India-UK Economic Relations and Impact of Brexit
By Rashmi Singh

India-UK Economic Relations and Impact of Brexit

Oct. 25, 2016  |     |  2 comments

India is undergoing a transition that could have significant consequences for the world’s economies. It is already the third largest economy in the world (when measured at purchasing power parity exchange rates) and is expected to become the second largest in the coming decades (PWC, 2015). It is predicted that by 2050, India’s working age population could be larger than that of the US and China combined, and its economy 30 times larger than what it is today (O'Neill, 2011; Coyle, 2015). As its economy is transforming with continuous reforms in the ease of doing business, trade facilitation, connectivity, and other administrative reforms undertaken by its government, its economic and political clout is also likely to increase, elevating India to a 21st century superpower. India is looking for new partners in the global race, and for that India is actively forging free trade agreements with other countries across the globe. This represents a great opportunity for the United Kingdom and both countries are in talks to form a free trade agreement (FTA) for trade in merchandise goods.


If the FTA becomes operational soon, there is every chance that the connections between India and the UK could create one of the most important and positive relationships of the 21st century. Over a period of time, India’s trade with the UK has been on the decline. Despite India’s share in total world trade still hovering around 2.2 percent (UN Comtrade, 2015), there is a greater urgency to increase India’s global trade share with increased trade diversification from the advanced economies to emerging and developing economies. However, there is immense potential for an increase in India’s share in global trade if it increases its trade with the UK. Table 1 shows some macroeconomic indicators of both countries.

Table 1. Macroeconomic Snapshot of India and UK

Source: Author’s compilation from various sources. Note: CAB stands for Current Account Balance, Int stands for Interest Rate, Infl stands for Inflation Rate, Unemp stands for Unemployment Rate

Economic Relations


The UK and India, the world’s oldest and largest democracies, share a special partnership, based on their strong economic ties and the indelible human bond formed by the 1.5 million-strong Indian diaspora in Britain. Since India gained independence in 1947, its relations with the UK have remained strong. But as India’s economic importance has grown, the balance in the relationship has shifted. The UK is the largest G20 investor in India, while India was the third largest source of foreign direct investment (FDI) into the UK in 2014, behind the US and France (Mishra, 2015). In 2014 alone, investment from India into the UK increased by 64 percent (Shadbolt, 2015). It is seen that share of the UK in India’s total exports to the world stands at 3.37 percent (Table 2) which has immense potential to grow given the growing closeness between the two economies.


Table 2. Snapshot of India’s Trade and Investments with UK

Source: Compiled from EXIM Data Bank, Ministry of Commerce and DIPP FDI statistics


Bilateral Trade


India’s total trade with the UK has registered a 1.6-fold increase over the past decade. The total trade of India with the UK stood at USD 8,989 million in 2005-06, reached its peak in 2013-14 with total trade of USD 15824.17 million (Figure 1), and came down to about USD 14,023 million in 2015-16. On the other hand, the share of the UK in India’s total trade has declined from 3.56 percent in 2005-06 to 2.18 percent in 2015-16. The export turnover of India to the UK was valued at USD 8.8 billion; while import value totaled USD 5.1 billion in the year 2015-16. India’s trade balance with the UK has remained favorable since 2005-06. India’s trade balance with the UK stood at USD 1128.98 million in 2005-06, which scaled up to USD 3635.68 million in 2015-16 in absolute terms.


Figure 1. India–UK Bilateral Trade


Source: Ministry of Commerce and Industry, Government of India


The compounded annual growth rate of India’s export turnover to the UK from 1997-98 to 2015-16 was 8.3 percent. In 2005-06, India’s yearly growth in exports was 37 percent which dropped to 5.3 percent (Table 3) in 2015-16. Similarly, the compounded annual growth rate of India’s import turnover to the UK from 1997-98 to 2015-16 was 4.2 percent. In 2011-12, India’s yearly growth in imports reached an all-time high of 32.2 percent before reaching an all-time low of (-) 17 percent in 2014-15. In terms of total trade, the year 2005-06 witnessed the highest growth at 24 percent which reduced drastically to 2.2 percent in 2015-16. The compounded annual growth rate in total trade stands at 7.2 percent from 1997-98 to 2015-16.


Table 3. India’s Trade Growth with UK (in %)

Source: EXIM Data Bank, Ministry of Commerce


The percentage share increase/decrease is one of the important measures of foreign trade performance. The UK’s share in India’s total trade was 5.76 percent in 1996-97 (Table 4), which has been decreasing consistently and which has plunged to 2.18 percent in 2015-16. The major reason behind the decrease in trade share with the UK is India’s trade diversion to other world economies.


Table 4. Share of UK trade in India’s total trade (%)

Source: EXIM Data Bank, Ministry of Commerce


Commodity Trade


India’s main exports to the UK include apparel and clothing accessories, machinery and mechanical appliances, footwear and leather, pharmaceuticals and marine products, electrical machinery and equipment, and manufactures of metals, gems, and jewelry. The share of top ten items in India’s total exports to the UK stands at 62.08 percent in 2015-16 (Table 5).


Table 5. India’s Top 10 Exports to UK

Source: Ministry of Commerce and Industry, Government of India


The main imports from the UK to India include precious and semiprecious stones, machinery and mechanical appliances, electrical machinery and equipment, aluminum, aircrafts parts, and plastic products. The share of top ten items in India’s total imports from UK stands at 78.48 percent in 2015-16 (Table 6).

Table 6. India’s Top 10 Imports from UK

Source: Ministry of Commerce and Industry, Government of India


Export Potential


With the UK’s referendum of its departure from the EU, trade between the two is set to be impacted. Hence, the respective trade of the UK and the EU is deemed to be changed with the rest of the world. In pursuance of replacing the trade of UK with the EU, India can potentially become a good market for exports to the UK, concurrent with India being a potential exporter to UK. Furthermore, in order to bridge the existing trade deficit between India and the UK, imports can be curbed, exports can be increased.


Export possibilities exist for India in those products that UK previously imported from EU, but with the Brexit1, it can import these commodities from India in which it is competitive, instead of importing from elsewhere in the world. The magnitude of export possibilities from India to the UK is computed and referred to as “Export Potential.”


For the same, the top 10 commodities which UK imports from the EU have been listed (Table 7). Further, in order to assess India’s global competitiveness in the trade of those commodities, it has been computed using Balassa’s revealed comparative advantage (RCA) index.2 Export potential is calculated as: Min (IEw, UKIw)- IEUK, where IEw = India’s global exports; UKIw- UK’s global imports and IEUK = India’s exports to UK. Untapped export potential has been computed for only 4 products, in which India’s RCA is greater than 1. Whereas a new export potential is also derived in case the UK diverts its total imports from the EU to India in the event of Brexit which is derived from subtracting Min (IEw, UKIEU)- IEUK, where IEw = India’s global exports; UKIw- the UK’s imports from the EU, and IEUK = India’s exports to UK. This is under the situation if the UK replaces all its imports from the EU to India.


Using trade data from 2015, the results of the exercise have been summarized in the following tables. The 4 products, which have the potential to replace their imports from the EU to their imports from India are pharmaceuticals, mineral oils/fuels, pearls and precious stones, and organic chemicals. India’s export potential of these 4 commodities is USD 84.58 billion, which is approximately 69 times of the existing trade of USD 1.23 billion. At the product level, the potential in mineral fuels/oils and precious stones is USD 31.38 billion and USD 31.55 billion respectively, accounting for approximately 75 percent of the total export potential. The estimate of export potential is the maximum possible trade that India and the UK have, if and only if the 2 countries source their buying and selling from each other rather than rest of the world. Hence, these measures are indicative of export “possibilities.”


Also, export potential is derived in case the UK diverts its imports from the EU to India which comes to USD 37.45 billion (Table 8). At the product level, the potential in pharmaceutical products is at USD 12.09 billion, mineral fuels/oils at USD 11.75 billion, and precious stones and organic chemicals at USD 7.6 billion and USD 6.01 billion respectively.


Table 7. UK Top 10 Import Items from EU and India’s RCA

Source: Author’s calculation, compiled from ITC and Trade map

Table 8. Export Potential in Case of UK’s Trade Diversion from EU to India

Source: Author’s calculation, compiled from ITC, Trade map

Note: Export potential is derived from subtracting Min (IEw, UKIEU)- IEUK, where IEw = India’s global exports; UKIw = UK’s total imports from EU and IEUK = India’s exports to UK


Trade in Services


By analyzing India’s trade in services with the UK from 2005 to 2014, it has been observed that India’s trade with the UK has grown at a slow rate if seen from the value of its total trade in services which stood at USD 4407 million in 2005 but increased to USD 9146 million in 2010 (Table 9) in absolute terms registering only a two-fold increase over a period of five years. The total trade in services stood at USD 7324 million in 2014 with a growth rate of 2.4 percent, and reached its peak in 2011with total trade of USD 9943 million with a growth rate of 8.7 percent. The balance of trade with the UK has remained positive except for 2006 and 2014. The export turnover of India to UK was at its peak at USD 6.7 billion in 2011with a growth rate of 15.9 percent which came down significantly to USD 3.6 billion in 2014; while import value totaled USD 3.6 billion in 2014, registering a growth rate of 15.6 percent that same year. The trade balance of India with the UK was at about USD 287 million in 2005, which scaled up to USD 3589 million in 2011 but came down to USD (–) 24 million in 2014 respectively.


Table 9. India’s Trade in Services with UK (in USD million)

Source: Compiled from OECD library, OECD Statistics on International trade in Services Volume 2015/2




According to a report released from the UK Trade and Investment Department (UKTI), India is now the third-largest source of foreign direct investment into the UK. In 2014 alone, investment from India into the UK increased by 64 percent, and is now almost level with France, the UK’s second-largest investor after the US. Throughout in the year 2014, India invested in 122 projects in the UK, compared with 124 for France and 564 for the US. This meant that Indian investment created 7,730 new UK jobs in 2014, and safeguarded a further 1,620 respectively. Meanwhile, the UK India Business Council estimates that the total value of Indian investment in the UK in the 2013-14 financial year totaled £1.89 billion. Overall there are now more than 800 Indian-owned businesses in the UK, employing more than 110,000 people. Many Indian firms such as Tata Motors and its sister businesses Tata Global Beverages and Tata Steel, and the Indian IT firms Infosys and Wipro, have significant UK operations.


Between 2000 and 2015, the UK’s investments in India amounted to USD 22.2 billion; accounting for around 9 percent of foreign direct investments in the country, according to a report by the UK business group the CBI.3 This makes the UK the largest foreign investor in India after Singapore and Mauritius. The CBI study added that in total UK companies are estimated to employ 691,000 people in India, which is 5.5 percent of the organized private sector workforce. There has been a 300 percent increase in the number of British companies setting up in India in the past 10 years and there has been a huge acceleration in different sectors such as e-commerce, services, IT, and education.




India’s sliding trading relation with the UK can be easily attributed to trade diversion to other countries, but exports to the UK have great potential for India. There is an urgent need to rejuvenate this relationship and the governments of both countries need to take progressive measures to enhance trade with each other. India should focus on harmonization of standards related to its product exports which is a burning point of contention with its export partners.


Under the Standards and Quality Programme, India should modernize its testing laboratories and should export only those merchandise which bear the standards and certification that meet the requirements of the UK. India should also encourage its businesses to open marketing offices in the UK to give first-hand information about the latest products and potential customers, and should participate in industry exhibitions and trade fairs organized by the UK in major cities to promote the latest Indian product lines. The export trading houses should be revamped to focus on opportunities and keep track of rules-of-origin laws for enhancement of exports to the UK market.




1. Brexit is the forthcoming withdrawal of the United Kingdom (UK) from the European Union (EU) following the June 23, 2016 referendum on EU membership, but the timetable for withdrawal has not yet been firmly established.


2. Revealed comparative advantage (RCA) has been used to help assess a country’s export potential. The RCA indicates whether a country is in the process of extending the products in which it has a trade potential, as opposed to situations in which the number of products that can be competitively exported is static. It can also provide useful information about potential trade prospects with new partners.


3. The CBI is the UK’s premier business organization, providing a voice for firms at a regional, national and international level to policymakers.




Department of Industrial Policy and Promotion, India (n.d.). FDI statistics. Retrieved from

Coyle, E. (2015). India and the UK: a 2050 vision. The British Council. Retrieved from

High Commission of India (2015). Brief on India-UK bilateral economic relations. Retrieved from


ITC (2016). Trade map. Geneva, Switzerland.


IMF (2016). World Economic Outlook April 2016. Washington, D.C.


Ministry of Commerce and Industry, India (2016). EXIM data bank. Retrieved from


Mishra, L. (2015, June 23). India emerges as third largest FDI source for UK. The Hindu. Retrieved from

OECD (n.d.). OECD statistics on international trade in services volume 2015/2. Paris, France.

O'Neill, J. (2011, November 20). BRICs' rapid growth tips the global balance. The Telegraph. Retrieved from

The World in 2050. Will the shift in global economic power continue? (2015, February ). PWC. Retrieved from

Shadbolt, P. (2015, November 12), Why India is increasing its UK investments. BBC. Retrieved from


UN Comtrade Database. Retrieved from


UKTI (2015). UK inward investment report 2014 to 2015. Retrieved from


What Brexit would mean for relations between India and the UK. (2016, May 2). The Conversation. Retrieved from


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