During a virtual meeting which was held today, the UK’s and India’s Prime Ministers have agreed on a deal that will pave the way towards deeper cooperation between the UK and India.
The new UK-India Trade investment is expected to create 6,500 new jobs within the UK, with an additional £1 billion in FDI.
The creation of these jobs will likely boost the UK economy as individuals will find new employment in new sectors and areas.
Because of this, these newly employed individuals will see a significant rise in their disposable incomes, thus leading to an increase in consumer spending which accounts for 66% of aggregate demand.
This will therefore lead to an overall increase in aggregate demand as consumption rises, helping the UK achieve short term economic growth.
However, due to the demand-pull inflation which occurs as a result of this, price levels rise at faster rates, leading to a faster reduction in the buying power of those on fixed incomes such as state pensioners.
This means the short term economic growth may lead to an increase in poverty levels in the UK as those on fixed incomes will have to cut back on luxuries or maybe necessities as their buying power lowers.
But these rising price levels may only be temporary as the £1 billion in FDI included within the package will lead to the creation of new capital in the economy through gross investment.
So, when Indian firms come to the UK to organically expand, new office spaces and buildings are built, meaning there is new capital in the economy that can be used to produce more goods and services.
Additionally, the agreement is predicted to improve the employment opportunities for 3000 young Indian professionals, thus expanding the UK’s labour force with new ambitious talent.
For these reasons, the UK’s productive capacity increases, therefore leading to an increase in long-term economic growth.
This long term sustained growth is great for the UK economy as the increase in the rate at which price level rise which occurred as a result of demand-pull inflation is effectively negated, thus leading to low and stable inflation which will better the economic outlook of the UK economy as firms can plan ahead and are encouraged to reinvest further as they are more likely to make additional profits.
However, if businesses are busier, the UK economy will likely see an increase in carbon emissions with the introduction of this deal.
Fortunately, this £1 billion will be split with £533 million being allocated towards new Indian investment into the UK which itself will generate 6000 jobs in sectors such as health and technology.
£200 million of the deal is expected to be used on reducing carbon emissions as the agreement will support low carbon growth.
So, although the trade deal will likely lead to higher business activity and carbon emissions, it also attempts to reduce the said issue by allocating a large amount of cash towards green technology.
This will likely help the UK hit its 2050 carbon target of becoming carbon neutral.
Additionally, reducing carbon emissions has massive benefits to UK consumers as every year, 36,000 individuals die of poor air quality.
This means that sizable increases in the quality of air through the reduction of carbon emissions will likely lead to fewer of these deaths, therefore, public health increases and NHS pressure is relieved.
This will help the NHS use its already limited and scarce resources on treating patients who require urgent care, because of this, output per person in the UK may increase as individuals will take less time off work as they are receiving faster treatments.
The full trade deal is expected to be ready by Autumn which will hopefully lead to more positive relations with India as we slowly ease out of the COVID-19 crisis.
If you enjoyed this article and love what we are doing please consider showing us further support by following our social media accounts, we also appreciate any feedback as we aim to improve our work.
Written by Hubert Kucharski
Research compiled by Jonas Theaker