India and UK’s ‘common threat perception’ of China could keep delayed trade deal on track

The ‘biggest of them all’ pact was due to be signed by Diwali but appears to have stalled as Liz Truss’ administration cracks down on immigration
And with the Conservatives seeking to oust Truss, the deal is not likely to be a priority, but the ‘common threat perception’ of China could keep it on the table

India

Kunal Purohit

Published: 8:30am, 20 Oct 2022

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A highly-anticipated free-trade agreement between India and Britain appears to have floundered at the last minute as Liz Truss’ government gets tough on immigration, but observers say the “common threat perception” of China means both sides have a reason to cling on to the pact.

Questions have also swirled over the deal’s priority, given that Truss’ governing Conservative Party now seems intent on replacing her – just a month after she was elected party leader.

An unprecedented 80 per cent of voters have a negative opinion of Truss, according to a latest poll by YouGov, making her the most unpopular leader in the UK’s recent political history.

The pact, hailed as “the biggest of them all” by former UK leader Boris Johnson earlier this year, was expected to be signed by the Hindu festival of Diwali that takes place this weekend, a deadline set by Indian Prime Minister Narendra Modi and asserted repeatedly by both sides.

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It had the potential to double trade between India and Britain, the world’s fifth and the sixth-largest economies, from the current US$29 billion. British firms, especially car- and whiskey-makers, were set to gain access to a massive consumer market with notoriously high tariffs and tedious entry barriers. For India, the deal was expected to draw higher investment flows, boost manufacturing and ease immigration rules for its citizens to the UK.

Then last week, British Trade Secretary Kemi Badenoch said the government was “no longer working to the Diwali deadline”, but added that the two sides “were close” to a deal and that they were “still working” on it.

While India’s ministry of commerce and industry did not respond to This Week in Asia’s queries, Indian media reports have quoted sources from the agency confirming that the deal was unlikely any time soon. Speculation in New Delhi was rife that the deal might be signed only next year.

A Department for International Trade spokesperson told This Week in Asia that it “won’t sacrifice quality for speed and will only sign when we have a deal that meets both countries’ interests”, a sign that London was no longer keen to match pace with a deadline set by Modi.

British Home Secretary Suella Braverman had “reservations” about a possible FTA with India and “having an open border migration policy with India”. Photo: EPA-EFE

What changed?

Two recent events might have driven some of this change in the momentum.

Soon after taking over as Britain’s Home Secretary, Suella Braverman had “reservations” about a possible FTA with India and “having an open border migration policy with India”, since the “largest group of people who overstay are Indian migrants”.

Braverman also criticised a deal signed by the Johnson government with India on action against visa overstayers, saying it had “not necessarily worked very well”.

For many in New Delhi, this was a sign that the Truss administration was hardening its stance on immigration – an issue critical to India’s interests. It had promoted easier, relaxed immigration rules for its citizens going to Britain on long-term visas as a key policy, partly as a way to shore up domestic support for the trade deal.

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In addition, after violence broke out between Hindus and Muslims in England’s Leicester City last month, Braverman sought to connect it with “uncontrolled immigration” and its “failure” to integrate with local communities – a move viewed as another swipe at Indian immigrants.

Analysts say that for Britain and its former colony India, this is an instance of a clash between their domestic and global politics on two key counts – trade and immigration.

Kira Huju, a London School of Economics Fellow in International Relations, said the separation between domestic and global politics was getting “impossible to sustain”.

“India – as Britain’s most important former colony, now surpassing the UK in its economic might – brings out the subliminal anxiety that underlies the ‘Global Britain’ narrative,” Huju said.

“The increasing normalisation of anti-immigration sentiment inside the Conservative Party is crucial here, too. India will want a more generous visa regime, which an increasingly anti-immigration Conservative Party will be hard-pressed to make.”

Britain’s political instability, a financial crisis and a sharp decline in the pound likely did not help negotiations for the UK-India trade pact. Photo: Bloomberg

What has not helped is Britain’s political instability – it has been rocked by a financial crisis, and a steep fall in its currency coupled with a cost-of-living crisis, precipitated by a series of economic announcements made by the Truss government within weeks of being sworn in.

Truss sacked her Chancellor Kwasi Kwarteng and Home Secretary Braverman and has apologised for going “too far, too fast” on the economic measures she announced, but speculation is swirling around her ousting by Conservative Party members.

Huju said the trade deal may no longer be “top of the agenda” for Truss. “There is unlikely to be much public attention left for a slow, technical trade deal negotiation with India, and hence few electoral rewards for Truss to pursue one,” she added.

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The China angle

Yet, other analysts believe that even if the deal is delayed and political instability continues in the UK in the short-term, there still remain many binding factors for the two countries in the medium and long term.

Shairee Malhotra, Europe Fellow at the New Delhi-based think tank Observer Research Foundation, says that a “common threat perception” of China was an aspect that would drive the two together.

“The Indo-Pacific region is a key area where both are concerned about China’s assertiveness,” she said. Last week, British cyber-intelligence chief Jeremy Fleming called China’s growing power “the national security issue that will define our future”, accusing Beijing of trying to “re-write the rules of international security”.

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Boris Johnson’s visit to New Delhi in April had reflected Fleming’s concerns. The UK, in a statement during the visit, had said it “will also seek to support India’s requirements for new technology to identify and respond to threats in the Indian Ocean”, without naming China.

Johnson, on the same visit, had also signalled London’s desire to wean India away from its dependence on Russian defence equipment. As Moscow shows signs of escalating the war in Ukraine, London might find space where it could move into it, said Malhotra, calling strengthening defence cooperation with the UK “a key incentive for India” to build stronger ties.

“India is also seeking new defence partnerships for collaboration under its Make in India programme as well as technology transfers, and having the UK participate in its indigenous defence manufacturing industry would give this a huge boost,” she added.