Labour Party Wins UK Election: Impact on India-UK Trade and Relations

In a peak moment of Conservative Party rule in the UK, The Daily Star, a British tabloid, asked its audience “Will Liz Truss outlast this lettuce?” It was October 2023 and the country was watching as yet another Conservative leader was flailing in her leadership position. The Economist likened her command over the party and her position as equal to “roughly the shelf-life of a lettuce.” Ironically, the lettuce outlived Truss in the last seven-day lap. The national anthem was played to mark the lettuce’s triumph, champagne was uncorked and the video feed was swamped with messages such as “Lettuce Rejoice.”

Humour was the only recourse for a country that watched on as Tory MPs got ready to pick yet another Prime Minister, all the while moving farther and farther away from its own citizenry. But the ultimate joke may have been on the politician herself; in the just concluded general election, Truss became the first former Prime Minister in almost 90 years to lose her seat.

As the Labour Party takes charge in the UK with a towering mandate of more than 400 seats, what does this shift mean for India?

On the economic side, the incoming Keir Rodney Starmer-led government will be keen to finally sign off on a critical landmark free trade agreement (FTA) with India, currently stalled in its 14th round of negotiations. For both India and the UK, there have been a few sticking points.

In May 2021, India’s Prime Minister Narendra Modi and then UK Prime Minister Boris Johnson agreed on a ‘2030 roadmap for India-UK future relations’ to steer cooperation for the next 10 years. The framework included cooperation on areas of education, research, trade, defence, climate and health. By March 2023, the roadmap was refreshed to include a review of critical areas such as security, defence development and foreign policy. The agreement was upgraded to an enhanced trade partnership via a free trade agreement and strengthened security partnerships to tackle crime, terrorism and help with cybersecurity.

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But as the 14 rounds of negotiations reflect, it hasn’t been an easy run. In July 2022, the House of Lords’ International Agreements Committee published a report examining the government’s negotiating objectives. The committee reported that while the potential economic benefits to the UK of a trade agreement with India were high, there were serious concerns. In particular, it warned of India’s history of relatively thin FTAs, historically protectionist policies and different regulatory approaches, essentially flagging fundamental challenges to doing trade with India. In the report’s own words, the negotiating objectives for the FTA had, at times, appeared “overly ambitious and even unrealistic.”

Resetting supply chains

The greatest example of a ‘so near yet so far’ moment for India and FTAs was its decision in 2019 to withdraw from the Regional Comprehensive Economic Partnership (RCEP), an agreement comprising key ASEAN economies, Australia, Japan, Korea, China, New Zealand and India. More recently, the signing of a trade agreement with the four-nation European Free Trade Association (EFTA) that is made up of Iceland, Liechtenstein, Norway and Switzerland provides some hope, and certainly a need for speed. Global supply chains are resetting, bilateral trade agreements are being signed quickly and China looms ever-large in economic partnership agreements worldwide.

From India’s point of view, the tricky one to land will be the ‘people’ conversation. Immigration has been has a hugely emotive issue in British politics. And while there may be a difference of approach between the Tories and Labour on how to limit immigration into the UK, there is bipartisan consensus on the fact that it must be restricted. The Tory years have been marked by unattainable figures for immigration reduction, virulent campaigns to ‘stop the boats’ and controversial schemes to send asylum seekers to Rwanda. But it is worth stressing that Starmer has also promised to reduce net migration if he becomes Prime Minister (a figure that is already trending lower).

New Delhi has been pushing for temporary visas for its service sector workforce under the FTA. Given the UK’s political climate, Labour is likely to negotiate hard on the visa issue, pushing against low-wage migrants and higher dependants, focussing instead on highly skilled global talent.

A new strategic partnership

Data published by the Department for Business and Trade in February 2024 shows that India was the UK’s 12th largest trading partner in the four quarters to the end of Q3 2023, with trade between the two countries reaching £38.1bn. UK exports to India however decreased by 4 per cent to £14.9bn, and imports from India increased by over 18 per cent to £23.2bn over the same period. The incoming Labour government will certainly be keen to better that run rate; its own manifesto talks about seeking a new strategic partnership with India.

But there is an important rider here. This is not the same pre-election India and Prime Minister Modi does not have the same mandate. Starmer and his government will be acutely aware of the high-octane and religiously loaded campaign that was conducted by the BJP and Modi, something that got wide international coverage as did the fact that this was as much a vote for change as it was a vote for a Modi 3.0. The UK government may be chary to paint too chummy a picture, given the Labour party’s stated goals around greater inclusivity and removing discrimination, as also its own poor performance in areas with a high proportion of Muslim voters.

On the political side, there are more similarities than one would think. The Labour vote, a historical mandate by all standards, stands on the rubble of a country decimated on many fronts. A spiralling cost of living crisis, crumbling health infrastructure reflected in a debilitated National Health Service (NHS) and crumbling finances for the public school system. UK’s debt burden is running at 100 per cent of the country’s national income, tax burden is at a seven-decade high and food prices are still 25 per cent higher than they were at the beginning of 2022.

Fourteen years of Conservative governance have spelt all that, with the remaining body blow being the economically precipitous decision to exit the EU through Brexit.

It is an important lesson for the Modi government in India that has barely scraped through this general election and that has consistently denied the realities of acute joblessness, rising household costs, farmer distress and never-before seen levels of inequality.

Also Read | Resurgent Opposition challenges Modi’s parliamentary dominance 

As for the UK’s Indian diaspora, the 2021 census figures show a population of 5.5 million people or 9.3 per cent were from Asian ethnic groups; more than 3 per cent of those identified with the Indian ethnic group. Labour traditionally enjoyed a stronger support base among British Indians but over the years a richer and upwardly mobile Indian community began leaning much more keenly towards the Conservatives. For many in the Indian NRI community an apogee moment came in 2022, when Rishi Sunak made history as the UK’s first Indian-heritage person to become Prime Minister.

In the 2024 elections, Sunak’s party has sunk to never-before seen numbers under his charge. In the last few years, other Indian origin politicians such as Suella Braverman and Priti Patel took on a strident and toxic tone on migrants, promising to build the harshest immigration environment ever seen in the UK. Braverman even vowed to take head-on any legal challenges to the Rwanda policy, promising human rights legislation would not get in her way.

A YouGov study examining voting behaviour among the UK’s ethnic minority groups found that more than half fully intended to vote Labour. Cost of living topped the list of issues that ethnic minority Britons said would be important in deciding their vote in July. No matter how you build and foster hate, it seems no voting group wants to struggle to make ends meet.

Finally, a lesson for India’s mainstream media. The first system shock came in India’s own electoral verdict where both the narrative of a sweeping victory for Modi and the reliability of sponsored exit polls were ripped apart. The Labour Party has traditionally had to navigate a right-leaning and antagonistic national press, particularly across newspapers. But times have changed and voters and audiences can now access diversity of mediums and opinions. Indian mainstream media, that has so far clung to the idea of news as public relations for the BJP may do itself a favour by recognising that partisan reportage favours neither views nor revenues. It certainly doesn’t build credibility.

In the annihilation of the Conservative party in the UK lies an important lesson for India’s current government. Fourteen years is a long time to be in power, to build a legacy and to create change. But if your legacy is a greater economic and social divide, marked by complete disregard for what people actually need, then the reverse can also be true.

For a large sweep of voters, the key imperative was voting the Tories out, much more than it was voting Starmer in. Five Prime Ministers and 14 years later, this is what the Conservative legacy looks like: living standards lie in shambles, Britain’s poorest have been disproportionately hit by the cost-of-living crisis, and ordinary citizens are in many cases much worse off than previous generations were.

If Modi 3.0 runs to its full term, it will be an even longer 15-year spell and a long period to be judged against. What will Prime Minister Modi’s legacy be?

Mitali Mukherjee is Director of the Journalist Programmes at the Reuters Institute for the Study of Journalism, University of Oxford. She is a political economy journalist with more than two decades of experience in TV, print and digital journalism. Mitali has co-founded two start-ups that focussed on civil society and financial literacy and her key areas of interest are gender and climate change.