Immigration Concerns Overshadow India's FTA Ambitions

A few weeks ago, a garment exporter I spoke to told me he wished India would sign the much-delayed FTA or free trade agreement with the United Kingdom. This, he said would help companies like his making specialised textiles and supplying large stores.

The current UK import duty for textiles from India is 9.6% while for Turkey, it is zero, thanks to the UK-Turkey FTA. He said this puts his products at a direct 10% disadvantage as compared to a Turkish manufacturer. The FTA in question, for which discussions began in January 2022 has been circling the pit for some years now.

According to reports, the UK wants cuts in import duties on a range of products, including scotch whiskey, meat, chocolates, and confectionary items. Meanwhile, India wants greater access for skilled professionals in IT and healthcare and zero customs duty for some products.

Access to skilled professionals is another way of saying easier migration which obviously in many cases would lead to immigration.

Not surprisingly, the FTA is stuck. If you were to note some of the rhetoric in the campaign trail in the US right now, you would not be blamed for thinking the US economy is in the doldrums.

Far from it. In the last 10 years, the US economy grew at an average of less than 2%. Last year, it grew 2.9%. This year, the International Monetary Fund (IMF) says it will grow at 2.8% but that figure is an upward revision of the IMF's own July forecast which was at 2.6%.

The US economy has never looked so strong in a long time. If nothing else, the US Dollar is a good indicator, driving down currencies across the world, including India.

Strong economies and democracies also attract immigrants, including from India.

Attempts by Indians to illegally migrate to the USA are rising. A report last week says that in the last year, some 10 Indians were arrested every hour while attempting to cross US orders.

Some 44,000 were detained at the US-Canada border, the highest recorded figure for Indian nationals at that entry point.

You have to remember that individuals who reach that point are not poor by any stretch, having marshalled a fair bit of resources, including airfares and agent fees.

Not surprisingly, immigration is a key issue in the US elections once again. Donald Trump, who, if one were to go by Wall Street and the forex market, is poised to return as president, has clearly set the agenda on this one.

Forcing vice president and opponent Kamala Harris to also make commitments on illegal immigration.

The surround sound around immigration is high. Tesla founder Elon Musk for instance has been repeatedly alluding to illegal immigration and has now quite openly thrown his lot behind Trump, a somewhat unusual development even in the US where some businesses can be open about their political preferences.

Unlike India of course.

Musk may have good business reasons to do so but illegal immigration is something that he has been consistently speaking out against.

The Washington Post put out an interesting report over the weekend saying Musk himself worked illegally in the US on a student visa when he became an entrepreneur.

Be that as it may, immigration extends beyond the workforce.

Countries like Canada, Australia, and the UK are already clamping down on students—some more than others—because today's students are tomorrow's immigrants.

The Core Report pointed out several months ago that these countries would severely tighten inflows of students because, among other things, their own infrastructure including housing is being strained. And then there is the cultural context of immigrants.

To return to trade, India is unlikely to be on a strong wicket here if exports of people are a key point on the agenda, even if they are highly skilled IT professionals, as they have been.

Trump has been hinting at tariffs ranging from 10% to 60% on products imported into the US if he returns as president next month. That is mostly aimed at China but other countries including India could get hurt.

Trade talks that follow could see some rationalisation of expectations, but access to labour markets is likely to be off the table, except perhaps in small measures.

India is in a somewhat tough spot here, limited in product exports as well as people exports.

But greater economic gain would lie in the ability for India’s exports to enter countries like the UK at a lower cost.

And thus keep India's factories present and future humming with activity and creating more jobs in the pipeline.