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Why India trade deal could be two-edged sword for UK

Author: India Weekly
by India Weekly
Posted: Feb 04, 2022

GAINS made from a British trade deal with India could be on a par with those from a pact made with the US but there are also risks attached and they are about exposing the economy to tougher competition, a report has said.

The Guardian has recently reported citing London-based Resolution Foundation think tank that successful talks between London and New Delhi had the potential to gain "first-mover" advantage in India and match the success of German manufacturing exporters to China.

However, it was also noted that there was a risk of Britain’s business service firms being challenged by lower-cost rivals in India which could reflect the experience of American manufacturing against Chinese competition. The British services firms are one of the country’s strongest sectors.

Why India trade deal could be two-edged sword for UK

India is one of the toughest markets in the world to make inroads but is predicted to become the world’s biggest importer by 2050.

British international trade secretary Anne-Marie Trevelyan recently visited India and spoke to its commerce and industry minister Piyush Goyal. The move is seen as a pivot towards trade with Asia after Britain moved out of the European Union and saw a slow progress in talks with the US.

The UK is aiming to become a member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) – an 11-country group that includes Japan, Australia, Canada, Singapore and Chile, the Guardian added.

"While much of the focus has concentrated on becoming the first European country to join the huge CPTPP region, the far bigger potential economic gains and risks lie in more trade with the huge, rapidly growing, but still relatively closed Indian economy," Sophie Hale, principal economist at the Resolution Foundation, told the news outlet.

"Trade liberalisation with India is expected to boost UK manufacturing in the short term, but could also benefit business services, where UK firms already enjoy a competitive advantage, and where demand is set to soar."

Hale’s report said British firms exporting to India at the moment face far higher tariffs (19 per cent on an average) than they do in the US (two per cent) and it gives a far more scope for trade liberalisation.

However, securing a free-trade agreement with India could also give the British firms a first-mover competitive advantage over those in the US and EU that lack preferential access to the Indian economy.

India is predicted to become the world’s third-largest import market by 2050, while its demand for business, telecommunications and computer services – areas where UK export firms do well – is expected to grow by three times over the course of the 2020s.

"But India is changing as well as growing, so any trade deal means accepting uncertainty about the competition that will face UK firms, as the price for access to a fast-expanding market," Hale said.

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Author: India Weekly

India Weekly

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