Despite the numerous challenges businesses are facing in the Covid-19 pandemic, Indian industry continues to strengthen its economic engagement with its overseas partners. Its relationship with UK businesses has been strong and remains a pillar of India’s outward orientation. With Brexit now having become a reality, India and the UK need to re-define and strengthen the bilateral economic partnership.
India recently became the Number two FDI contributor to the UK. UK stands as the 6th largest inward investor in India, ranking third among the G20 countries, and accounting for nearly 6% of all inward investment into India for the period April 2000 – March 2020. The COVID19 vaccine developed at Oxford University is going to be manufactured in Pune and represents a shining example of bilateral collaboration.
According to the 2020 edition of the CII Grant Thornton India Meets Britain Tracker, there are now a record 850 Indian companies operating in the UK, with combined revenues of £41.2 billion. Together, they paid £461.8 million in corporation tax and employed 110,793 people. This shows the continued importance of the contribution that Indian companies make to the UK economy.
Trade between the two countries, on the other hand, has not kept pace with FDI flows. According to figures in the Export-Import Databank of the Department of Commerce, Government of India, trade in goods between the two countries in 2019-20 stood at USD $15.5 billion.
CII believes that the level of trade is well below its potential and looks forward to measures to increase volumes further especially in services, with the support of appropriate government policies. Each year, CII organizes the India CEOs Mission to the UK which meets with top government and industry leaders to enhance cooperation and address issues. In September, CII organized a series of virtual meetings to ensure that the dialogue continues.
Three key areas which can help strengthen the India – UK economic partnership are:
The first is that with Brexit out of the way, there is an urgent need to discuss trading arrangements, by way of Free Trade Agreement or Comprehensive Economic Partnership Agreement. The Bilateral Investment Treaty between the two countries is also no longer valid and CII would urge the two governments to actively engage in the process so as to develop a pathway to achieving a Free Trade Agreement between UK and India. Discussions are actively underway to agree to a set of Early Harvest Agreements, in line with the recommendations of the CII UK India Business Forum seeking framework agreements to feed into the FTA.
Second, with supply chains in flux, the time is opportune for India and the UK to enhance the India – UK partnership in manufacturing.
The Government of India has already made significant progress in simplifying bureaucratic procedures, instituting market reforms and implementing fair, effective, and transparent processes to attract foreign investments. There is, therefore, now an enhanced opportunity for UK cooperation and investment to create win-win outcomes particularly in industries such as defence, automotive and pharmaceuticals.
Third is in terms of mobility. Noting India’s progress, growth and marked improvements in ‘Ease of Doing Business’ rankings as also the increased transparency owing to the implementation of the Aadhar and digitisation of processes, India must be recognised as a ‘low risk’. Short term visa routes should be opened up to allow visitors and Tier 2 (General) and ICT visa-holders to conduct training, short business visits and critical. The new points based immigration policy of the UK Government lays out a landscape for a level playing field and CII hopes that it becomes a basis for attracting talent and skills to the UK from India.
As a corollary of the Immigration conversation and an important policy recommendation is the demand for a Social Security Totalisation Agreement between India and UK. A joint report, “India-UK Social Security Arrangements”, by the Confederation of Indian Industry and accountants Moore Kingston Smith reveals that Indian employees working on secondment to British firms must make National Insurance payments to HMRC as well as to the Indian authorities – but cannot claim pension and other benefits in the UK.
The introduction of the Social Security Agreement would help balance what the UK has to offer and put Indian inward investors on an equal footing with US and other international investors who benefit from a full Social Security Agreement, which gives a five-year exemption from UK National Insurance. This measure would increase the UK’s attractiveness as well as send a strong message of welcome to Indian investors.
During the CII interactions with senior leaders in the UK, the commitment of both sides to bilateral trade and investment was evident. We hope that this will translate into the UK’s stronger participation in the Indian economy through win-win investments.