Britain is likely to explore direct bilateral trade agreements with India which could impart a fillip to sluggish UK-India trade ties after the UK’s exit from the European Union (EU), a Singapore bank said today.
“Post exit EU, the UK is likely to explore direct bilateral trade agreements with other trading partners including India,” said Development Bank of Singapore (DBS).
“This might provide an alternate route to India, in comparison to the tough and the drawn-out negotiations on the EU Free Trade Agreement, in turn providing a fillip to a slowing India-UK trade,” said DBS.
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The UK accounts for 15 per cent of India’s total merchandise trade, but its share has been declining.
Trade in services has also eased, but particularly for the information technology sector, about 17 per cent of India’s service exports heads to the UK, second only to the US, according to the Nasscom.
Investment links are meanwhile notable, DBS pointed out.
UK is the third largest inward investor into India, after Mauritius, and Singapore, with cumulative Foreign Direct Investment (FDI) equity investments of USD 22.7 billion (from April 2000 to December 2015), or eight per cent of the total FDI inflows.
In turn, India is the third largest investor, based on the number of projects, into the UK.
Indian businesses that tap the UK domestic markets are unlikely to face many challenges.
However, firms that intend to utilise UK as a base to gain access into European markets, might have to rethink plans.
A risk here is the imposition of trade barriers, scrapping preferential rates and higher taxes between UK and the rest of EU, which might pose a hurdle for foreign companies to invest in the UK.
These factors could slow investment flows from India to the UK, until more clarity is available in this regard, believes the bank.
Beyond the short-term risk dislocations, India’s domestic focus will also be on the rainfall progress, government’s reform agenda and monsoon parliament session.
Any potential threat to external trade might also likely be offset by the pick-up in consumption spending, thereby leaving the ongoing recovery intact.
“The situation is quite fluid at this stage and thereby risks of sporadic volatility in the G3 currencies and associated shakeout in the global markets should not be ruled out, especially as focus is on EU’s ability to deal with fresh crisis,” it said.