What will the UK-India economic relationship look like post Brexit in the light of the Chequers plan?

The potential of a UK-India FTA:

The Chequers plan of the UK government seeks UK access to the EU single market for trade in goods with a regulatory alignment under a common rulebook, and envisages a relationship under a Free Trade Agreement for its trade in services. This would give the UK greater latitude to have services-focussed trade agreements with third countries.

A UK-India FTA has the potential, therefore, to be a perfect match: the UK is the second largest exporter of services in the world and India is home to the second fastest growing services sector with a compound annual growth rate of 9%.

India has made it very clear that labour mobility – Mode IV in WTO terminology – would be critical in a UK India FTA. It has been resisted thus far, as it does not comply with the UK’s current stance on immigration.

With the uncertainty of Brexit looming and the UK beginning to develop and grow partnerships with non-EU countries with the aim of securing future FTAs, the UK’s current and future plans regarding Indian mobility may seem illogical. However, official statistics show that there is more to this issue than meets the eye.

The exclusion of India by the UK Home Office from a new list of low-risk countries with relaxed student visa rules has certainly upset India, whose students feel unwanted in the UK. What is interesting to consider, however, is that the UK’s issue with immigration appears to be not quite so one-sided as India implies, and is also certainly not just aimed at Indian students and workers as Indian perception continues to suggest.

In 2017, Indians received more visas to work in the UK than every other country in the world combined – 58% of the total, and the number of Indians coming to the UK to study grew by 27% in the same year, with 94% of all student applications being granted.

Whilst it is clear that the number of study visas granted to Indians has witnessed a downward trajectory following the change to the UK’s post-graduation work rules in 2012, it could be argued that this is not evidence of British hostility towards Indian students. The rules are the same for all nationalities and most nations are sending more students to the UK since 2012, indeed the number of Chinese students in the UK has doubled in the last 5 years. The fact is that fewer Indians have applied to study in the UK, and as said above, 94% of those that do apply are granted a visa.

To add to the complexity of the debate, the UK’s statistics indicate that there are 100,000 Indian illegal immigrants in the UK – the largest representation of illegal immigrants from any nationality in the UK. Despite the UK’s numerous attempts to enter into a bilateral agreement with India to facilitate the deportation of illegal Indian immigrants in Britain, India continues to resist any agreement, stating that a bilateral agreement will only be considered if the UK relaxes its stance on visas for Indians.

Clearly, there exists a mismatch of understanding and expectation. Whilst the UK is home to more illegal Indian immigrants than it is to any other nationality, and nevertheless issues more work visas to India than it does to all other countries combined, India continues to expect a simpler, fairer visa process from the UK.

The exclusion of India from the UK’s list of countries who will benefit from relaxed student visas and the UK’s refusal to enter into a UK-India Social Security Totalisation Agreement may on the surface seem unfair to a commonwealth partner. However, viewed through a different lens they could seem reasonable.

Nevertheless, a survey carried out by UK India Business Council and Confederation of Indian Industry found that difficulties in obtaining visas and work permits for Indian professionals is seen as one of the greatest obstacles that needs to be addressed when drawing up a UK-India FTA. Unless the two countries overcome the mismatch of understanding and expectation, it seems unlikely that India will agree to a FTA with the UK.

What should both countries be doing to lay the foundations for a possible FTA in the future?

Both the UK and India need to be mindful of their shared history. It is vital that they share positive mindsets and positive connotations of the other and realise the importance of nurturing friendship in trade negotiations to foster a future FTA.

The UK is the largest G20 investor and employer in India and has played a substantial role in the growth and development of India. British companies in India have generated around 790,000 jobs and around 32% of the 1.96 million jobs created by FDI are in the services sector – the UK’s strong point (services make up around 80% of the British economy). The UK services sector would be the main beneficiary of a future FTA with India.

It is important to note that successes like HSBC, Standard Chartered Bank and G4S have all helped drive business growth in India. British banking and financial services company HSBC, which was one of the first financial institutions to bring electronic banking technology to India, continues to be one of India’s leading financial services groups, employing more than 32,000 people in India. Likewise, G4S, the leading security solutions group in India, has more than 160 branches and employs more than 130,000 employees throughout India. The collaborative relationship is, however, certainly not just one-way. The UK has also welcomed businesses and professionals from India; both ICICI and Axis banks have set-ups in London, and India is one of the largest sources of foreign direct investment into the UK. The two countries should build on this symbiotic relationship if a FTA is to be the end goal.

Collaborations to generate positivity and recognition:

The UK should continue and increase collaboration with India to help create stronger ties in the lead up to a potential FTA. The UK should seize the opportunity to participate in and therefore benefit from the new reform programme laid out by Prime Minister Modi, which in turn should facilitate business and open-up new opportunities for UK companies in India. Modi’s campaigns for a ‘New India’ consist of initiatives such as ‘Digital India’, the ‘Smart Cities Mission’, ‘Make in India’, Start-Up India’, the ‘Clean India Movement’ and ‘Skill India’, all of which could greatly benefit from the UK’s help and expertise. Sadiq Khan’s plan to improve London’s digital infrastructure and ultimately make London one of the world leaders in Smart City initiatives could, for example, greatly help India develop and grow its technological and digital infrastructure. And the knowledge can flow in both directions, with India’s technology giants playing a key role.

In the absence of a FTA, the UK and India should deepen their collaboration to strengthen bonds to lay the technical and atmospheric groundwork for a FTA, which satisfies both India’s and the UK’s demands. There are, of course, collaborations already in place such as, the Joint Economic and Trade Committee (JETCO), the Joint Trade Review, UKIERI (UK India Education and Research Initiative), and the Newton Bhabha Fund, and the UK-India Tech Partnership, all of which should be nurtured to tighten relations and encourage partnership on concepts like innovation. By embarking on more collaborative opportunities, both countries should be more enlightened as to the importance of the roles they play in each respective country. The recognition of the significance of this collaborative role should help generate positive mindsets.

Possible way forward

Currently, both trade in goods and trade in services exist within the EU single market. As laid out in the Chequers plan, after Brexit only goods will be circulated under a “common rulebook” applied to the UK and EU. The one thing that will change is that the UK would have scope in the services sector.

For the UK and India, it is important that both countries continue to strengthen relations across the wide range of areas where there is already a tight partnership. This will create a positive atmosphere in which discussions on a trade deal can take place. As it stands, the big decision seems to be around talent mobility. If the UK gives Indians more access, it could lead to UK services businesses getting more access to the large and fast growing Indian market.

Are there small steps that the UK could take now to change perceptions in India to compete with the likes of the US, Canada, and Australia, all of which, according to Indian perception, have a welcoming attitude towards Indian students and professionals.

The starting point for the UK could be looking into excluding students from the migration statistics and, when an agreement is made between both countries on the return of illegal immigrants, the UK could add India to the list of low-risk countries that will be offered a simplified student visa application process. The UK could also lower the visa fees Indian business and tourist visitors currently pay, and increase the number of scholarships offered to Indian students to study at UK universities under the Commonwealth scheme. A start has been made on this front with Theresa May’s launch of a new visa route for Indian and other non-EU academics which enables them to work and train in the UK for 2 years.

It is as though both countries want a UK-India partnership but neither one is prepared to overcome the mismatch of expectation standing in the way. With both Brexit looming and the wealth of opportunities for India to benefit from the UK’s expertise in technology and services on the horizon, it is surely in both countries’ interests to enhance the role of soft power and make each country as welcoming and as attractive as possible in the hope of securing a future Free Trade Agreement.