Prime Minister Boris Johnson has stated that he hopes to reach an agreement with India on free trade before the end of the year. But, as he prepares to meet with his Indian counterpart Narendra Modi, it’s too early to celebrate the chances of an agreement that might be difficult to reach.
No other country consumes as much whiskey as India, which should be cause for celebration for Scotland’s world-renowned industry. However, due to 150 percent levies on imported whiskey, each bottle of Scotch sold in India comes with a high price tag. As a result, the vast majority of whiskey consumed in India is produced within the country’s boundaries. Scotch whisky only accounts for 2% of the market.
If tariffs are removed, the Scotch Whisky Association estimates that exports will increase by £1 billion in five years.
It’s not only whisky: efforts to enter India’s markets are often met with significant trade obstacles, such as tariffs, quotas, and investment restrictions. For example, foreign vehicles are subject to tariffs of up to 100%. As a result, the UK now exports less to India, which has a much larger population, than to Belgium.
That, however, may be about to change. The UK and India began discussions at the start of this year with the goal of reaching an agreement by the end of 2022. Next week is the commencement of the third round (with many more expected to follow).
Such a pact, according to UK Commerce Secretary Anne-Marie Trevelyan, would be a “great opportunity,” potentially more than tripling total trade between India and the UK by 2035, a £28 billion boost.
Australia and the United Arab Emirates have just signed agreements with India, so expectations are high.
When it comes to these negotiations, however, both India and the United Kingdom have wishlists, which might prove to be major roadblocks.
Britain wants broader access to India’s industrial and services sectors, which have historically been closed to international investment. However, trade economists believe that India would be hesitant to remove the safeguards that trade restrictions have given for local industry and employees. Mr Modi may be hesitant to lower tariffs because of the people who distill whiskey within India’s borders.
If India does decrease such obstacles, it will have to make sacrifices in exchange. The UK may face pressure to let Indian items into its market, such as pharmaceuticals. There may also be requests for additional Indian employees to be granted visas.
Last year, nearly 60,000 Indians acquired skilled-worker visas under the new post-Brexit points-based immigration scheme, accounting for around two-fifths of the total. Amitendu Palit of the National University of Singapore, who previously worked in India’s Ministry of Finance, believes the UK could go further and enable more Indian experts to stay in the country for extended periods of time.
Boris Johnson has been emphasising the significance of issuing visas in meeting UK skills gaps, implying that he may be laying the way for expanded eligibility – but it is unclear how voters would react. Immigration has been a contentious topic, especially following the 2016 Brexit referendum.
Is it all worth it? According to the government’s own estimations, a trade deal with India would contribute just 0.2 percent to the UK’s revenue or GDP over the next decade, and only if trade obstacles are significantly reduced.
Some are questioning if a trade pact is desirable at all, given Prime Minister Modi’s recent posture toward Putin’s Russia – India has a stated policy of non-alignment regarding Ukraine.
The UK, on the other hand, is attracted by its future possibilities. By 2050, India might be the world’s third largest economy, with a burgeoning middle class and a lot of money to spend. Getting a bigger piece of that pie after Brexit might be a big victory, especially if a free trade deal with the US has proved elusive.
The initial stages of trade negotiations are frequently the most straightforward. The most difficult material is saved until last. As a result, it may be some time before the actual scope of the situation becomes obvious.
Economists believe that if both parties are ready to make sacrifices, an interim agreement might be struck before the end of the year. However, completing the sale by Christmas appears to be a stretch.
Perhaps in recognition of the complexity, the Scotch Whisky Association has called for a “early harvest deal” that would eliminate whisky tariffs before a comprehensive agreement is reached. While negotiators continue to work out the small print of harder areas behind the scenes, it may be tempting to secure a few favorable headlines and some good cheer.