A new chance to seize the India opportunity

When Britain eventually introduces electronic voting, the chances are that India will provide the software and security systems.

The world’s largest democracy has just held one of the world’s most exciting elections, with some 90 million first-time voters, a record turn-out, and over 500 million votes in nearly 2 million electronic
voting machines counted and the result declared within 12 hours on Friday. Whatever your personal
views of the result, the conduct of the election itself has been a model.

India has decisively voted for change, and expectations of the new PM, Narendra Modi are skyhigh. There will be significant change. But as I have heard from business leaders and analysts over recent months and days, continuity will be as important as change.

The UK is one of the largest investors in India. Companies like Standard Chartered and JCB have
been in India so long they are regarded as Indian. Likewise, the Tata Group is now Britain’s largest
manufacturing employer. India’s fortunes directly affect jobs and growth here. So what, realistically,
should British business expect from the new government?

We are already seeing a strongly positive impact on confidence, boosting investment and consumer
demand. Mr Modi will act swiftly to start delivering his promises of ‘less government, better governance’, faster growth and job creation.

He will slim Delhi’s unwieldy structure of overlapping departments and create a smaller Cabinet, with
Ministers and officials tasked to deliver transparent, accountable and clean government. Key departments are likely to have junior Ministers with a business and technocratic background. Fast approvals are likely on major infrastructure and power projects.

Expect a solution of some kind to the retrospective tax issues that are causing such grief to Vodafone
A new chance to seize the India opportunity and many other major foreign investors. A clear statement about tax policy would reassure Indian and international investors end what Mr Modi himself has
dubbed ‘tax terrorism’.

The long-promised Goods and Services Tax (GST) will arrive, probably within the first two years. All this, combined with education and healthcare initiatives will further boost confidence, and opportunities for UK companies.

Internationally, Mr Modi is determined that India should be respected and acknowledged as a leading world power. His first major international destination as PM is likely to be Japan, for which he has a strong affinity – and whose investment India urgently needs; Japan is already the banker of the Delhi-Mumbai Industrial Corridor.

Like any new prime minister, Mr Modi will no doubt emphasise the change. But the reality is that he will
build on and accelerate the previous government’s efforts.

India is 25 years into a journey of economic reform, and throughout all the changes of government during this period and all the heated debates on vexed issues, the direction of travel has been clear, the only question has been timing.

Mr Modi has stressed that he is not interested in reversing the last government’s decisions just for the sake of it. Despite the damaging fall in India’s growth rate and criticisms of the last government, Congress achieved more than they are given credit for.

For instance opening up of FDI, including on retail; and a phased reduction in the fuel subsidies that so distort energy consumption and damage the public finances. Mr Modi’s decisions on infrastructure will complete the work of the special cabinet committee that has cleared dozens of infrastructure projects in the last year.

The last government’s appointee as Governor of the Reserve Bank, the brilliant Raghuram Rajan, will almost certainly remain in place. The controversial extension of food subsidies, enacted by Congress shortly before the election, will probably be transformed into direct payments to low-income
families.

And we should expect the retention of UPA’s highly successful national identity card scheme that has
already enrolled 600 million citizens. But there is a second, critical reason why a Mr Modi
government will mean accelerated continuity rather than disruption – the growing importance of the
States.

There is only one Government of India but there are many governments in India, and the long-term trend of devolution of power to the States will continue.

Over the last decade, Gujarat has grown faster than China. But there is a growing number of other States where confident and competent chief ministers are delivering for their people and being re-elected.

Bihar, for example, which was once a byword for lawlessness is attracting investment, business and
jobs. Innovation by States and competition between them are an increasingly healthy force. Mr Modi, with the BJP already running several key States, is likely to strengthen relations between them and the centre.

Alongside the enthusiasm for Mr Modi, there are deep fears amongst India’s liberal urban-elite and,
even more important, its large Muslim community, that Mr Modi will inflame communal tensions, destroying India’s commitment to secular democracy.

Optimists point to the fact that despite repeated investigations, Mr Modi has been cleared of responsibility for the horrifying anti-Muslim riots of 2002 and, despite Gujarat’s long history of intercommunal problems, it has been free of communal violence since 2002.

Mr Modi himself has made development the watchword of his campaign and refused to be drawn into any discussion of the communal issue, regarding it as a distraction from what all voters want – jobs,
security and clean government. Even before the election campaign began, he challenged some of his
more rabid ‘hindutva’ supporters, telling them that his priority was ‘toilets not temples’.

The fundamental reasons why India matters to British businesses have less to do with government and
much more to do with the size of its consumer and business market.

India has an extraordinary capacity to innovate, and the potential for British-Indian JVs to develop export markets across Asia and Africa is compelling. But there is a very real risk that British companies that ignore India face terminal decline as smarter, cheaper Indian competitors – that should have been partners – win global markets.

Disappointments over the last five years have reinforced negative perceptions about India. Narendra Modi’s election – and the better business environment that will undoubtedly follow – means that
now is the time for British business to seize the India opportunity with both hands.