He has already smashed records by delivering Tories their best victory since Margaret Thatcher in 1987, but to go down in history books, he needs to act like a statesman and for that, it is the economy that needs to take centre stage.
Yes, it is done. Britain has completed its third electoral exercise in four years and this time, the Brits have sent a government with a clear majority and a decisive mandate to deliver. Tories have broken many traditional red walls (some over a century old) and the victory has been driven solely by the clarion call to get Brexit done. It was an uncertainty that had been hovering over the British economy since the June 2016 referendum, something that businesses feel will now finally end with BoJo’s electoral victory paving the way for quick passage of a favourable deal with the EU. Markets and investors love continuity and stability and both the currency and equity markets celebrated. FTSE 100 ended with a gain of 1.1% as British stocks went through the roof (especially the ones which were on a “nationalisation” discount like utilities due to the Labour party’s manifesto). The currency market is expected to witness even more buoyancy as investors are likely to pour more money into the pound that is likely to continue to strengthen against the US dollar.
While the UK’s decision to exit EU and India’s decision not to join the ambitious 15-block trade block RCEP are unrelated events with different reasons, one cannot help but point out a larger global pattern shaping trade decisions.
All this euphoria is on the backdrop of a growing possibility of UK exiting EU with a clear deal in a coordinated manner and its focus on forging trade pacts. (While a no-deal Brexit can never be ruled out, its chances were far higher under Theresa May’s minority government which failed thrice in passing the EU negotiation.)
So while a lot has been written about the larger diplomatic impact of UK’s altered political landscape, this author will focus on the economic relationship between India and UK and if it will transform under a stronger BoJo in his second innings at 10 Downing Street.
While the UK’s decision to exit EU and India’s decision not to join the ambitious 15-block trade block RCEP are unrelated events with different reasons, one cannot help but point out a larger global pattern shaping trade decisions. The future of global trade lies in forging bilateral trade agreements. The WTO died a long time back, but even multilateral trade pacts are being questioned by nations in their limited scope of serving their domestic and unique challenges. Obviously, India-UK bilateral trade has a lot of scopes and there are the thorny issues that need redressal sooner than later. For India, USA is the largest trading partner accounting for 17% of its total exports, as against 3.3% for the UK. At $8.8 billion, the scope to grow is significant. In fact, in 2018, as per the UK’s Office for National Statistics, UK’s exports to India increased at the fastest rate among the country’s top trading partners outside the EU. At 19.3% rise in goods and services trade in 2018, the figures are indicative of the future of the bilateral trade between two sides.
But bilateral trade pacts don’t exist in isolation, instead, they co-exist and work parallelly with other similar such deals. India’s trade deal with the UK will work alongside India’s (proposed) trade pact with the EU. India and EU have been thrashing out details of a proposed pact since 2007 (after 16 rounds of talks reached a deadlock in 2013) and while renewed push has come only in 2018, this writer is of the view that 2020 will witness both the UK and EU keen to sign trade pacts with India. India-EU trade has grown from 28 billion euros in 2002 to 91 billion euros in 2018 and accounts for 16% of India’s overall exports.
If India is able to extradite Mallya or Nirav Modi soon (a long-drawn, protracted legal process is not justice), it will set the stage for a much closer cooperation between the two countries on corruption, black money and economic offences.
From tighter immigration norms to India’s specific concerns related to services to safety standards on food and beverage items to issues related to market access and its impact on agriculture, trade negotiators have their hands full. But India-UK pact will work in tandem with the India-EU pact and UK-EU pact with each impacting the other. So while trade negotiations on these issues have been going for too long, this writer feels a middle ground will be reached to break the deadlock. For instance, on tighter immigration norms that the UK will bring in, the point-based system will ensure the best talent from India is retained. Likewise, some give and take will happen on agriculture and concerns related to IPR.
For a country that depends on a third of its earnings on trade, and with half of that coming from the EU alone, trade pacts will have to be a top priority for the new government, even as UK’s trade deficit of 6% of its GDP will impact negotiations.
The other hallmark of a renewed India-UK strategic partnership will be towards closer cooperation on bringing economic offenders to book. Whether it is Nirav Modi or Vijay Mallya, the perception in India has been that London provides a safe haven to those who looted/cheated the country and its banking system. It is, for this reason, India would want UK to ensure its justice system is not hostile to India’s concerns and laws. Economic offenders must face the law and for that, they need to be extradited. While this is a complicated issue with both political and diplomatic repercussions, bolder decisions are possible only under governments with a strong mandate. Boris Johnson’s huge victory will ensure a lot of elbow room to take quick decisions on these contentious issues. If India is able to extradite Mallya or Nirav Modi soon (a long-drawn, protracted legal process is not justice), it will set the stage for a much closer cooperation between the two countries on corruption, black money and economic offences. It will also send a message globally that economic offenders will not find refuge in the UK to evade their domestic laws.
Of course, Boris Johnson has a reputation of being maverick and unpredictable. He has already smashed records by delivering Tories their best victory since Margaret Thatcher in 1987, but to go down in history books, he needs to act like a statesman and for that, it is the economy that needs to take centre stage.
1. The views expressed here are those of the author and do not necessarily represent or reflect the views of PGurus.