Written evidence from Confederation of Indian Industry (CII) (CBI0031)

How strong is the UK-India relationship at present? What are India’s perceptions of the Global Britain strategy?

India and the UK have more than 200 years of shared history characterised by democratic traditions, connected cultural institutions and the English language. The shared history is a strong foundation on which the bilateral trade and investment relations are continually nurtured and reinforced.

The relative importance of the India-UK bilateral economic relations notwithstanding, the two-way trade flows have not risen to their true potential. As a case in point, India’s total trade with the UK declined by 10.33% in the period 2011-17.

There is a huge potential to increase bilateral trade in services, considering that the UK is world’s second largest exporter of services and India has world’s second fastest growing services sector, with a CAGR of 9%. However, the bilateral trade in services declined from £6.2 billion to £3.1 billion during the period 2011-16.

On the bilateral investments front, the UK ranks 2nd in terms of investment into India among the G20 countries. The UK accounts for around 7% of all FDI into India (April 2000 – December 2017).

India retains the position as 3rd largest investor in the UK – US and China are ahead. India invests more in the UK than in the rest of the EU put together.

According to the CII-Grant Thornton Report, India Meets Britain 2018, uncertainty around the outcome of Brexit negotiations does not appear to have dented Indian companies’ enthusiasm for the UK as an investment destination. According to the report, in 2017, almost 800 Indian companies were operating in the UK, recording combined revenues of £46.4 billion, generating £2.25 billion of operating profits and paying over £360 million in corporation tax.

Apart from trade exchanges, the two countries have strengthened economic cooperation in other areas. Over 500 UK investment vehicles, as Foreign Institutional Investors (FIIs), have cumulative investments in India in quoted equities of some US$22 billion as at October 2017. New developments in India’s financial services sector – most notably, the increase in FDI limits in insurance - will lead to higher investments in existing joint ventures. Moreover, recent announcements regarding India-UK “strategic partnerships” in the defence sector will likely result in increased bilateral FDI flows.

What should be the main objectives for the UK’s future relationship with India?

In the post-Brexit scenario, we see increased opportunities for India and the UK to intensify bilateral cooperation. Indian Industry is of the considered view that economic and business engagements with the UK continue to hold significant importance, regardless of the outcome of the Brexit negotiations. The UK has relatively low corporate tax rates, offers ease and speed of setting up business in the country, ensures a stable political and security environment, and promotes a strong R&D ecosystem which will all persist, irrespective of the Brexit negotiations. While the UK’s favored position for Indian investors seeking to address the EU markets may abate, it is possible that UK investors would look for investment opportunities outside of their traditional EU base and towards India’s dynamic economy.

Even as India and the UK systematically dismantle the barriers to bilateral trade and investment flows, a gamut of avenues is opening up, some of which will complement the thrust on ushering in ‘Industry 4.0’ in the two economies. Some of the potential areas for broader bilateral collaboration are:

1. Financial & Legal Services: Government of India and the UK Government have jointly identified the importance of the expansion of banking, accountancy, insurance and legal services in India, to both support India’s economic growth, and facilitate competitive international trade. London, as the world’s financial capital, is critically placed to help India raise the capital it needs to continue its impressive economic and infrastructural growth, and UK businesses have the expertise and ambition to meet the rising demand for financial services in India.

Implementation of the key recommendations put forth by the India UK Financial Partnership (IUKFP) with suitable policy and regulatory support extended by the Indian and UK governments will go a long way toward strengthening the bilateral cooperation and partnerships in banking, insurance, legal services and accountancy.

2. Small & Medium Enterprises (SMEs): SMEs are making increasing contribution to the national GDP and trade basket of both India and the UK, and so it would be in the fitness of things for both countries to step up the bilateral SME trade and collaborations, particularly with regard to technology sharing and financing of business.

3. Smart Cities’ Infrastructure development: Government of India has launched an ambitious plan to build 100 Smart Cites across the country with an initial investment of US$1.1billion. The UK Government has agreed to partner in three cities, Pune and Amravati in Maharashtra and Indore in Madhya Pradesh. Recently, Hitachi India Ltd and Siemens Ltd signed an MoU with CII to form a consortium to pilot designing of smart city projects that may replicated throughout the country. We believe that UK companies could consider taking a similar approach and take advantage of this opportunity.

4. Make in India: The UK’s manufacturing industry could be a rich source of expertise for the ‘Make in India’ programme envisioned by Prime Minister Narendra Modi to make India a global manufacturing hub providing jobs to millions of youth. Moreover, the UK companies would be encouraged to invest in India’s manufacturing sector in the wake of Government of India taking key steps to usher in transparent, accountable and efficient processes for attracting FDI in sectors like defence, automotive and pharmaceuticals manufacturing that offer compelling opportunities to British firms.

5. Emerging Sectors: India and the UK see great scope in undertaking joint R&D projects in fields such as advanced engineering. Both countries are now ready to launch 4 joint R&D projects under the Bilateral Industrial R&D Programme, in the areas of energy and healthcare. The project engagements need stepping up and the programme itself should be expanded.

The UK has nearly a decade long experience in implementing carbon reduction schemes that incentivise business to become more energy efficient. British companies are working to share the knowledge with India, as the industry moves forward to design instruments that meet its energy efficiency goals. India and the UK need to intensify this collaboration and develop a workplan to promote industrial energy efficiency.

6. Technology: There are strong cutting-edge partnerships already forged between UK and Indian businesses in technology, helping UK businesses grow and compete and stimulating jobs and skills growth in the UK. There are a multitude of technology-driven areas where India and the UK could collaborate further, particularly in the evolving Fourth Industrial Revolution. In this context, tie-ups between India’s advanced manufacturing sector with the UK’s High Value Manufacturing Catapult program could be enhanced to develop technology and skills, particularly focussed on advanced materials and manufacturing. Support from both governments will be instrumental in catalysing and building these partnerships. 

There is also a need for the creation of a virtual India-UK start-up incubator to leverage the huge amount of talent and expertise in both countries by bringing together entrepreneurs, job creators and investors on this platform.
Indian Industry doing business with the UK face certain constraints that need to be addressed to promote greater bilateral business cooperation. The most critical issues, and the remedial measures, are attached separately (“Opportunities and Challenges: Economic Cooperation between UK and India”).

In which areas can the UK and India work effectively towards shared objectives within multilateral settings, such as in the UN and the G20? And where do their objectives, values and interests differ significantly? 

CII works with the B20 process -

(a)        with the Global Business Coalition (GBC) – which is the group of apex industry associations from the G20 countries – which regularly gives inputs to the country holding the G20 Secretariat. This coalition makes it one of the most powerful and well represented industry grouping and

(b)        with the B20 Secretariat of the country holding the G20 Presidency

Over the past, the B20 has formed a number of working taskforces which are chaired by prominent business leaders to examine some of the topics mentioned below-

-           Financing Growth                                              - Trade and investment

-           Infrastructure                                                     - SME Development

-           Employment                                                       - Anti-Corruption Forum

In the context of the India-UK relationship, there is a need for a much greater exchange of ideas and learning between the UK and India in order to secure a sustainable and strategic bilateral relationship for the future. This is mainly because there is a growing perception that UK’s relevance is slowly diminishing as far as economic opportunities are concerned. Therefore, for it to remain relevant it is imperative that the UK supports Indian government’s ambitions for Digital India, Skill India, Make in India, the Smart Cities initiative, etc. and all national flagships that have global economic ramifications. Both countries should identify key areas for collaboration where the UK has a world class unique offer where India needs support in e.g. education, science, and creative industries, and set out plans to scale up joint work and relations in these areas.

Considering India’s socio-economic development vis-à-vis its global ambition to move up the global rankings, some of the important areas that are of India’s as well as the UK are:

1. Digitalisation: taking the current India-UK Fintech collaboration ahead

2. Trade & Investment: with a focus on the trajectory of the Green Growth Equity Fund (GGEF) which aims to invest in renewable energy, clean transportation, water and waste management in India as part of India’s flagship National Investment and Infrastructure Fund (NIIF) where Smart Cities could be the pivot.

3. Roles and Restructuring of Multilateral Development Banks (MDBs): this can be a part of the ongoing India-UK multilateral trade dialogue

4. Managing the Global Workforce – with a focus on Skill Development : under the aegis of the MoU on Skill Development, Vocational education and Training between the two governments seeks to promote greater collaboration in domains such as strengthening skill delivery in high demand sectors where UK has technical and skilling expertise as well as capacity building of institutions.

The pact provides India an opportunity for closer integration into dynamic and thriving global and regional value chains, where its current presence is low.

How should relations between the UK and India be managed in the run-up to and after Brexit?  Are the FCO and other parts of Government preparing effectively?
 

CII maintains a largely neutral stance on the Brexit political process. It is pertinent to note that India is the third-largest foreign investor in the UK, and one of the largest job creators in the country. Several major Indian companies that have invested in the UK are concerned about post-Brexit developments especially around their supply chains. Some of the companies have decided to ‘wait and watch’ the developments before proceeding with their investment plans.

Several Indian companies having their European HQs in the UK have expressed concern over the ease of doing business with the UK leaving the EU. The concerns vary from attracting and retaining talent in technology companies to passporting rights for financial services companies.

To give a few instances of sector-specific, post-Brexit concerns:

• For Indian pharmaceutical companies, London has been a hub of operations as the European Medicines Agency, which sets standards for the industry, is headquartered in London. Now, they are seeing Spain and Sweden as likely places to locate their European HQs. Access to a single market is among their prime concerns.
• Several manufacturing companies in the UK dependent on the European supply chains and markets will likely face steep duties.
• Indian banks and financial institutions, while warming up to London through Masala Bonds, etc., hope to see London’s attractiveness as the centre of global finance sustained. Frankfurt is being talked about as an alternative destination. Passporting rights are a major concern for those using the UK as the base for their European banking and financial services operations.

Indian industry suggests sustained engagement between the government and companies on policy developments in the business space.

What impact does the UK’s visa regime have on our relationship with India? Does it help facilitate the type of relationship the Government seeks with India?

Short-Term Labour Mobility: The Intra-Company Transfer (ICT) visa offers a short and temporary visa route providing a channel for UK business to access the global talent pool. Many Indian businesses operating in the UK use this short-term ICT to bring key staff to the UK to complete temporary assignments. UK visa rules pertaining to minimum salary thresholds and restrictive labour mobility are proving to be cumbersome for Indian companies operating in the country and detrimental to the UK economy.

      Indian Industry seeks from the UK Government a clear policy-level distinction in addressing the issues linked to long-term migration and short-term professional talent mobility. Short-term transfer of skilled resources to service legitimate business contracts in the UK should not be construed as ‘migration’ but instead be treated as ‘Trade in Services’. We would urge the UK to honour its commitment to facilitating Trade in Services.

Digital Skills Shortage: The UK is faced with critical digital skills shortage, particularly in emerging technologies. According to Joseph Rowntree Foundation, 12 million of the UK’s 63 million people lack digital skills, and STEM skills required by industry are in shortage. 69% of the employers in the country have challenges in recruiting enough people with STEM skills to fill vacancies and there is an annual shortfall of 40,000 STEM graduates (according to Tech Partnership figures). UK Industry has, for many years, struggled to fill local vacancies for specialist skills in emerging digital fields.

      The digital skill shortage in the UK technology sector may be bridged by facilitating short-term ICT visa for short-term projects. It may be useful to reinstate the two-year visa that existed in the past.

Immigration Skills Levy: The Conservative Party’s manifesto has proposed to increase the Immigration Skills Levy to £2,000.

      Indian industry would be keen for the Immigration Skills Levy to be kept at £1,000. We further suggest ring-fencing the revenue accrued to Government from Immigration Skills Levy to be used for skill development in the IT sector, given that the bulk of these costs fall on Indian visa-holders or their employers in the IT sector.

Chefs: Several Indian restaurants in the UK have highlighted the challenges that they face in sponsoring chefs for their establishments. While the job role is now back on the Shortage Occupation List, there are several restrictions on the movement of Indian chefs to the UK. The barriers range from high salary thresholds to demands for a high level of experience in the same job, to only a limited number of chefs being allowed per establishment. This impacts SME food establishments adversely and drive up their costs of doing business in the UK.

      The UK Government may consider relaxing the restrictions on visas granted to Indian chefs seeking to work in the UK.

Business and Visitor Visas: In January 2016, the UK Government reduced the fee for two-year multiple-entry visa for Chinese visitors to the UK from £342 to £85 (for Indian visitors this cost is currently at around £338 per visit) and was considering reducing the fee for 10-year visa in due course. In the last 15 years, the number of Indian tourists to the UK more than tripled from less than 150,000 (2000) to over 420,000 (2015). Indian tourists and business visitors also tend to stay longer and spend more than the average visitor to the UK, contributing relatively more to the UK economy. There is, therefore, a case to extend more favourable visa norms to Indian tourists and business visitors to the UK.

      Indian industry proposes to the UK Government to introduce a lower fee for two-year multiple entry visa to Indian nationals on a pilot basis. Such a move will be well received in India and be seen as a positive response to India’s move to offer e-visas to UK nationals.

      Currently, it takes an Indian national anything from 15-20 days to even a month to obtain a visa to visit the UK. In some cases, the delays have made people to consider visiting some other country instead of the UK. Hence, it is suggested that the timelines for issuance of UK visas to Indian nationals should be progressively reduced.

Business visas: It is suggested that the business visa regulations may be liberalised to allow a customer’s employee to work (very) short term in UK for the purpose of testing / validating equipment.

November 2018