Scotland & the EU Scotland's Economy

Time to get real on post Brexit Indian trade deal

An oft-repeated mantra of the Westminster Brexiteers is that any trade decrease with the EU post-Brexit will be more than compensated for by increased trade with India. This promise will feature strongly as Theresa May campaigns for the now 2017 General Election, seeking a mandate for her hard Brexit plans promising to trade with the EU even though we are leaving the single market, and with the rest of the world even though we will have no trade deals for years.  There is absolutely no evidence to support her view that it will work and as with India, although trade may increase it won’t necessarily be to the UK’s benefit.

The truth is that the UK will have to start from scratch in all of its global trade deals and those trade deals can’t be agreed until AFTER the UK’s deal with the EU – as that deal (if there is one) could affect all others.

Recently a Commonwealth report on post-Brexit trade suggested UK trade with India could increase by £2 billion and several British nationalist news outlets seized upon the report. The Express headline stated: “Forget the EU, trade with India could be worth £2bn”. In the same article it claimed that increased trade with India would restore the UK’s balance of payments.

There is a slight problem with this analysis however – its completely delusional, mathematically incompetent propaganda. The report is in fact terrible news for those hoping that India will answer the UK’s post Brexit trade distress call.

The UK has the world’s second worst balance of trade – importing far more than it exports. Looking just at trade in goods and services the UK’s deficit widened to £3.7bn in February from £3.0bn in January 2017. So a £2bn increase in trade with India wouldn’t even amount to two thirds of the UK’s monthly trade deficit, and not one 20th of our annual deficit if the £3.7bn figure remained steady – but it won’t.

Currently as much as 44 per cent of the UK’s exports go to the EU and that amounts to £240bn a year, so a fall in exports to the EU after Brexit would dwarf the hoped for £2bn from India. The Centre for Economic performance at the London School of Economics has suggested that Brexit will reduce UK GDP by between £26bn with an EU trade deal and £55bn with no deal. So even if the £2bn growth repeated every year for 10 years it couldn’t replace the economic activity we are walking away from.

Commonwealth nostalgia and not economic reality is driving the India trade dream. Philip Hammond said that he thinks it will be easier to do deals with India due to a “shared culture” and past connections. However Indian trade experts see India as a rising economic power that will want to dictate trade terms.

Calculating GDP at Purchasing Power Parity (PPP) India ranks third in the world behind only China and US, whilst UK has fallen to 10th and inflation and currency falls post-Brexit will lower the UK’s standing even further.

India also views the British Empire with more realism, remembering among other things the Amritsar massacre, mass starvation in Bangladesh, that many call an act of genocide, and the forced partition of the nation into Pakistan and India on the day before Indian independence.

If there is a special/cultural relationship then why in the past five years has trade between India and the UK fallen from $15.7bn a year to $14bn? Currently only 1.7 per cent of UK exports reach India, less for example than are sold to Sweden. Last month the Indian Government hinted that it thinks it will get a better deal from a post-Brexit weakened UK by allowing a bilateral investment deal lapse, removing protections from investors in India.

A major part of the UK export strategy is based around exporting arms but there is no good news for the UK here either. In the last four years, India has become the world’s number one importer of weapons, accounting for 13 per cent of the global total as it reequips is entire armed forces. Russia, France, Spain and Italy are all doing better in arms sales than the UK which only sold India £34m in arms in 2016 compared to one single deal of £7bn to one French company alone.

Don’t get me wrong I hope the rUK will increase its trade with India after Brexit but there will be two great big Indian elephants in the room as the trade talks start. First of all the reason we don’t have a trade deal with India via the EU is because the EU is protectionist and wants to keep out cheap exports. A trade deal especially with a more powerful India would mean products would be freely traded in both directions and I don’t think the UK government has fully grasped that fact yet.

The average wage for a factory worker in the UK is £7.58 per hour, but in India it’s 73p per hour.

The £2bn of promised extra trade from India won’t even compensate for all the UK factories that will have to close down because they suddenly became uncompetitive.

Farmers get almost 55 per cent of their income from EU grants and the UK can’t replace those if it trades through WTO membership, and so expect food imports from the EU to massively undercut home grown produce. And consider the danger to farming of Indian agricultural exports to the UK when Indian farm workers get as little as 14p per hour versus the UK’s £8.37 per hour.

The EU has ways of dealing with such imbalances such as specifying a shape for bananas that matched the ones that Spain grew but India and African nations didn’t – a much misunderstood protectionist move.

An Indian trade deal wouldn’t even necessarily lower the 150 per cent tariff on Scotch but even the controversial Scotch Whisky Association stated to a Treasury Select Committee Inquiry that: “The EU’s single market, including its regulation of food and drink (including Scotch whisky geographical protection), and its single trade policy, are central to Scotch whisky’s success”.

Secondly, India is pushing for greater liberalisation of the UK visa regime for its students and for intra-company transfers.

On a recent trip to the UK Congress MP Shashi Tharoor stated: “If Britain wants preferential ties with India following Brexit it must make it easier for Indian students.” And India’s leading software development industry body Nasscom called for a high-skilled worker visa agreement with the UK as part of any deal.

Not a problem for Scotland as demonstrated by a Universities UK survey that stated 83 per cent think international students should be able to work in the UK for a fixed period of time following graduation.

However, Brexit was partly driven by promises to slash immigration and half a million Indian software programmers arriving in the UK might not appeal to your UKIP / Tory pro-Brexit voter types and would destroy the UK Government’s ridiculous immigration targets.

About the author

Gordon MacIntyre-Kemp

Gordon MacIntyre-Kemp is the Founder and Chief Executive of Business for Scotland. Before becoming CEO of Business for Scotland Gordon ran a business strategy and social media, sales & marketing consultancy.

With a degree in business, marketing and economics, Gordon has worked as an economic development planning professional, and in marketing roles specialising in pricing modelling and promotional evaluation for global companies (including P&G).

Gordon benefits (not suffers) from dyslexia, and is a proponent of the emerging New Economics School. Gordon contributes articles to Business for Scotland, The National and Believe in Scotland.

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