India-UK relations future Prospects
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The UK and India are natural partners – the world’s oldest democracy and the world’s largest democracy. UK and India’s “current trading relationship is strong but, more importantly, there is so much future potential”
For more detailed Background, See this document from the MEA.
Current Context
- UK Prime Minister Theresa May made India the destination of her first bilateral visit outside the European Union and the signal it sends to the world of the close relationship between India and the UK.
- UK-India agreed on a biennial visit, which is that every two years, the Prime Ministers on both sides would meet.
- Union finance minister Arun Jaitley, is currently in London—and the signalling about the importance and intensity of the India-UK economic relationship
Bilateral Investment
- The UK has been the largest G20 investor in India since 2000. UK companies currently employ around 788,000 people across India—one in 20 of the total organized private sector jobs in the country.
- At the same time, India is the third-largest investor in the UK. Indian companies invest more in the UK than the rest of the EU combined.
- More than 800 Indian companies currently operate in the UK, employing more than 110,000 people.
How do we improve the already strong bilateral investment relationship?
Improving the operating environment in India will make the biggest difference in accelerating FDI (foreign direct investment).
UK-India Business Council suggests that the focus areas can be as follows:
- A reduction of corporate tax rates to the 25% Jaitley signalled in his 2015 budget.
- A smooth and fair implementation of GST. Businesses are confident that it will significantly simplify the ease of doing business. At the same time, it is important to note that there are a number of issues associated with the introduction of the GST, including the treatment of alcohol, petroleum products, and services (such as insurance) that are delivered pan-India. By adjusting the current plans for these sectors, the government will derive even greater benefits for the Indian economy.
- A simpler, fairer and more predictable tax regime
- A medium- and long-term clarity in areas of major government expenditure, for example defence, and on plans for infrastructure development.
Bilateral Trade
- On surface, UK-India trade statistics look good.
- The bilateral trade grew by 170% between 2004 and 2014. But India’s overall trade grew by 800% in the same period. In more recent times, UK-India trade actually fell by around 8% in 2014-15;
A comprehensive UK-India economic partnership will boost direct trade.
- Indian companies can buy goods and services 15% more cheaply from the UK than last June due to the depreciation in the sterling or those seeking to invest in UK businesses to acquire technology, talent and access to markets, the same 15% discount applies.
- There are excellent opportunities to export to the UK as the economy remains fundamentally strong—it is the fifth biggest economy in the world, the second fastest growing market in the G7.
Contentious Issues:
- Visa Issues and mobility of Indian ProfessionalsOn India’s part the focus is not only on ways to increase trade in goods, but also on the expansion of services trade, including through greater mobility of skilled professionals.
- Mobility of professionals, students and business people is an important issue for India.
- Britain announced changes in immigration rules—including higher salary thresholds—that are expected to affect Indian professionals and IT companies, particularly those using the Intra-Company Transfer (ICT) visa. Visa fees for Indian tourists, students, business travellers and academicians too are higher than for nationals of other countries like China.
2. Retrospective taxation
- Britain has raised the matter of existing tax disputes of Vodafone Group Plc. and Cairn India Ltd with the Indian government.
- India has assured that we will not resort to Retrospective taxation but cannot do much in on-going arbitration cases. Their request was at least in the Vodafone case; India should expedite the arbitration process or at least should not delay it to bring it to a closure.
3. Tata Steel Ltd is planning to sell all or part of its British business that was expected to lead to some 15,000 job losses in the UK; PM May’s efforts to meet with senior figures at Tata group did not yield results.
4. Issue of extradition
- India expects early extradition of industrialist Vijay Mallya from the UK to face probe in the money laundering case against him as the two countries agreed not to allow fugitives and criminals escape law and resolved to facilitate outstanding extradition requests.
- Former IPL boss Lalit Modi is also evading law in India and the talks may help Indian authorities to push for his early extradition as well.
India has also asked Britain to hand over 57 wanted people, including Chirstian Michel, the alleged middleman in the Augusta Westland helicopter deal.
Areas of Cooperation
- Established Joint Working Group, reporting to JETCO (joint economic and trade commission headed by the trade ministers of the two countries)
- There are partnerships undertaken between Indian and British companies to implement India’s flagship programmes like Smart Cities Mission, Make in India and Digital India, besides other priority areas like healthcare, infrastructure and skill development.
- India and UK combined together to fight and condemn the terror financing arising from Pakistan through FATF.
Conclusion
Relationship between India and the UK is on an upward path, there are challenges as well as opportunities. The opportunities lie in the fact that India and the UK bilaterally have a very strong relationship which can help us manoeuvre in the challenges and resolve the contentious issues.
Questions
- The relationship between India and the UK is on an upward path. BrExit is unlikely to have any impact on India-UK ties. Critically Examine.
- There is an impression that the UK wants India’s market and investments, but does not want India’s talent evident in the form of Visa restrictions. How could India counter it?
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