On the 5th of May 2021, British Trade Secretary Liz Truss and Commerce and Industry Minister Piyush Goyal signed the UK-India Enhanced Trade Partnership (ETP) agreement, aimed at doubling bilateral trade by 2030. This enhanced trade partnership will help to unleash the potential between the 5th and 6th largest economies in the world. This trade deal will generate thousands of jobs for both countries in a variety of fields. This comes at an opportune time for India, which is undergoing a major healthcare crisis. India is also the single largest market that the UK has ever committed to for negotiating a free trade agreement with.
At the virtual summit, the prime ministers of the two countries also unveiled ‘Roadmap 2030’ to expand and deepen bilateral ties and cooperation in 5 areas, namely: people-to-people relationships, trade and prosperity, defence and security, climate action, and healthcare cooperation. The UK government has played a key role during the pandemic in supplying India with critical healthcare machinery, and this trade deal is yet another step in the right direction to strengthen economic ties between the two countries.
In light of the proposed agreement, there are some short term and long term opportunities that UK businesses can tap into;
- Start-ups/ angel investors/fund houses can explore possibilities of joint investments or partnerships to accelerate the growth of technology-enabled start-ups and MSMEs (Micro, small and medium enterprises) who want to scale internationally, especially in the fields of med-tech devices, industrial biotech, and sustainable development. The push for the growth of programs such as the £40 million fast track start-up fund established in 2019 and The UK India Development Capital Partnerships will help boost entrepreneurial connections and two-way investment between the two countries which can ease access for foreign businesses to technically sound low-cost human capital, a burgeoning start-up environment particularly in cities such as Bangalore and Mumbai as well as make use of a plethora of government schemes available to start-ups in the country.
- Lifting (and reduction) of certain tariff and non-tariff restrictions will enable fruit exports of British apples, pears, and quince into India for the first time. This is significant because the trade deal has emphasized the increased cooperation between the FSSAI (Food Safety & Standards Authority of India) and UK regulatory bodies in order to facilitate exports and reduce trade restrictions due to non-tariff restrictions prevailing in India.
- Removal of non-tariff barriers in the fields of healthcare, education, and legal services will allow UK based firms to operate within the country. As per the Advocates Act and the Bar Council Rules, it was stated that the judgments of the Bombay High Court and the Madras High Court hold true, ie: no foreign firms/companies or lawyers can practice the profession of law in India, either in litigation or non-litigation services. These restrictions would be removed (in some aspects reduced significantly) and open a whole new geography for legal firms. Tariff barriers and testing regulations would give a huge push to the medical industry. There is also an increased push for educational institutions from the UK to enter the Indian space in order to tap the underserved and burgeoning Indian education sector, at a time when the New Education Policy enacted in 2020 is looking to transform the education sector.
- There is a huge push to support the use of UK export finance in the form of long term competitive financing to the tune of £4billion, in green transition infrastructure projects which will go a long way to affirm global climate leadership. This will also help to advance geostrategic interests including strengthening manufacturing job bases and various joint research agendas.
- There has been an increased push from the UK to develop Gujrat International Finance Tec-City by setting up a new fund of funds to route its capital investments into India. In an agreement signed by Nirmala Sitharaman and UK’s chancellor Rishi Sunak, the infrastructure finance and policy partnership would help execute investments worth 1.4 trillion in National Infrastructure Pipeline. These steps present a great opportunity for UK businesses to set up shop in India with world-class infrastructure provided in special economic zones having subsidised costs and great access to hugely liquid capital markets because of greater linkages with various financial hubs.
- UK businesses can also make use of the mammoth Production Linked Incentive scheme that’s been implemented by the government of India under the vision of ‘Atmanirbhar Bharat’. Different segments have been target to drive investments into specific areas such as food processing, battery storage, specialty steel, automobile components, etc. The incentive is 4-6% of incremental sales with a defined base year. The largest chunk of incentives is for automobile and auto components companies (INR 57,000 crores), electronics and components (INR 51,000 crores) and pharmaceuticals and APIs (INR 15,000 crores).
- Following the successful launch of the Rupay card in the UK last year, the Enhanced Trade Partnership is looking at increasing efficiency and pace in remittances and other digital payments between the UK & India. This comes at an especially interesting time for the Indian economy when the pandemic has forced businesses and consumers to resort to using a Unified Payments Interface (UPI), which transactions rising 19% month-on-month to hit INR 5.05 lakh crores in March’21. Fintech companies such as Revolut, Wiserfunding, and Starling Bank have made a push into India looking at the potential which could potentially reap dividends in the near future.
This trade deal symbolizes the enhanced commitment and collaboration between the two economies, what Prime Minister Modi refers to as a ‘living bridge’ in light of shared interests. It especially comes at a time when both countries need extensive and sustainable rebuilding efforts to repair the damage the pandemic has caused to economies and infrastructure in both countries.
