Patricia Hewitt: Theresa May’s visit is the start of a new era for UK-India ties
By UK India Business Council (UKIBC)
One year on from Prime Minister Narendra Modi’s 2015 visit to the UK, Theresa May opened the TECH Summit in New Delhi alongside Mr Modi
Image credit: British High Commission, New Delhi/ Flickr
In making this her first bilateral international visit outside Europe, even before the customary call on Washington, Mrs May has clearly signalled that the referendum has made India an even higher strategic priority than it was for her predecessor.
Mrs May’s visit builds on strong foundations. Four of her senior ministers have visited India in the last three months, including International Trade Secretary, Dr Liam Fox, and Priti Patel, the International Development Secretary and former Diaspora Champion.
When it comes to economic relations, the two countries have long-standing and powerful investment ties. The UK has long been the largest G20 investor in India, with over 500 British businesses employing almost 700,000 people in India, with an estimated combined revenue of US$54 billion. India is the third largest investor in the UK, while Indian companies invest more in the UK than the rest of the EU combined.
Each country is vital to the other’s ambitions. Mr Modi’s ‘Make in India’ vision needs continuing investment from British corporates and the City of London, along with more of the technology and know-how that power the UK’s advanced manufacturing sector. In turn, the new UK Government is looking to India for a post-referendum vote of confidence in the form of continuing investment, while India’s high-growth consumer and business markets are a top export priority.
Progress under Modi
Since Mr Modi came to power in May 2014, the Indian economy has accelerated past China with annual growth now at 7.5%. Lower inflation and interest rates, e-government programmes to cut red tape and corruption, together with a new bankruptcy law, have all helped to boost business and consumer confidence. Next April will see the introduction of the growth-boosting Goods and Services Tax, a major step towards a genuine single market across India’s 29 States.
The Modi Government has also moved rapidly to ease foreign direct investment. When the FDI limit in single-brand retail was abolished, the first to respond were Yorkshire-based Pavers Shoes, whose Union Jack branding is in all major Indian airports. In insurance, with the limit raised to 49%, Standard Life, Aviva and Bupa were the first movers. A recent UK India Business Council survey of British business leaders with an existing interest in India found that as a result of the improving operating environment, six out of ten UK companies in India are now more likely to raise their investment.
This week’s Tech Summit, with thousands of delegates from across India, gives Prime Minister May the ideal platform to reassure Indian business leaders that the UK remains open for business. In a country that still too often sees Britain as heritage rather than high-tech, the Summit puts on display our strengths in science, technology and industrial-academic partnerships. The SMEs accompanying the Prime Minister tell a vivid story of innovation. Vernacare, to take just one example, has successfully taken their patented, single-use patient hygiene products into India, creating new jobs, improving sanitation and strengthening the British-based company.
Future potential
Despite the many strengths in the relationship, however, there is much more to do. Bilateral trade grew by 170% between 2004 and 2014 – when India’s overall trade grew by 800%. Since then, trade growth has stalled and the UK is no longer in India’s top ten trading partners, falling behind Japan, Germany and Indonesia. And despite the fact that the UK is the world’s second largest exporter of services and India has the world’s second fastest-growing services sector, UK-India trade in services remains disappointingly low.
Businesses can trade without trade agreements. But such agreements can help unlock markets, boosting living standards for both sides. Indeed, both the UK and India had high hopes for an EU-India trade agreement, now stalled despite nine years of on-off negotiations.
Mrs May will find a warm welcome in India for the idea of a new, post-Brexit bilateral trade deal. And in Delhi and Mumbai recently, I found both senior politicians and Indian business leaders far more positive about a potential trade deal with the UK alone, than with 27 EU members each with their own negotiating issues. Although the UK cannot formally start trade negotiations until after Brexit, Mrs May’s visit should ensure that discussions on trade policy proceed apace.
A trade deal for a modern age
What business in both countries want is a deal that starts with trade in services, rather than tariffs on manufactured goods that traditionally dominate trade deals (an issue that, in any case, will be taken care of should the UK join the EU customs union post Brexit). As more services are delivered digitally, the UK – a leader in e-commerce – and India – a leader in IT services – have a unique opportunity to design a digital-ready economic partnership, including for instance using blockchain technology to create a real-time, paperless customs clearance regime.
But not all services can be digitised. Instead, they depend upon the temporary movement of people, whether tourists, students, IT professionals, architects or lawyers. Mrs May will find ready support from Mr Modi for her desire to ensure control of the UK’s borders, but within that context, any meaningful trade agreement will need to tackle long-standing issues, impact British and Indian companies, around visas and professionals’ ability to travel and work in both countries.
Prime Minister Modi described the UK-India partnership as “unbeatable”. Now, India and Britain have a post-Brexit opportunity that is simply unbeatable. Government and business in both countries must rise to the challenge.
Rt Hon Patricia Hewitt chairs the UK India Business Council and is a former Secretary of State for Trade and Industry
This article was originally published in The Daily Telegraph on Monday 7 November 2016
