Normally there is some sort of a honeymoon period and a party enjoys an uptick in support as a new prime minister takes office. Liz Truss, who took over as the prime minister of the United Kingdom on September 5, has been in the post less than a month and she has upset a lot of people. She set out a radical and contentious economic agenda and it has ruffled feathers.
On September 23, less than three weeks into the job, she and her Chancellor of the Exchequer Kwasi Kwarteng announced a massive set of tax cuts, paid for by long-term borrowing. This package benefits top earners now and saddles future generations with debt. The “trickle down theory” is that low tax encourages entrepreneurship, investment and growth and that a rising tide lifts all boats. Put another way, Truss wants to increase the size of the pie.
Given the sluggishness of the UK economy over the past decade, and the ongoing effects of the self-inflicted wound that is Brexit, some stimulus is needed. This proposed solution elicited a brutal response from the markets. The pound sterling slipped to historic lows against the dollar. Interest rates are climbing rapidly and this adds financial stress to British homeowners who have enjoyed a decade of artificially low borrowing rates and now face a cost of living crisis caused by soaring energy prices.
Last week, the Bank of England had to step in with emergency measures to settle markets (briefly).
The scorn heaped upon her by think tanks, economists (one described her policy as “illiterate”), international institutions such as the International Monetary Fund (it issued a rare rebuke), and a good number of her own colleagues seems to have had a powerful effect: criticism has emboldened her. Truss is doubling down on her plan for growth and dismissing critics as doomsayers. It is a high stakes gamble.
Many outside the UK have no sense of this incoming replacement to Boris Johnson, the former prime minister who resigned under the weight of damning “Partygate” allegations and a mass walk-out of his cabinet colleagues.
Indians were more familiar with Truss’s opponent for the top job, Rishi Sunak. Family WhatsApp groups were awash with memes of chappals piled up outside 10 Downing Street in hope of a first Indian-origin premier. The diaspora will have to wait a while longer before getting one of their own into the top job.
The process by which Truss attained the party leadership, and thereby the prime minister’s job, is opaque involving not a general election but a ballot of some 1,60,000 members of the ruling Conservative and Unionist Party: they skew old, white, male, wealthy and provincial. It is also they who benefit from tax breaks and higher interest rates.
The Opposition Labour Party has roared ahead in the polls suggesting a general election in the near term would see them replace the incumbent Conservatives. But, the government has two years before it must call an election. A week is a long time in politics. Two years takes us to a land far, far away.
Prime Minister Truss’s bet is that she can ride out the immediate brouhaha (the level of anger in her own party means that’s not a given). She hopes to deliver signs of growth and an optimistic vision along with stable interest rates in time for a 2024 election.
Whether her prescription is workable or leads to more political turmoil, some action is needed to lift the UK economy from the doldrums. Post Brexit, its trade with Europe has reduced. A much hoped for trade deal with the United States has not materialised. Last month, the UK economy was overtaken as the world’s fifth largest by India.
Ironically, if there’s hope for Truss in the short term, that too comes from India.
The UK and India are in the final stages of negotiating a free trade agreement. It was Truss, in her former job as Foreign Secretary, who kicked off the process with her counterpart Union Commerce Minister Piyush Goyal. The pressure to get that deal done has now intensified.
Diplomats are hard at work, some in their formal capacities as trade envoys, others shuttling between offices and hotel lobbies on informal missions to keep channels open and sound out key protagonists.
The consensus is that there can and will be an announcement by Diwali – a deadline agreed by Prime Minister Narendra Modi and Johnson on his last official visit to India in April. An agreement is good news for both countries. India has traditionally shied away from free trade deals but has recently signed agreements with the United Arab Emirates and Australia.
The UK deal is more substantive and will be seen as a benchmark and a template for future negotiations, and given India’s ambitions on the world stage there will be more to come.
Signs in recent days suggest the Indian side is using the moment to extract a few further concessions in the contentious areas of imported whisky and automobiles, and no doubt pushing for relaxation on visas for Indian workers to the UK which has long been a bone of contention. But the broad shape of a deal is in place.
Announcing it this month may divert some attention away from the domestic turmoil and give the UK government something to cheer about. Smoother access to a fast-growing market of newly minted consumers, hungry for goods and services has to be a good thing.
For India, there are many benefits from access to UK technologies, advanced research and development facilities, London’s financial institutions and wealthy consumers. A weak pound means a rupee buys you more, whether you are a tourist with an eye on the budget, a parent paying for a child’s university fees, or as a corporate investor, looking to acquire assets in the UK. Now is a good time to invest.
The potential of the UK-India corridor over the coming years is immense. Tycoon Gautam Adani last week posited the notion of India as a $30-trillion economy. India is certainly in a different growth phase to its erstwhile colonial master.
So, it may be that this year at Diwali, a festival associated with prosperity and new beginnings, that, seventy-five years after gaining independence, India can provide a lifeline to a country and economy in need of a helping hand.
Mark Hannant is an entrepreneur, map collector, and the author of Midnight’s Grandchildren: How Young Indians are Disrupting the World’s Largest Democracy. He lives in Mumbai.
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