Written evidence from the City of London Corporation (GBI0022)

Submitted by the Office of the City Remembrancer

Introduction

1.      The UK India Business Council recently stated that the UK is the largest G20 investor and employer in India, and plays a substantial role in the growth and development of the Indian economy.[1] British companies have generated approximately 790,000 jobs in India.[2] As about 32% of the 1.96 million jobs created in India by FDI are in the services sector[3], it is reasonable to expect that the UK services sector would be a significant beneficiary of a potential future Free Trade Agreement with India.

Background

2.      The City of London Corporation established representative offices in Mumbai in 2007, together with offices in Beijing and Shanghai in 2008. This was done in recognition of Asia’s growing influence in the world in economic terms following the global financial crisis, at a time when China’s GDP growth was 14.7% and India’s GDP growth was at 9.8% (World Bank). The liberalisation and economic opening up of these two economies, combined with such levels of growth, provided the City Corporation with a strategic opportunity to build a market presence and develop a working relationship between the financial systems of London, Mumbai, Beijing and Shanghai.

3.      The objective of opening these three offices was to:

• support and promote the City as the global leader in international finance and business services;
• support trade and export opportunities for UK firms, with a particular focus on financial services;
• provide market access advice and support for international firms looking to work with the UK and enter the UK market.

India Advisory Council

4.      The City of London Corporation India Advisory Council (IAC) is a group of senior executives in the Indian financial and professional services sector that help guide the City Corporation’s work. Established in 2007, the Council provides guidance on the activities of the City Corporation's India representative office and the City Corporation's overall engagement with India. The group meets biannually in Mumbai and London to discuss a number of issues, including to review progress of the financial services and professional services reforms in India.

Objectives for the UK’s future economic relationship with India

5.      The City Corporation has identified a number of areas where focus should be directed towards further opportunities for collaboration between the UK and India in financial services.

Fintech

6.      The UK has significant expertise in the fintech sector, which provides a useful foundation for collaboration with India as it undergoes a transition towards digitisation. The financial services market in India is largely untapped – 40% of the total population is currently not connected to banks (is ‘unbanked’) and more than 80% of payments in India are still made by cash.[4] This untapped Indian fintech market provides an opportunity for UK fintechs in almost every category, including digital payments, consumer lending, insurance and trade finance.

7.      The City Corporation is currently working, with guidance from the India Advisory Council, with partners including the Indian High Commission, TechCity, Innovate Finance, DIT and the FCO to build a UK-India ‘fintech corridor’ and to identify trade barriers specific to fintech companies.

8.      The City Corporation is also a formal Programme Partner for the High Commission’s Access India Programme (AIP). Access India was launched in September 2017 with the aim of facilitating investments by UK SMEs in India.  The programme seeks to provide both practical and policy opportunities for UK companies and their expansion to India.

9.      To support UK and Indian fintechs to leverage opportunities in India and the UK respectively, the City Corporation has commissioned PwC India to develop a series of three fintech focused reports – to set out a road map for enhancing the India and UK fintech links. The first report ‘India-UK Payments Landscape’ was launched in July 2018.[5] The second will be an Insurtech focused report to be launched in October 2018.

Legal and professional services

10.  Non-performing assets (NPAs) currently pose a severe threat to the Indian economy and financial services sector. As India enforces new legislation (such as the Insolvency and Bankruptcy Code 2016, a mechanism viewed as critical for resolve the NPA issue), the UK is able to offer its expertise in legal and professional services. For example, the City Corporation recently established a Working Group of UK insolvency experts, IP professionals and lawyers to engage with and provide support for the regulator Insolvency and Bankruptcy Board of India (IBBI).

11.  During the last India-UK Economic and Financial Dialogue, India welcomed the UK's support in implementing insolvency reforms, drawing upon the UK's experience to share knowledge, best practices and build capacity in areas such as resolution and insolvency. The Indian Insolvency and Bankruptcy Code (IBC) 2016, follows a system similar to that of the UK’s practitioner-led insolvency procedures, and architecturally the IBC has many similarities to the UK Insolvency Act 1986. This is in the context of a shared common law system.

Green Finance

12.  With the UK a world leader in Green Finance and with India promoting sustainable energy, both countries are well placed to work together on sustainable infrastructure project financing and financial products. However, there continue to be significant challenges with the corporate bond market in India and many of those hurdles impact the green bond market as well – such as limited issuer and investor base, cost of issuance and taxation.

13.  The Indian Green Bonds Council (IGBC) is a Federation of Indian Chambers of Commerce and Industry (FICCI) and Climate Bonds Initiative (CBI) launched in 2016. The aim of the council is to propose solutions towards the development of a green bonds market in India and enable capital market flows into clean energy. IGBC members include banks, financial institutions, rating agencies and think tanks. Through the City Corporation’s Green Finance Initiative (GFI), the City Corporation continues to share its knowledge and experience in green markets with the IGBC.

Rupee internationalisation

14.  ​As the global leader in foreign exchange, the City Corporation has been engaged in developing and publishing policy papers and research on the internationalisation of the Indian rupee (INR) since 2010.[6] According to the Bank of International Settlements, around $1 million INR was traded around the world every day in 2016 – making it the 18th ranked currency.[7] The London Stock Exchange is now the largest rupee denominated Masala bond centre globally with more than 40 bonds listed in total with an equivalent value of over $6 billion (LSE October 2017).

15.  Given the increasingly important role the rupee will play in the global economy in years to come, and based on the City of London’s offshore RMB initiative experience, the City Corporation considers internationalisation of the rupee to be a priority.

Insurance and reinsurance

16.  The Indian insurance industry is expected to grow to US$280 billion by 2020, in large part due to national economic growth and higher personal disposable incomes.[8] However, despite the increase the country remains underinsured, and India’s insurance penetration rate is far below the global average of 6.2%.[9] This places a disproportionate burden on both the Indian government and the taxpayers to cover the cost of losses.

17.  Reinsurance has a fundamental role to play in developing the insurance industry in India, primarily through the provision of loss absorbing capacity, developing world-class product innovations, importing technical skills and sharing expertise. In addition, reinsurance is the primary mechanism by which insurers reduce underwriting risk across classes of business or catastrophe exposures, enabling insurers to reduce capital costs and volatility, thus allowing them the freedom to invest not only in developing their businesses but also in long term investments in infrastructure financing.

18.  India has recently witnessed the growth of a number of insurance start-ups, with businesses that provide alternative distribution channels (mobile technology) and specialised products (mainly for personal insurance). The subsector is still nascent but could potentially transform the sector.

19.  There are number of opportunities for the City of London to work with the Indian reinsurance sector. In 2016, the India-UK Financial Partnership (IUKFP) published a report ‘Development of the reinsurance industry in India’.[10] The City Corporation supports the report’s recommendation to “create a level playing field” to foster a dynamic, competitive and innovative market in India. Realisation of this objective will involve working closely with the Indian insurance regulator, a role that the City Corporation is well placed to conduct on behalf of the City’s reinsurance firms.

Role of Whitehall in building effective relations with India

20.  The Department of International Trade runs a variety of financial and professional services programmes, as well as overseas business delegations to India. The Government’s ‘Fintech Rocketships Programme’, was announced as part of the UK-India Joint Statement published during the visit of Prime Minister Modi to the UK in April of this year, along with a wide range of MoUs, agreements and initiatives across technology. The Awards are a unique Fintech mentoring programme, led by India and the UK’s top fintech mentors. In the first year, at least 20 fintech entrepreneurs from each country will be given the opportunity to experience respective ecosystems and pitch for investment.

21.  The Department also collaborates with Manchester's Investment Development Agency Service (MIDAS) and London & Partners to support businesses coming into the UK.  The City Corporation is pleased to support such programmes and endorses Government backing for these initiatives.

22.  The Lord Mayor of the City of London’s regular overseas visits to India are delivered in close partnership with DIT and in conjunction with the FCO, HMT and DfID.  They provide a ‘B2B’ dimension to the UK-India Fintech channel and build on Government connections with businesses, regulators and government officials in India. The Lord Mayor’s next visit to India is scheduled for October 2018.

23.  The City Corporation’s Chairman of Policy and Resources and the City Corporation’s Special Adviser for Asia carry out a comprehensive policy programme for India, driving forward recommendations and consultation in relation to the priority areas described above. This activity is delivered through international visits to India and domestic activity. This seeks to ensure that the City Corporation’s activity in relation to India has an equal balance of trade and policy to support London’s status as a leading global financial centre and the growth of UK-India trade and investment.

September 2018

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