Vote to leave the EU could lead to lucrative free trade deal with India

MUMBAI // A free trade agreement between India and the EU has been awaited for years. Negotiations took place between the two but then stalled because of disagreements over issues including visas, intellectual property and duties. If the UK exits the EU, this could pave the way for India and Britain to negotiate their own independent free trade agreement.

“I think it could be great for UK companies from the Indian context,” says Aditya Berlia, of the Apeejay Stya and Svran Group, a family-run industrialist and investment house in New Delhi. “I think the government could have an India-focused policy, which they couldn’t have with the EU because they are bound by EU tariffs and bound by EU rules.

“The UK can have a very focused India trade policy, which the EU has absolutely failed to do in the past few years. So the UK negotiates a trade agreement independently from the EU and they won’t have to wait for France, Germany and everybody to agree.” He says the Indian and UK economies “are complementary”. “They don’t manufacture the stuff that we do and we consume their services, so it’s a win-win in my opinion.”

Dilip Mehta, the managing director of Pegasus Shipping Agencies based in Mumbai, which ships merchandise to the UK, says “the time horizon will be significant” for a free trade agreement between the two countries following any Brexit. “The question is how long it would take. To execute and create a free trade agreement is a Herculean task.”

He says in the near term, trade between the two countries would be negatively impacted by an exit.

The UK is India’s biggest G20 investor and employer, with UK companies employing about 691,000 people across India, according to a report by CBI, an organisation which represents British businesses. It is the third-largest investor into India. Foreign direct investment (FDI) worth US$22.2 billion flowed into India from the UK between 2000 and 2015, generating 138,000 direct jobs, which accounts for 7 per cent of the 1.96 million jobs created by FDI in India.

“India remains a hugely attractive investment destination for British companies and several of them are now household names in India, doing business in the country for several decades,” according to the CBI report.

These include brands such as GlaxoSmithKline, Unilever and Vodafone.

“British investment in India is focused towards the chemicals sector, which attracts 26 per cent of the total British investment in India,” CBI says. “This is followed by the drugs and pharmaceuticals and food processing industries, which attract 17 per cent and 14 per cent of total British investment, respectively.”

Uday Mathur, who is a member of the British Business Group in Mumbai, says British companies are likely to continue to expand in India, regardless of the outcome of the referendum.

“I think India is still a great place for overseas companies to do business and those considerations are not going to change majorly by the ramifications arising out of this political move in that part of the world,” he says. “I see the pace of commercial and industrial activity only increasing in India. Companies will go where the market is. India is going all out to attract investment.”

India’s prime minister, Narendra Modi, in November made a high-profile visit to the UK to boost economic relations.

A total of £9bn (Dh48.44bn) worth of deals by British and Indian companies were signed during the visit, including plans for a £1.3bn investment by Vodafone.

The UK is keen to be involved in India’s plans for infrastructure development, and to be given the opportunities to win contracts and provide finance in areas that include railways.

CBI says there are “a world of opportunities for UK companies” in India, as the emerging market economy expands.

“The steps by the government of India to liberalise the defence and insurance sector, improve the ease of doing business and launch of Make in India, Skill India, Digital India and smart cities programmes is encouraging.”

Mr Modi visited Brussels in March for the India-EU Summit, where it was hoped that an announcement would be made to restart negotiations on a free trade agreement, officially known as the Bilateral Trade and Investment Agreement, on which talks first started in 2007. But the summit did not result in any concrete indication on when discussions might resume.

Ajay Kothari, who runs a company that manufactures equipment for India’s ministry of defence and who is a member of the British Business Group and the European Business Group in Mumbai, says he thinks that there could be a negative impact on expansion of British companies in India, at least in the short term, if Brexit takes place.

“Any kind of instability in any situation, companies tend to control their expenses and they get a little bit wary of taking any kind of risk. It’s going to be a little bit of a setback initially.”

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