Post-Brexit UK and post-Ladakh and lockdown India need each other

The sharp decline in New Delhi’s trust in Beijing following the Chinese intrusion in Ladakh has naturally impacted Sino-Indian trade, which accounted for around 20% of India’s external commerce. Since relations with the United States, Germany, France, Russia and Japan have followed a relatively rising trajectory, Britain was among few untapped economic and strategic options remaining for India to counteract the downside arising from China situation.

When Narendra Modi came to power, British Gujaratis assured David Cameron their poster-boy would fulfil the British prime minister’s desire of a “special relationship” between the two countries. But the RSS propagandist in probably his only press conference since 2014 was given a roasting by British media at 10 Downing Street for his role in the 2002 Gujarat riots and the resultant visa ban imposed on him by the European Union, including the United Kingdom. Whether this disturbed him or not, he showed little inclination towards realising Cameron’s dream.

While the UK managed to secure a virtual free trade agreement for goods (not services) with the European Union, this cannot match the barrierless circumstances of being a member state of a single market. Therefore, Britain's trade turnover with the EU could suffer to a certain extent; and would need to be compensated by increased external commerce elsewhere. Indeed, the Brexiteers are under pressure to fulfil their promise of a quantum enlargement in Britain’s international trade, because of the new freedom to strike deals with any and every country outside the EU after exiting the bloc. India, given the size of its market, is clearly an attractive proposition.

Indo-British trade is a modest £24 billion per annum. Kevin McCole, managing director of UK India Business Council, remarked the Enhanced Trade Partnership (ETP) under discussion – expected to be announced during Johnson’s visit – will set out “a roadmap to an FTA (free trade agreement)”. He disclosed the ETP would cover “tariffs, trade in goods and services and investment”. Sources close to the negotiations indicated lowering of duties on export of Scotch whisky (now at 150%) and Indian textiles are on the cards.

McCole underlined: “In a digital world, where goods supply chains are increasingly regional rather than global, it is clear that IP-rich innovations, technology transfer and digital services are going to drive the future trading partnership between the UK and India.” In other words, an FTA between the two nations is at best some years away. India and the European Union have been wrestling over such a treaty for 13 years without appreciable advance.

Notwithstanding India having the world’s third largest military budget, with an outlay of nearly $75 billion, it is bereft of an adequate production base. So, 74% foreign equity and therefore control in a joint venture is now permitted to attract overseas investors. A survey carried out by the UK India Business Council elicited a 77% positive response to such opportunity from British companies.

But McCole cautioned: “It’s important to recognise that the UK-India trade and investment relationship will not all be plain sailing.” He cited “there remains some concern that Atmanirbhar Bharat (or Modi’s import substitution policy branded self-reliant India) could lead to protectionist measures”. The response to the poll also expressed concern about Indian tax rates, corruption, legal and regulatory impediments and price points and the UK’s ability to finance and manage ventures in India.

But the common concern over China could reinvigorate defence cooperation. Modi’s preferred approach has been controversial government-to-government transactions. Rahul Roy-Chowdhury, senior fellow for South Asia at the International Institute for Strategic Studies, remarked: “The UK does not, as yet, have such a framework for arms sales, relying instead on commercial-led transactions.” He added a draft agreement to correct this is on the anvil and “deliverable during Johnson’s trip”.

A British Aerospace & Defence Industry Group highlighted as “key campaigns” Indian requirements of multi-role combat aircraft, light combat aircraft, a joint venture submarine project and a second Indian-made aircraft carrier and partnerships with Indian public sector undertakings. A memo flagged as “sensitive” distributed by the UK’s Foreign and Development Office in December also alerted British defence manufacturers on leasing opportunities along the lines of Russia contracting out six nuclear-powered submarines for 10 years for a tidy $3 billion.

Britain is the world’s biggest arms exporter after the United States. But its supplies to India, the world’s second biggest arms importer after Saudi Arabia, has lagged behind Russia, Israel, France and the US. No major orders have been clinched by the UK since 2004, other than BAE Systems making or licensing 123 Hawk trainer planes worth around $1.5 billion for the Indian Air Force (IAF) and its sister company in the US supplying 145 ultra-light M-777 howitzers for the Indian Army in a reported $737 million contract. The Eurofighter Typhoon, in which BAE System enjoys a significant stake, lost out to the French Rafale in the IAF’s acquisition of medium multi-role combat aircraft.

But Britain, too, has been stung by China disregarding its commitment to maintain Hong Kong’s non-communist system for 50 years after the 1997 handover by centralising administration of justice in the island. Johnson informed Modi, Britain’s new aircraft carrier HMS Queen Elizabeth with two anti-aircraft destroyers and an equal number of anti-submarine frigates will set sail for the Indo-Pacific in its maiden voyage in spring. The fleet will perhaps rendezvous with the Indian Navy for an annual joint exercise that is due.

The UK’s Government Communications Headquarters, popularly known as GCHQ, is reputed to be a cutting- edge intelligence gathering facility. It does not share its intercepts on Pakistan with India. But could potentially do so vis-à-vis China, thereby strengthening India’s cyber security and technological equipment in warfare.

It would be a demonstration of resistance to China, which under President Xi Jinping, has reincarnated Maoist hostility towards the world with an economic and military might Mao Zedong never possessed.

Johnson has intimate knowledge of India. He was for 25 years married to Marina Wheeler, who is half-Sikh with numerous relatives in Delhi and Mumbai with whom the British PM frequently interacted. But India has not been a priority for him since he entered office at the highest level. He displayed eagerness for a trade pact with the US; and he has actually sealed one with Japan. He will, though, grab the windfall of an understanding with India with both hands.

At the same time, a group of British lawmakers instigated by the Sikh MP Tanmanjit Dhesi, want him to raise the matter of Indian farmers’ movement with Modi and encourage an early resolution. It’s a conversation Johnson is likely to avoid, for it may jeopardise British economic interests.

In the event the new variant of covid causes a postponement of a physical summit (the usual pomp and pageantry of a Republic Day parade would be unbecoming in the current economic and health crisis anyway), the envisaged entente is still likely to proceed.

Johnson and Modi, though, have a tendency of announcing big and achieving small. At this critical hour for both nations, neither the British nor the Indian people are likely to tolerate empty bluster.