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British PM Boris Johnson’s visit in January offers a chance for India and the UK to start discussions on a trade agreement (AFP )
British PM Boris Johnson’s visit in January offers a chance for India and the UK to start discussions on a trade agreement (AFP )

India’s services sector set to gain from Brexit agreement

  • Brexit also opens the opportunity for India to sign trade deals separately with both the EU and the UK
  • However, Indian companies who have based their headquarters either in the UK or the EU to serve both the markets may face some challenges

India may emerge as a net gainer from the Brexit deal signed between the UK and the EU on Thursday as services exports from Asia’s third-largest economy are likely to benefit from the curbs on the free movement of professionals between the two markets.

According to the Brexit trade and security deal, UK nationals will no longer have unrestricted freedom to work, study, start a business or live in the EU and vice versa, although both sides will have tariff-free and quota-free access to each other’s market.

“So far as goods are concerned, there is no change. It may sound selfish, but had there been a Brexit without a deal, India would have got better market access in some sectors. The current situation is also good because Indian exporters who were catering to the EU and UK markets will not have the challenge of meeting different standards and registrations for the markets," said Ajay Sahai, director-general of Federation of Indian Export Organisations.

The gains for India are, however, more likely in the services sector because bilateral services trade between the UK and EU is substantial.

“In sectors such as IT, R&D, architecture and financial services, we may gain in both the markets but particularly in the UK. For example, in the IT sector, India’s competitor in the EU, particularly in the lower segment of services, is Poland. Now, because Poland will have restrictions on the free movement of professionals, that may be to the advantage of India," Sahai said.

However, Indian companies who have based their headquarters either in the UK or the EU to serve both the markets may face some challenges due to restrictions on the movement of professionals.

Jayant Krishna, group CEO of the UK India Business Council, said his organization recently conducted a survey of large and small UK-based firms to evaluate the impact of Brexit on their business ties with India. “One-hundred percent of them said Brexit would either cause their businesses in India to grow or have no impact. For the majority (69%), it will have no impact. For 31%, Brexit has caused their companies to plan to do more business with India, which is highly encouraging. Overall, Brexit would certainly have a favourable impact on the business footprint of UK firms in India," Krishna added.

Brexit also opens the opportunity for India to sign trade deals separately with both the EU and the UK. Negotiations for a comprehensive Bilateral Trade and Investment Agreement between India and the EU (including the UK) was called off in 2013 after both sides failed to reconcile differences. A trade deal with the UK now seems more plausible as the country reaches out to the rest of the world to rebuild its credentials as a significant trading power.

Prime Minister Narendra Modi’s invitation to his UK counterpart Boris Johnson as the chief guest for the Republic Day could be the perfect occasion for both sides to start some preliminary discussions for a trade deal, though the UK has prioritized Australia and New Zealand over India for signing free-trade deals.

“It is high time India signs some kind of trade deal with these markets, because the way Vietnam has operationalized its FTA with the EU, we are going to face the heat. In sectors such as apparel, leather goods, footwear, marine products, agro and processed foods, India and Vietnam are close rivals. After the FTA with EU, Vietnam will have the duty advantages of 9.6% in apparel and 6% in marine products, which is huge," Sahai said.

A study carried out by the Commonwealth Secretariat found a well-negotiated bilateral trade deal between the UK and India has the potential to increase bilateral trade by 26%. The UK is India’s 14th largest trade partner with more than $14 billion two-way trade. India has a $2 billion trade surplus with the UK.

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