Country trade profile: India

Tue 1 Aug 2023
Posted by: Phillip Adnett
Trade News

Map of India

In the first of a new series of country profiles, the IOE&IT Daily Update profiles the global trade powerhouse of India, looking at the current state of play as well as its trading history.

Currently the world’s fifth-largest economy by GDP, India remains one of the most important global economies. It is situated along several major trade routes and hence the signing of a trade agreement with Delhi has been a major objective for successive UK governments following Brexit.

India’s commerce secretary Sunil Barthwal told reporters last Friday (28 July) that the country wanted “to finalise the deal at the earliest”, mentioning that this could occur before the G20 summit (24-25 August).

Although the UK has said it will only sign “when we have a deal that is fair, balanced and ultimately in the best interests of the British people and the economy”, the prospect of a closer trading relationship with a market of 1.4 billion people is enticing for any government.

Previous attempts to get a deal done by last October came up short, as both sides tussled for their own priorities – tariff cuts on cars and whisky, plus greater service access for the UK, while India wants an opening of food and textiles markets and more visas for its citizens.

Barthwal said that 19 of the 26 chapters are closed, although difficult issues such as investment and visa access remain unresolved.

Indian trade agreements with Australia and the UAE show growing openness to deals, but achieving the right deal for the UK is proving tougher.

‘Trading’ history

The UK has a long trading history with India, predating the British Raj’s control over the sub-continent, with trade flourishing throughout the 17th and 18th centuries, as spices, textiles and tea were the main commodities exchanged.

Later, this trade became seen as a lopsided way for colonial authorities to transfer wealth from India, at the time one of the richest countries in the world, to the UK.

Trade between the UK and India continued to grow throughout the 19th century, with cotton becoming the main commodity exchanged. Foods such as wheat and rice were also shipped back to docks in Southampton, London and Felixstowe.

These relationships remain strong in some cases and Southampton officially twinned with Mumbai in November 2021.

Closed markets

After it achieved independence in 1947, India’s economy turned away from trade and focused on domestic production and consumption, mainly looking to protect these markets rather than expand internationally.

Following a currency crisis in the 1990s, India was forced by the International Monetary Fund (IMF) to open its markets, but it retains a reputation for foot dragging on trade deals. The EU has reopened talks with India, after an initial effort in 2013 faltered.

However, developments such as the EU’s Carbon Border Adjustment Mechanism (CBAM) have been seen by Delhi as unfair on India and could yet hinder progress.

Fast growth

The size of India’s economy makes any trade deal an enticing prospect, as it could open a multitude of markets for international traders.

This year saw India overtake China in terms of population, and its economic growth is now beating China’s.

The IMF has predicted that India’s GDP will be the fastest growing large economy in 2023, although it will dip slightly in 2024 to 6.1% from 7.2% this year, before rebounding moderately to 6.3%.

Opportunities

India’s trade success has come despite not being a part of two of major global trade blocs – the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP).

Membership of both organisations would require India to make economic concessions that are a bridge too far for a country with a long memory of the damage unfettered imports from the UK had on its colonial-era economy.

Existing trade deals with Japan and South Korea do little to encourage the naysayers in India to indulge more in free trade.

Reuters reports that India has asked Japan and South Korea to each renegotiate their trade deals to make them “more balanced and equitable”.

India’s trade minister Piyush Goyal has also said India’s free trade agreement with the Association of Southeast Asian Nations (ASEAN) was “unfair” to domestic industry.

UK-India trade opportunities

India has emerged as a powerhouse in services trade. It also has strong exports of petroleum products, iron and steel, precious stones, engineering goods and others.

According to government figures, total trade in goods and services between the two countries was £35.9bn in the four quarters to the end of Q4 2022, an increase of 45% or £11.2bn from 2021.

Exports from the UK to India were worth £15.1bn in 2022, up 61.5% on 2021, and imports from India amounted to £20.8bn, an increase of 35%. This made India the UK’s 12th largest trading partner, accounting for 2.1% of total UK trade.

The UK’s top goods exports to India were:

Non-ferrous metals         £3.4bn

Metal ores & scrap          £1.1bn

Generators                         £700m

Beverages                          £300m

Industrial machinery        £200m

The UK’s top goods imports from India were:

Refined oil                                         £1.8bn

Clothing                                             £1.1bn

Telecoms                                           £700m

Generators                                        £500m

Medical & pharmaceuticals               £500m

Services made up 44.4% of exports to India in 2022, worth £6.7bn, up 76.8% on the previous year. The UK imported Indian services worth $9.9bn, representing 47.3% of imports, up 40.8% on 2021.

Whitehall claims that a trade deal has the potential to almost double UK exports to India, boosting the value of trade by as much as £28bn a year by 2035.

India’s top trade partners

Despite its historical links with India, the UK does not feature in its top 10 of trade partners, according to some reports.

Cogport listed India’s main trade partners (2021-22) as:

USA                       $119.4bn

China                    $115.4bn

UAE                       $72.8bn              

Saudi Arabia       $42.8bn

Iraq                       $34.3bn

Since the invasion of Ukraine by Russia, India trade with Russia has soared from $10.6bn to $51.3bn, reports Reuters. India has resisted calls to sanction Russia and has become a major market for its cheap oil, with imports up by 1,144%.

At the same time its imports to Russia have fallen partly due to a failure to reach agreement on trade being settled in rupees, as India endeavours to enhance the global influence of its currency. 

It has had greater success launching a settlement scheme with Bangladesh, enabling trade transactions with its neighbour to be settled in Indian rupees, reports Global Trade Review.