Get all your news in one place.
100’s of premium titles.
One app.
Start reading
The Guardian - UK
The Guardian - UK
World
Kiran Stacey Political correspondent

A UK trade deal with India was promised by last October. Why is it still not ready?

A flock of birds flies in early morning light in a square in New Delhi's Connaught Place district
New Delhi’s business district, Connaught Place. The UK has struggled to negotiate a trade deal with India. Photograph: SoumenNath/Getty Images/iStockphoto

Liz Truss bowled into Downing Street last summer with a promise to rip up much of what her predecessor Boris Johnson had done. However, one goal remained: she insisted, as Johnson had done, she could deliver a free trade deal with India by Diwali in October.

Whitehall officials were dismayed, therefore, when they received the latest set of demands from Indian negotiators. It was not that Delhi was asking too much, rather that they were not saying what they were asking at all.

“The Indian submission was full of holes,” said one source. “We were not told what tariffs they were willing to grant on whisky; we were not told what they wanted on local sourcing rules – we realised we were a long way from having something signed.”

The deal was not done by Diwali, and is still not ready nearly a year later. With Rishi Sunak travelling to Delhi this weekend for the G20, some had hoped this prime minister would be able to engineer a breakthrough.

UK government officials are pouring cold water on that idea, however. “This is not the time and the place to do it,” said one.

A trade deal with India was one of the great promises of Brexit. Freed from the shackles of the other 27 EU members, the UK would be able to use its shared history and culture with the world’s most populous country to forge an economic agreement that would redefine British trade.

Sam Lowe, a trade expert at the political advisory group Flint Global, said: “In terms of the deals the UK has been doing, this is the one from a long-term economic perspective that could be the most significant.”

The outlines of a deal were clear. The UK wanted lower tariffs on whisky and cars, while the Indians wanted to reduce them on textiles, and secure more visas for their workers and students. The two countries have different areas of industrial specialism, so would not need to protect domestic companies from foreign competition.

In reality, the past 18 months have been plagued by recalcitrance, vagueness, shifting ambitions and political events.

If British ministers thought Brexit was the main impediment to signing trade deals with fast-growing developing countries, they have been thoroughly disabused.

“India negotiates as if it is a country with one billion people, which it is,” said Lowe. “In the UK discourse, it is the big UK negotiating with little India. But India is on course to be one of the biggest economies in the world – we are talking about a country that is huge and doesn’t feel the need to cut a deal.”

Many of those watching the process say Britain has repeatedly misjudged its negotiating power.

Before formal negotiations started, Theresa May went to Delhi to soften the ground, only to infuriate her hosts by lecturing them on immigration instead.

Johnson was better received when he travelled to the capital last year, and felt sufficiently emboldened to suggest a deal would be done by Diwali. Some of those advising him, however, expressed frustration that he was not putting in the kind of work that could have precipitated a breakthrough.

“Boris Johnson wouldn’t take a large delegation with him. He wanted to do this by himself,” said Karan Bilimoria, who has advised successive prime ministers on the deal. “I begged him to take a major business delegation with him. That is how you get things done in India.”

When Truss entered No 10 she continued to insist a deal was possible by October, but behind the scenes her officials were recalibrating. “Deal by Diwali was little more than an alliterative slogan,” said one.

When Sunak came to office, some believed he might be able to finally achieve one of the great dividends Brexit had to offer. A practising Hindu, the son of Indian immigrants and the son-in-law of one of the most powerful business families in India, he seemed perfectly placed to bring the two countries together.

The reality is more complex, however. Firstly, the Murty family into which he has married has occasionally endured rocky relationships with those currently in power in New Delhi.

In 2019, Narayana Murty, Sunak’s father-in-law and the founder of the outsourcing company Infosys, gave a speech in which he warned that no country could make economic progress without “freedom of faith” and “freedom from fear” – words taken by some to be a veiled attack on the Modi government. A month later, the Indian home office cancelled the registration of Infosys Foundation, an NGO run by the company. Reports at the time quoted government officials saying the NGO had violated reporting rules, though the Infosys Foundation insisted it had applied to be deregistered because of a change in the law.

More importantly, Sunak has not put as much focus on securing trade deals as either of his two predecessors.

Sunak’s allies say he is more interested in getting agreements right than getting them done quickly. Some also say the deal Johnson and Truss were about to agree could have damaged the pharmaceutical industry, given the lack of intellectual property protections in the draft text.

Sunak’s detractors, however, call him defeatist. “There is inertia in the system, and it needs leadership to push it on,” said one Truss ally.

Some believe Delhi does not even want a deal, and would rather use the talks as leverage to secure other concessions from the UK, such as the recent rise in visas.

Biswajit Dhar, a trade expert at Jawaharlal Nehru University in New Delhi, said: “Everyone is asking whether India is just stringing the UK along, or whether they just want to keep the UK engaged.”

At times, India has appeared to make demands it knows are completely undeliverable.

One contentious point has been “rules of origin”, which say how much of an item needs to be made in a country to qualify for lower tariffs. At one point, sources said, India tried to implement such strict rules of origin on car manufacturing that the UK would not have been able to export any cars at all under the agreement, given the nature of global supply chains.

There are positive signs, however. This year, India agreed to let international lawyers provide advice in India for the first time – something Britain has long campaigned for. Meanwhile, a new data privacy law would allow international companies to store data outside India – something the government has previously resisted.

Officials on both sides insist progress is being made. During a recent visit to India, Kemi Badenoch, the trade secretary, met her counterpart, Piyush Goyal, to isolate the remaining areas of disagreement: intellectual property protections, rules of origin and how much access UK professional services companies should get.

However, the nature of those disagreements indicates the scale of the challenge that remains. On rules of origin for example, the two sides have not even agreed how to define and ascertain where goods are made.

Nevertheless, many on both sides remain determined to get a deal done. Goyal travelled to the UK last month talking of the need to “add further momentum to the negotiations”.

And many in London insist they will not let the opportunity slip.

“We are in a race here,” said Lord Bilimoria. “The French, the Italians, the Japanese, the Koreans and the Americans are all going there. We need to be there too.”

Sign up to read this article
Read news from 100’s of titles, curated specifically for you.
Already a member? Sign in here
Related Stories
Top stories on inkl right now
One subscription that gives you access to news from hundreds of sites
Already a member? Sign in here
Our Picks
Fourteen days free
Download the app
One app. One membership.
100+ trusted global sources.