India-UK Trade: Almost there? | The Daily Brief #220

Summary

In this episode, Anurra Bansil covers major economic and industrial stories. The UK-India trade deal, on the brink of finalization, promises duty-free access for India and easier market entry for the UK, marking a new chapter in global trade. Tata Motors announces a strategic split, demerging its commercial vehicle sector to unlock value and focus on its electric vehicle and luxury segments. The episode also highlights news on Colgate Palmolive India facing distribution setbacks, NLC India's renewable energy project, and India's new rules for coal supply to boost energy production.

Takeaways

• 😀 India and the UK are nearing a major free trade agreement, which is expected to be signed in the coming year after years of negotiation.
• 😀 The UK seeks to diversify its economy post-Brexit by focusing on Indo-Pacific nations, with India being a crucial part of this strategy.
• 😀 The India-UK trade deal is a balanced agreement, focusing not just on goods but also on services, particularly in IT and professional sectors.
• 😀 The deal will grant India nearly 99% duty-free access to the UK for goods like textiles and shrimp, while the UK will benefit from easier access to high-end goods like whiskey and machinery.
• 😀 The agreement includes provisions for Indian IT professionals, consultants, and other service providers to access the UK market more easily.
• 😀 The deal will also simplify visa and mobility regulations, benefiting business travelers and professionals such as chefs and yoga instructors.
• 😀 Tata Motors is restructuring by splitting its commercial vehicle business from its passenger vehicles, EV, and luxury car businesses to unlock more value and attract focused investors.
• 😀 The demerger of Tata Motors will allow each division to operate independently, targeting the right investor base for each part of the business.
• 😀 Tata Motors' commercial vehicle arm remains strong, but the EV and passenger vehicle arms are growing rapidly, with a focus on future mobility and electric vehicle expansion.
• 😀 Colgate Palmolive India is facing challenges as Maharashtra distributors have announced a suspension of purchases due to a ₹200 crore GST demand related to trade credit notes.
• 😀 NLC India Renewables has signed a power purchase agreement for an 810 MW solar project in Rajasthan, part of the government's ultra-mega renewable energy scheme.

Q & A

What is the significance of the trade deal between India and the UK?

The trade deal between India and the UK is significant because it marks a shift in global trade strategy for both countries. It reflects a deeper reevaluation of their respective economic positions, particularly post-Brexit for the UK and India’s more cautious approach towards large trade agreements. This deal is not just about trade; it's part of a larger strategic pivot to access fast-growing markets and promote key strengths like IT services and pharmaceuticals from India's side.

Why did the UK lose its 'passporting rights' and how has it impacted their economy?

The UK lost its 'passporting rights' when it left the European Union through Brexit. This meant UK firms could no longer offer services freely across the EU, which was a significant part of their economy, especially in areas like banking and consulting. The loss of these rights forced the UK to look for new markets outside of Europe, particularly in the Indo-Pacific region, which is reflected in the UK-India trade deal.

How has India’s approach to trade agreements changed over the years?

India’s approach to trade agreements has evolved since 2016. Previously cautious, India moved away from large, broad agreements that heavily favored goods imports. Instead, India began to focus on smaller, more targeted trade deals that aligned with its strengths, such as IT services and pharmaceuticals. This shift has led to agreements with countries like the UAE, Australia, and now the UK.

What does the India-UK trade deal specifically offer in terms of goods and services?

The trade deal offers significant benefits for both countries. India will see nearly 99% of its goods exported to the UK duty-free, including key products like garments and pharmaceuticals. The UK, in return, gets easier access for high-end goods like whiskey and advanced manufacturing products. Services are a key aspect of the deal, with mutual recognition of professional qualifications and easier access for professionals between the two countries.

What are some specific industries that will benefit from the India-UK trade agreement?

Industries that will benefit include India’s textile and shrimp export sectors, with duties being reduced or removed. For the UK, companies in high-end manufacturing like medical devices, food and beverage (whiskey and chocolates), and luxury car brands are expected to gain from this deal.

How will the deal impact the movement of professionals between India and the UK?

The deal makes it easier for professionals from India, such as IT workers and consultants, to work in the UK with fewer restrictions. Likewise, UK service firms, like in telecom and construction, can operate in India without opening physical offices. Both sides benefit from a streamlined process for visa issuance and the recognition of professional qualifications.

What are the key elements of Tata Motors' demerger?

Tata Motors is splitting its business into two separate entities: one for its commercial vehicles (trucks, buses, and heavy-duty vehicles) and another for passenger vehicles, electric vehicles, and Jaguar Land Rover (JLR). This move aims to allow each division to operate with greater independence and clarity for investors, enhancing efficiency and unlocking more value for each segment.

Why is Tata Motors splitting its commercial vehicle and passenger vehicle segments?

The split is designed to simplify operations and allow each business to focus on its specific market. Tata Motors had struggled with managing diverse sectors like commercial vehicles, passenger cars, and electric vehicles under a single umbrella. The separation will help each unit attract the right investors, focus on its growth trajectory, and better manage the distinct cycles and growth opportunities within each sector.

What challenges did Tata Motors face before deciding to split its business?

Before the split, Tata Motors was struggling with poor performance in its car division, particularly the Tata Nano, which failed to take off. The company faced strong competition from brands like Maruti Suzuki and Hyundai. Under new leadership, Tata Motors restructured its operations to become more efficient, eventually deciding to separate its passenger vehicle and electric vehicle units from its commercial vehicle segment.

How will the demerger affect investors and the valuation of Tata Motors' various divisions?

The demerger will provide clearer valuation for each of Tata Motors' divisions. Investors who are focused on electric vehicles or luxury brands like JLR can now invest specifically in those units, without being affected by the more volatile commercial vehicle sector. This separation is expected to unlock value for each business by allowing them to operate more independently and be judged on their own merits.