An all-weather relationship

An all-weather relationship
An all-weather relationship

'India Global Business' analyses UK-India relations and identifies key areas of cooperation that the two countries must build upon and key areas of divergence that they must bridge in order to fulfil the potential of the relationship. The potential of the relationship is massive, but India and the UK are barely scratching the surface. The optimism that the two countries would sign a trade deal in the immediate aftermath of Brexit and signal closer all round ties has waned considerably but leaders and analysts on both sides remain confident about the future. The two countries share too much in history, culture, people-to-people ties for the relationship to head anywhere else but closer. But realists also admit that despite the synergies in thinking and world views, there are also considerable areas of disagreement between the two governments. As British Prime Minister Theresa May leads her country into an unscheduled election seeking a freer hand on the Brexit negotiations and her Indian counterpart Narendra Modi, strengthened by a mid-term electoral endorsement, embarks on implementing the next generation of economic reforms, we take a look at three areas where the UK and India can cooperate with each other and three other areas that need lots of hard work before the two sides can eye to eye on them.

Global Britain, globalised India

May has made it clear that she views the Brexit vote as a mandate for making Britain even more global and integrated with the world and asserted in no uncertain terms that she does not want her country to retreat into isolationism. “We all want to live in a truly global Britain that gets out and builds relationships with old friends and new allies around the world,” she had said shortly after setting in motion the process for Britain to exit from the European Union. This vision fits very well into Modi's own worldview that sees India as a globalised economic and strategic power that finds its seat in the global high table. This convergence of the visions of the two prime ministers offers a great opportunity for the two countries to cooperate with each other on a range of issues. Britain has been at the centre of the globalised world since the very beginning of globalisation five centuries ago and can help India, among the last countries to be converted to this mantra, iron out the rough edges in its strategies.

Improved trade ties

Trade was raison d'tre of bilateral ties that were first established four centuries ago. Since then, it has been trade that has been the main lubricant greasing the moving parts of this relationship. As Britain's International Trade Minister Liam Fox said, the two countries' “current trading relationship is strong but, more importantly, there is so much future potential”. The figures look good at first sight. In the decade starting 2004, bilateral trade between the two countries grew 170 per cent. That looks impressive - till you measure it against the 800 per cent growth in India's overall trade during this period. The massive relative underperformance is accentuated by a decline of about 8 per cent in 2014-15. The potential remains massive and this is further increased by the fall in the pound sterling relative to the rupee since the Brexit vote. The 15-20 per cent depreciation in the British currency has made UK exports to India that much cheaper, benefiting a host of goods and services such as Rolls Royce, Bentley and Jaguar cars to Hawk trainer jets, Lee Perkins Worcestershire sauce to global investment banking mandates. UK's trade with India is currently at a level lower than its trade with Sweden. Something obviously is amiss. The two countries are aware of this. Prime Ministers Modi and May inaugurated the India-UK Tech Summit in New Delhi on November 7 last year, which will provide a platform for the two countries to explore further cooperation in entrepreneurship, technology, innovation and IPRs. And British International Development Secretary Priti Patel had promised help for the Prime Minister's ambitious Smart Cities initiative. Another area where Indo-UK trade can look for exponential growth is in the area of micro, small and medium enterprises (MSME), which forms the backbone of every country's industrial base and which generates the maximum number of jobs. There is no doubt that for Modi's ambitious Make in India initiative to succeed, India's fragmented and mostly uncompetitive MSME segment has to pull itself up to global standards and become part of the international value chain. And collaboration with British industry and greater trade ties with its MSME segment is one way of achieving this goal.

Soft power exports

Bollywood is the most popular form of entertainment not only in India but also in several parts of Africa, Middle
East, Central Asia and South East Asia. Rajnikanth is the most popular film star in Japan. And steamed rice and curry is Britain's most popular soul food. Despite this massive groundswell of support from local communities across the world, India has fallen woefully short in leveraging its soft power. Before Modi's rise to the office of Prime Minister, no Indian government ever considered integrating the influence of the Indian diaspora with the country's foreign policy goal. Then, unlike the British Council, which is at the forefront of spreading British soft power all over the world, the Indian Centre for Cultural Relations (ICCR) has been used by successive governments as a cushy sinecure for a few favoured bureaucrats and cultural personalities. Many Indians complain that the Nehru Centre in the UK has become a parking lot for authors, artistes and retired bureaucrats who the government of the day in New Delhi want to reward for favours done. India has recently overtaken the UK as the world's sixth largest economy, India and Japan are stepping up their economic and strategic partnerships, the gulf monarchies are increasingly pursuing closer ties with New Delhi and India is emerging as Africa's favourite global partner. There's so much the ICCR can do to push India's interests - in the UK, the US, in Western Europe and the rest of the world. In fact, instead of trying to reinvent the wheel, it can actually cut and paste the British Council template and then tweak it to align with India's own geo-strategic goals. That would give India's cultural diplomacy some real teeth. In a fast changing globe, where countries are jockeying intensely to secure for themselves leadership roles in the emerging new world order, India's soft power could be the thin end of the wedge for New Delhi. Closer cooperation in the three areas shortlisted above will go a long way in fulfilling the potential of the Indo-UK relationship. But as we said at the beginning, there are also areas where the two countries need to narrow the gap in their understanding.

Warm rhetoric, little substance

The biggest issue is to put some substance into their relationship. Analysts are unanimous that India's ties with the UK will remain warm and stable. May's visit last year, her first as UK's Prime Minister, was keenly watched as it was considered a test case on the direction she will take as the UK forges ahead with its relationships with major economies in the post-Brexit phase. There are significant areas of cooperation that the two sides broadly agree they should pursue. Defence equipment, strategic affairs, counter-terrorism, climate change, renewable energy and science and technology are the obvious sectors of collaboration. These are being pursued and this will continue but the big picture seems to be lacking. To use a cricketing analogy, the match is on halt due to a rain-induced break. But it has not yet been abandoned. The full potential will unfold only when there is clarity on the fine print of the UK's divorce settlement with the EU.

Visas for Indian students

India wants an easier visa regime for its students and professionals who want to pursue higher studies or careers in the UK. But the UK government, on its part, has to respect the Brexit sentiment, which was largely driven by anxiety about unchecked immigration into the UK. So, both governments have to be sensitive about where the other is coming from, but at present that does not seem to be the case. The UK announced - just three days prior to May's maiden visit India last year - fresh visa restrictions on overseas students including new two-tier visas that place a premium on the quality of the courses the students wish to pursue in Britain. Her government also announced fresh restrictions on the issue of work visas to control immigration. “The UK will consider further improvements to our visa regime if at the same time we can step up the speed and volume of returns of Indians with no right to remain in the UK,” May had said. That is obviously not what her Indian interlocutors wanted to hear but she seemed oblivious to the fact that her reluctance to ease the strict visa restrictions on students, professionals and visitors from India will make it difficult for the Modi government to proceed with any meaningful trade deal since any concessions to Britain would become politically contentious. Over the last few years, the UK has tightened visa rules for Indians. Since she took office as Home Secretary in the David Cameron led government, the number of Indian students in the UK has fallen from 40,000 to about 25,000. During this time, the number of Chinese students in the UK has jumped almost 60 per cent from 55,000 to 90,000. A massive increase in visa fees, a strict clampdown on issuing work permits to Indian students who complete their higher education in the UK and tougher norms for people to visit family members settled in Britain are the main causes for this decline.
Education is vital for our students and will define our engagement in a shared future. We must therefore encourage greater mobility and participation of young people in education and research opportunities.- Narendra Modi, Prime Minister of India
Since taking office in 2014, Indian Commerce Minister Nirmala Sitharaman and other functionaries of the Indian government have taken up this issue with their counterparts in London but the UK government has shown no signs of relenting on the matter. May did not indicate that she was thinking of any ways of addressing Indian concerns. Instead, her assertions on stepping up the “speed and volume of returns of Indians with no right to remain in the UK” point to a continuation of the hard line approach she had adopted in her previous role as Home Secretary. Sections of the Indian establishment have already begun murmuring about Britain wanting Indian trade but not Indian professionals. The two governments have to quickly bridge this chasm before this sentiment gathers political strength and makes it difficult for negotiators from both sides to engage in meaningful talks.

Ease of doing business in India

India is a vastly different country from what it was even three years ago when Modi swept to power. But to vast swathes of UK industry it remains, at least in perception, a very difficult country to do business in. This is strange, considering that the UK is the largest G-20 investor in India and its companies employ more than 100,000 people in India. To improve India's image, the government of India has to take effective steps to highlight the changes already made in Indian systems and procedures and embark on further reforms to improve the operating environment in India. The UK-India Business Council (UKIBC) and the Confederation of Indian Industry (CII) have shortlisted the following four areas where improvements could lead to immediate benefits: * Tax cuts: A quick reduction in corporate tax rates to 25 per cent as announced by Finance Minister Arun Jaitley in Budget 2015 * GST rollout: Fast and smooth GST implementation. This will improve ease of doing business, cut corruption and improve GDP growth. * Stable tax regime: Having a simple, fair and predictable tax regime * Clarity on plans: Long-term clarity in areas like defence and infrastructure expenditure

Clarity on Brexit

India also wants a clear sense from Britain on the terms of its ongoing divorce with Europe. Indian companies such as the Tatas, Birlas, Essar, Infosys and others have invested billions of pounds in the UK not only to gain a foothold in that country but also to serve the European Union market from their British bases. Following Brexit, their plans of serving the Continental market from across the English Channel have been thrown into disarray. Clarity will emerge only when the roadmap and the fineprint for Britain's exit from the EU become clear. Till then, senior India Inc executives say, Indian companies aren't likely to embark on big-ticket investments in Britain unless a really attractive deal - involving a company with marquee brands or really high technology - comes along. But India would still want May to ensure the interests of the Indian companies that have invested in the UK. Given the lack of clarity on the future of British companies themselves, the May government may not be in a position to ensure such security and that could emerge as another area of divergence between the two countries.

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India Global Business