Home / Opinion / Views /  Mint Explainer: The shadows that loom over India-UK FTA

British home secretary Suella Braverman recently expressed her discomfort about “open borders" with India, casting a shadow over the two countries' negotiations for a free trade agreement (FTA). Some experts say the UK has more jobs than job seekers, and skilled immigrants could fix its productivity crisis. Well, yes and no. The abundance of jobs has roots in the quantitative easing (QE) programme that the Bank of England kicked off after the global financial crisis in 2008, which never really got reversed. But things may change soon. Meanwhile, reports suggest an FTA, if it happens soon, will be watered down over migration and other thorny issues including tariffs.

Why is the UK raising the issue of “open borders"?

In an interview last week, the Indian-origin Braverman spoke about the problem of Indians overstaying in the UK. “The largest group of people who overstay are Indian migrants," she said, adding “We even reached an agreement with the Indian government last year to encourage and facilitate better co-operation in this regard. It has not necessarily worked very well," referring to the Migration and Mobility Partnership inked last year between the two countries. The Indian High Commission, however, said it has acted on all cases referred to it by the UK authorities.

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Indians in the UK have been granted more sponsored skilled worker visas than other nationalities, with IT and healthcare getting the lion’s share. Also, thousands of Indian students enroll for studies in the UK each year. According to a PTI report, British colleges and universities had 100,000 Indians in 2020. The Migration and Mobility scheme permits up to 3,000 Indians between 18 and 30 years to work in the UK for two years.

Can immigrants help revive the UK economy?

Some experts say the UK needs to import skilled professionals from India and plug a supply deficit to tamp down prices and boost productivity. The UK’s historically low unemployment rate – at 3.5% in August, the lowest since 1974 – is highlighted to support this proposition. However, the reality is more complex. First, once the British central bank reverses its quantitative easing (QE) programme that's running for over a decade now, the job market is also likely to cool off. Second, employment growth in the UK – and some other OECD countries as well – is driven by low productivity and low-wage jobs, says a 2019 OECD report. Former British prime minister Boris Johnson admitted as much in 2021. So, the opportunities for skilled professionals may be relatively more limited.

Once quantitative easing programme reverses, the job market is also likely to cool off.
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Once quantitative easing programme reverses, the job market is also likely to cool off.

How BoE supported growth, created jobs

The 2008 crisis triggered probably the worst recession in the UK, and its economy didn’t rebound as expected. Bank of England slashed interest rates and kicked off a stimulative quantitative easing (QE) programme in early 2009, buying government bonds and mortgage-backed securities to boost systemic liquidity. BoE persisted with QE for over a decade until December 2021; in fact, unlike the US, the programme never really got reversed. In fact, after the covid pandemic struck, there was another round of QE by BoE, in sync with the US Federal Reserve.

QE supported growth revival initially, and inflation remained low. It also appears to have created abundant jobs over the decade, and unemployment rates in the UK remained quite low by historical standards. Joblessness began dropping from 2012 itself. The economic crisis undoubtedly would have been much deeper without the QE. As the BoE shrinks its balance sheet to fight inflation, some of the job market buoyancy is likely to recede.

The QE didn’t really pump up growth because of structural weaknesses in the UK economy. Low productivity has plagued the UK over the past decade, prompting some experts to argue that an infusion of skilled migrants may lift economic growth, bring down wages and rein in inflation. It may do so to an extent, but once the UK economy is weaned off easy liquidity, the jobs market too is likely to shrink.

What are the other thorny issues around the FTA?

The migration row has overshadowed other hurdles to the FTA, including tariffs and data localization. While the UK is negotiating for a substantial cut in custom duties on imported vehicles, the Indian auto industry has pushed back. India will be negotiating for greater access for its merchandise goods industry, including textiles. Meanwhile, some reports in British media suggest India’s data localization rules preventing foreign companies from moving data out of India, is also a hurdle. It may then be a diluted FTA that gets inked in a few weeks' time, if at all.

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