The City’s attention turns east this morning as US Secretary of State Marco Rubio lands in New Delhi for talks with Indian Prime Minister Narendra Modi. The meeting, overshadowed by the UK’s own diplomatic push for a deeper Indo-Pacific trade alliance, signals a fresh wave of geopolitical jostling that could reshape investment flows. For markets, the question is simple: will this translate into real trade volumes, or is it another round of diplomatic theatre?
Rubio’s visit comes at a time when the West is scrambling to secure supply chains away from China. India, with its demographic dividend and reformist rhetoric, is a natural beneficiary. But the devil is in the details. The US wants India to open its markets further, particularly in agriculture and digital services, while India seeks technology transfers and easier visa regimes. The UK, meanwhile, is playing its own hand, having recently concluded free trade agreement negotiations with India that are yet to be ratified. The Treasury will be watching the gilt yield spread closely: any sign of a breakthrough could boost UK exports, but a failure would reinforce the narrative of a slow, bureaucratic India.
From a fiscal perspective, Modi’s government has been walking a tightrope. It needs foreign capital to finance its infrastructure spending, but protectionist instincts die hard. The rupee has been under pressure, and any deal that fails to address capital account liberalisation will be seen as half-baked. For the Bank of England, this is a reminder that global trade fragmentation is inflationary: it raises costs and reduces efficiency. The MPC will be loath to cut rates if supply chains become more politicised.
Investors should note that the Indo-Pacific narrative is not new, but the urgency is. The UK’s push for Comprehensive and Progressive Agreement for Trans-Pacific Partnership accession has been slow, and India remains a holdout. Rubio’s meeting could be a catalyst, but markets have been burned before by summit-driven optimism that fizzles out. I’d be watching the US 10-year yield and the dollar-rupee pair for real reactions. If yields spike, it means the market sees this as a long shot.
Bottom line: the City is right to be sceptical. Trade alliances are built on tariffs, not photo ops. Until we see concrete tariff reductions and investment protections, this is noise. The fiscal hawks in Whitehall will be muttering about opportunity costs while the chancellors dream of export-led growth. I’ll believe it when I see port data improving.
For now, keep your portfolio hedged. The Indo-Pacific is a long game, and central banks are still battling inflation. The only certainty is volatility.
