#TradeTuesday: UK and India - Lights out for trade deal as it misses Diwali deadline

By Harry Brown

The UK's post-Brexit flagship trade deal has hit a stumbling block as the Diwali deadline set by negotiators is set to be missed. Negotiations were launched in January, with Britain and India eyeing a deal that could boost trade by up to £28 billion a year and was the start of a post-Brexit policy tilt towards the Indo-Pacific.  

For context, India recently overtook the UK as the world's fifth-largest economy and currently has no trade deals with the EU or USA. For both nations, an agreement was symbolic given the nations’ closeness from within the Commonwealth and was hoped to be a springboard to greater things such as an EU trade deal for India and accession to the CPTPP for the UK. Furthermore, the allure for British businesses is vast. India is one of the world's biggest and fastest-growing economies, and a free trade deal would provide UK businesses access to India's growing middle class, which is forecast to increase to a quarter of a billion consumers by 2050; additionally, India is set to become the world's third-biggest economy by 2050, with a bigger population than the US and EU combined.  

The deal had seemed to be progressing well, with former Prime Minister Boris Johnson making a trip to New Delhi to meet his Indian counterpart Narendra Modi earlier in the year, with both sides aiming for an October deadline. It had even been suggested Modi would make a trip to the UK to finalise the deal. However, new Home Secretary Suella Braverman – under new leader and Prime Minister Liz Truss -  who is of Indian descent, has infuriated Indian officials and soured negotiations over comments she made about greater visa access for Indians as part of the deal.  

Braverman claimed that Indians were the "largest group of people who overstay" and questioned whether the Indian government had been upholding an agreement reached last year to ensure Indians travelling to the UK stay for the time their visa permitted. India's High Commission in the UK was furious with the comments deeming them "inappropriate". The comments have damaged public perception and heightened tensions between negotiators when policy details being finalised and the finish line was in-sight. 

The comments were particularly unhelpful as negotiations had been heating up over concerns regarding import duties on automobiles and Scotch Whiskey and Britain's insistence on exemption rules on data localisation which impacts sectors such as financial services.  

A deal not materialising would also spell bad news for the UK's renewable energy sector. The Indian government plans to install 175GW of renewable energy capacity by 2022 and much more in the coming decades. Renewable energy generators were set to benefit from a slashing of import tariffs as high as 15% on wind turbine parts from the UK. 

However, if the deal does not materialise, British car manufacturers may be the biggest losers. The Society of Indian Automobile Manufactures (SIAM) had accepted proposals from the Indian government to cut import taxes for vehicles. India currently imposes import taxes from 60 per cent to 100 per cent, and for the first time, Indian automakers have backed cuts for the trade deal with Britain. 

Negotiations, and the planned visit by Modi to the UK has been shelved for now. But officials are working hard to improve diplomatic relations to get the deal over the line as one thing is for certain: The UK government can ill afford any more negative press, in particular on lack of follow-through on the post-Brexit vision of deals with nations which could support businesses and the economy.