UK makes cars and whisky key targets in push for India trade deal

Boris Johnson will urge Narendra Modi, his Indian counterpart, to cut import tariffs on British whisky and cars as part of an ambitious plan to negotiate an interim free trade agreement in under a year.

The British prime minister will announce a target to “more than double trade with India to £50bn by 2030” on a visit later this month to New Delhi, according to a government document seen by the Financial Times, although the note admits that securing a full trade deal will be “challenging”.

The “No 10 note on India Trade Policy” confirms that “mobility will likely be India’s priority offensive ask and will be a sensitive issue” — a reference to New Delhi’s perennial demand for greater access to UK visas for university students and workers.

The document, marked “official-sensitive”, also warns that India does “not have a strong track record of delivery”, observing that negotiations over the past decade on an FTA with the EU, Australia and New Zealand had all stalled.

Johnson will become the latest British leader to travel to India deploying grand rhetoric about the prospects for a closer trade partnership. However, those hopes have often been dashed.

The Number 10 note observes that over the past two decades the UK’s “share of India’s imported goods and services fell from 6 per cent and 11 per cent in 2000 to 1.3 per cent and 2.1 per cent respectively”. The UK currently does more trade with Belgium than with India.

A person with knowledge of New Delhi’s position was sceptical there would be a major breakthrough: “We haven’t seen any flexibility from [the UK] on issues important to India — a full FTA seems far-fetched at this stage.”

The UK government believes Johnson’s visit represents a rare opportunity as India rethinks its place in the world. The Number 10 note says: “India is recalibrating its China policy and wants to pursue deeper trade relationships with reliable partners such as the UK.”

But as Johnson seeks a new trade relationship with India, some western companies argue that Modi’s government is failing to honour existing commercial agreements. 

Vodafone, one of Britain’s largest companies, entered the Indian market in 2007 but became embroiled in a complex dispute with the country’s tax authorities, which demanded €3bn in back payments.

An international arbitration court ruled in Vodafone’s favour last year, but New Delhi appealed against the decision in February.

What has changed in India is there is a recognition in light of Covid-19 that you have to make supply chains resilient and reduce dependence on China

Devas, a satellite company based in India and the US, has also been dragged into a crippling legal dispute with Indian authorities over a 2005 contract with Antrix, the commercial arm of India’s space agency.

Devas was last year awarded a $1.2bn settlement, but its Indian unit was subsequently issued with a winding-up order by Indian regulators after it was accused of being a “sham” company. 

David Davis, a former UK cabinet minister, said Johnson should stress the importance of India playing by international rules. “The Indian government’s willingness to ignore court rulings will only damage its own national interest,” he said.

Under the Downing Street trade plan, Johnson would announce in Delhi an intent to negotiate a comprehensive FTA, with talks starting in the autumn and an interim agreement with tariff cuts for both sides in place by March 2022.

An “enhanced trade partnership” would aim to land “early wins” by cutting tariffs ahead of a full FTA, listing levies on “whisky (150 per cent) and vehicles (125 per cent)” as areas that had a “strong offensive interest for the UK”.

However the note says this could be subject to review at the World Trade Organization, which stipulates that bilateral tariff cuts can only be agreed as part of a credible plan for a full FTA covering “substantially all trade”.

Harsh Pant, a director at New Delhi’s Observer Research Foundation, said India was not known for signing trade deals but added: “What has changed in India is there is a recognition in light of Covid-19 that you have to make supply chains resilient and reduce dependence on China.” 

A UK government spokesman said: “We do not comment on leaks. The UK is forging a deeper trade and investment partnership with India that will help both countries build back better from the pandemic.” UK-India trade was worth £18.3bn in 2020.