Post Brexit: the enigma of Free Trade

No less than 800 Indian companies currently do business in the UK, investing $5.95 Billion and generating revenues of $66.5 Billion annually. And the UK ranks 15th amongst India’s trading partners: at $18.2 Billion, it is the subcontinent’s fourth largest inward investor.

So what will Brexit do to that relationship?

The process of EU withdrawal has already proved its potential seriously to undermine the value of Sterling, and that’s important because Sterling receipts account for more than 15% of Tata Consultancy’s global revenues, and Tata is by no means alone amongst Indian companies investing in the UK. Indeed, fearing that a weakened Sterling rate will seriously inhibit future trade, the UK’s Export Credit Agency has already extended $6.4 Billion in credit facilities to companies trading with the subcontinent. The problem, of course, is that this is less than 10% of the revenues generated by Indian companies annually in the UK. Can we seriously expect Sterling to fall by less than 10% when Brexit finally goes live in less than a year?

Obviously not, which is why a Free Trade Agreement (“FTA”) with India is so important for the UK: bolstering weaknesses in the existing trading relationship with an aligned regulatory framework and restricted or zero tariff programmes. Research shows that an FTA would increase India-UK trade by $2.8 Billion a year, and British Ministers have been suggesting the process will be easily accomplished by the end of the “transition period” in 2020.

Hard experience suggests otherwise.

India currently has FTAs with just four other countries (all of which are parties to the ASEAN Free Trade Area) and it is in addition a signatory to BIMSTEC, a grouping committed to technological cooperation in the Bengal Bay Area…and that’s it.

The United States is a far bigger market than the UK, and Donald Trump has, well… trumpeted his desire for an FTA with India for some time, adding to all the trumpeting that has been going on for the last forty years, right up to the point where the US and India start suing each another and stop talking. The US sued India for Solar Panel Subsidy infringements two years ago and is currently threatening to sue again on India’s subsidies for its all-important farming constituency (mildly duplicitous given US protection for its own agricultural interests is legendary (chlorinated chicken anyone?)). There are also fierce disagreements between the two countries on textiles (hardly a minor matter for India), pharmaceuticals, steel (of course) and cars. Indeed, at the last count India was suing the US in 10 cases before the WTO and the US was countersuing in 8. So the chances of an FTA anytime soon between the two are…pretty much zero.

What, then, of the European Union: India’s largest trading partner with 13.5% of the subcontinent’s global trade. Surely India would have signed up to an FTA with Brussels by now?

Not a bit of it. The EU and India started talking about an FTA eleven years ago and stopped talking when Brussels cried foul on generic drug manufacture, Indian farming subsidies (again) and greenhouse gases … the talks have been stalled ever since.

So the next time you hear a member of the UK Parliament bursting a blood vessel to explain how easy it is to strike a Free Trade Deal with India remember: the odds are stacked against it. Better perhaps to forget Brexit and stay focussed on the success the two countries have already achieved together at corporate level, without any Treaties at all. Eight hundred companies investing in and doing business in the UK is, after all, something to be proud of in itself.

And, of course, the powerhouse that is the Indian economy, predicted to grow annually at 7.2% for the next decade, will continue to drive the global economy with or without Brexit. Nobody understands that potential better than Red Ribbon Asset Management, which has placed India at the very heart of its investment strategies since the company was founded more than a decade ago. With an unrivalled knowledge of market conditions on the subcontinent, the Red Ribbon Private Equity Fund offers a unique opportunity to share in that potential.

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Red Ribbon CEO, Suchit Punnose said:

During a recent meeting of the Indian Professional’s Forum held at Chatham House in London (and sponsored by Red Ribbon) the Indian Ambassador was asked what he thought the prospects were of a Free Trade Agreement being signed between India and the United Kingdom after Brexit takes effect next year.

As with this article, the Ambassador didn’t rule it out: but he wasn’t overly optimistic either, pointing out that UK political interests were perhaps too prone to see India through the prism of Empire rather than, as India is more inclined to, regarding the UK as a smaller market than the remaining EU 27.

For my part I find it difficult to predict what the future holds in these uncertain times, but I draw comfort, as the Article does, from the strong trading relationship that exists already between India and the UK. We can expect that to re-calibrate itself after Brexit, but it’s not something we are likely to lose altogether and both countries will be stronger for it.

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