joint statement today laying the groundwork for an ‘Enhanced Trade Partnership’ (ETP) following meetings held this past weekend in Delhi.
The UK and India have been examining the potential for a full Free Trade Agreement, and discussions were carried out on the entire range of bilateral trade and economic relations, while understanding each other’s priorities and trade sensitivities. Both Trade Ministers reiterated their commitment to long term India-UK partnership and agreed to deepen trade cooperation between the two countries through an ETP. They also reviewed progress in removing market access barriers on both sides.
The British Foreign Secretary, Liz Truss, with Shri Piyush Goyal
Meanwhile, the European Union (EU) also met with Indian officials virtually on Friday, February 5, holding a high-level dialogue for the first time. The EU-India high-level dialogue was co-chaired by Minister of Commerce and Industry, Piyush Goyal, and the European Union Executive Vice-President and Trade Commissioner, Valdis Dombrovskis. The ministers “agreed for further deepening of bilateral trade and investment relationship through a series of regular engagements, aiming at quick deliverable for the businesses in these tough times”.
We discuss the impetus for closer EU-India bilateral engagement in our article ‘The EU and India Launch High Level Talks on Trade and Investment‘.
Interim Agreement likely before a new India-UK FTA
The India and UK Trade Ministers reviewed the ongoing engagements between the two sides for an ETP as part of developing a roadmap towards a potential comprehensive FTA, including considerations on an interim agreement on preferential basis.
UK Prime Minister Johnson to visit India
This revamped partnership would formally be launched during the visit of the UK Prime Minister to India, planned for later this year. That is expected to happen in Q2, probably late May, prior to Indian Prime Minister Narendra Modi’s own planned visit to the UK to attend the G7 meetings in June. Both UK and Indian Ministers have committed themselves to making concrete progress on the trade and investment front to deliver quick gains for both countries, including joint timelines for further advances. A sense of urgency was underlined to accelerate the process towards launching the ETP, with commitments to interact and identify fast bilateral deliverables that would cement an agreement and immediately come into service.
For the UK, a prospective trade deal with India would be an opportunity to foster a post-Brexit and post-COVID economic recovery, by enabling British commerce with broader and greater access to India’s fast expanding consumer market of 1.3 billion and its significantly growing middle class, at a time when the prospects for global growth after the pandemic still remain uncertain.
The 14th UK – India Joint Economic and Trade Committee (JETCO) meeting on 28 July, 2020, agreed to prioritize five key areas: life sciences, information communications technology (ICT), food and drink, chemicals, and services to address non-tariff barriers to trade – to first, secure an enhanced trading arrangement, followed eventually by a free trade agreement. The UK is the second fastest growing G20 investor in India over the last 10 years.
India is currently the UK’s sixth largest non-EU trading partner after the US, China, Japan, Switzerland, and Norway. Bilateral trade in goods and services, in 2019, was around US$15.7 billion and US$18.9 billion, respectively, and are gaining economic importance in both countries. Although India enjoys a trade surplus with the UK, the latter’s exports to India have being growing steadily. The fastest expansion was in services, which experienced annual rises of seven percent over the last seven years.
Britain has been the second fastest growing G20 investor in India, since 2010. UK companies have been developing a fast expanding market share across a number of key Indian domestic sectors, such as food and beverages. This has arisen in the face of India’s relatively high import tariffs and various non tariff barriers. However, UK brands, such as Scotch whisky, have sold well in the Indian market and continue to grow in strength, making India that UK brand’s third largest market internationally.
Britain’s business opportunities in India will improve as India continues to liberalize its foreign direct investment (FDI) policy, including raising the maximum shareholdings that foreign investors can have in insurance companies from 49 percent to 74 percent. Additionally, other major sectors that could benefit from UK investment and expertise include healthcare and agricultural development. Other UK giants, such as Johnson Matthey, Ricardo plc, and GKN, are also in India.
In the meantime, India is one of the largest foreign direct investors in the UK, holding second place behind the US and accounting for over half a million jobs in the UK. Indian conglomerates, such as Tata Steel, have been major high profile investors in the country and report in the region of up to £40 billion in turnover a year. Beyond heavy industry sectors, such as automotive and steel, India investors have been long-term players in a range of other industries, including IT services, logistics, facilities management, and business contact centers.
When the UK’s Foreign Minister, Dominic Raab, paid a visit to India at the end of 2020, he proposed a 10-year partnership in the form of a comprehensive strategic partnership, and building on the earlier strategic partnership of 2004. However, the new proposed ties cover a broader range of collaborative measures, including closer military cooperation across the Indo-Pacific region amid other areas of co-development, such as tackling climate change and countering international terrorism.
For the UK, the strengthening relationship with India promotes the government’s “Global Britain” strategy of building more expansive relations in the Asia Pacific region, including with its recent application to join the Comprehensive and Progressive Agreement for Transpacific Partnership (CPTPP) free-trade bloc and last month’s FTA deals with Singapore, and Vietnam.
Areas of anticipated UK-India trade relaxation
India has certain pressing trade issues with the UK, while the UK also has trade and investment issues with India. The Enhanced Trade Partnership is expected to resolve these.
For example, Indian apparel exporters struggle in the UK market because of higher duties being levied compared to those for Pakistan, Bangladesh, and Cambodia. Indian exporters are also at a disadvantage because of the continued Generalized System of Preferences (GSP) to 47 least developed countries (LDCs) even after Brexit. That, however, creates opportunities for British investment in India’s apparel sector and for more competitive sourcing and production facilities in the country.
India can also act as a springboard for British companies in other markets, provided regional rules of origin are followed, as India has an FTA with ASEAN, meaning India manufactured products can also be exported onto these markets in Southeast Asia. ASEAN covers the Southeast Asian economies of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam and has a middle class consumer base of about 135 million people, with this expected to double by 2030. India is also negotiating an FTA with the Russian-backed Eurasian Economic Union, expected to be agreed to this year and giving potential market access to a country with a middle class consumer base of 50 million that is otherwise off limits to the UK.
The size of India’s economy, now the world’s fifth largest (IMF, 2019), makes it an attractive market for UK exporters. Trade between the UK and India totaled more than £20 billion in 2018, an increase of 13.6 percent compared with the previous year (ONS, 2018). India has a range of exciting export opportunities, although success in this market can require patience and a longer-term approach.
UK exports to India increased in value by nearly a fifth (19.3 percent) between 2017 and 2018, amounting to £8 billion in total. Of these, nearly 70 percent were goods, with total goods exports from the UK to India totaling £5.5 billion in 2018 (ONS, 2018).
Strong links with the UK
India and the UK have strong ties through people, ideas, institutions, language, and technology. These common links help the establishment of successful partnerships between UK and Indian businesses of all sizes and in all sectors.
Young and growing consumer base
India is a huge and growing market seeing a sustained period of strong growth. There is a large youth demographic and a rising, more affluent middle class.
The UK and India have signed a double taxation agreement, meaning the same income is not taxed twice. India’s national Goods and Services Tax (GST) unifies the country’s economy by establishing a common tax structure and bringing 1.35 billion people into a common market.
Standards and regulations
Imported products need to meet Indian quality standards and have to be certified by the Bureau of Indian Standards (BIS) before being exported to India. BIS does offer pre-certification, subject to production inspections. Use the Food Import Clearance System if you are exporting food products to India.
Product labels can be in English or Hindi. All imported goods, as well as transport documents, must show standard units of measurement and weight.
You must comply with these requirements for your consignment to be cleared by customs in India.
As a first step, we advise discussing valuable brands or IP (and especially if you think you need patent protection) when exporting. You must register your intellectual property in India to guard against potential infringement. Registration can take time, so you should plan well ahead.
Dezan Shira & Associates are a British-owned consulting practice, advising foreign investors on market entry into Asia. Established in 1992, the practice employs several hundred professional staff and has offices in New Delhi, Mumbai, and Bangalore. Please contact the firm at firstname.lastname@example.org for assistance. Our ‘Doing Business in India 2021’ Guide can be downloaded free of charge here.