The United Kingdom and India have both been severely challenged by the pandemic, as have most countries around the world. That is why the upbeat findings of the UK India Business Council’s Doing Business in India Report 2020 are particularly encouraging at this time.
The UKIBC’s report, launched on 29 October 2020, finds that in spite of Brexit, Covid-19, the global economic slowdown, and the negative talk that has often accompanied each of these developments, businesses in the UK remain committed to the India growth story, and many want to continue to expand and intensify their already-formidable operations. The UKIBC was hardly surprised, given our experience and interactions with the UK industry. Both India and UK governments have in recent months affirmed the commitment of all stakeholders in this bilateral economic relationship.
Save the much talked-about constraints on international trade, investment and cooperation, Brexit, Covid-19, and the Narendra Modi government’s bid for Atmanirbhar Bharat may actually intensify UK-India trade and investment.
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Budding economic ties
As the UK establishes a new trading relationship with the world beyond 31 December 2020, India is high on its list of priority partner countries, recently demonstrated by the commitment by both governments to an “enhanced trade partnership” at the 14th Joint Economic and Trade Committee (JETCO) in July. India has a large and growing market, with the world’s second-largest population and fifth-largest economy. Companies in the UK, like any global multinationals, are wisely looking at the Indian market with great interest, and the UKIBC has experienced increasing interest from companies in both countries.
Softening of restrictions on non-EU immigration under the UK’s new points-based immigration system should see more Indians coming to the country to work and study, adding further depth to the living bridge that binds our countries together.
In the case of Covid-19, supply chain complications and an over-reliance on China, among other reasons, have caused multinational corporations to consider relocation of part of their operations. India has smartly postured itself as the new global hub for manufacturing, supported by Prime Minister Modi’s ‘Make In India’ campaign. The Modi government has done well to position India favourably, but there is more that can be done to make India an even more attractive investment proposition, particularly in terms of regulation, taxation and bureaucratic processes.
Furthermore, India’s mission for self-reliance is viewed as an opportunity to do more trade and investment in India by the vast majority of the 106 UK companies that provided feedback for this report. Admittedly, there was some apprehension around the inward-looking nature of the Indian industry when the policy announcement was made in May 2020, but those fears have now thankfully subsided.
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Challenges to the UK-India partnership
Nonetheless, this optimism among UK businesses needs support on the ease of doing business front to enable growth. In all, the UKIBC’s Doing Business in India Reports, which are now in their sixth edition, ‘legal and regulatory barriers’ have been highlighted as the greatest challenge to doing business in our country. If we are to see the optimism and commitment realised, this constructive feedback must be acted upon.
Additionally, it was no great shock that ‘improving bureaucratic processes with accountability’ and ‘increasing regulatory certainty’ were among the most sought after reforms. As a minimum criteria, businesses need certainty to operate. Global economic conditions might not be controllable at home, but smart laws and regulations that support business and innovation are.
While conducting our research, we discovered that the most pressing regulatory impediments for doing business in India were foreign exchange regulations, goods and services tax (GST), and import tariffs. ‘Alignment with international standards’ and ‘incorporation of company’ were also notable barriers.
While GST has been a significant achievement in creating a single market for India by subsuming a myriad of state taxes, the UKIBC has consistently advocated for a simpler tax regime because it would help in reducing compliance burden on businesses, and thus lead to improving the tax-to-GDP ratio. It is a wonderful example of cooperative federalism and we hope that GST, under the guidance of the GST Council, continues to evolve as we have seen in the past.
Until the Covid-19 pandemic hit, UK-India economic relations were on an upward trajectory. In 2019, trade between the two countries rose by 10 per cent on the previous year to £24 billion. In the last two decades, UK businesses have invested more than £22 billion in India, including £1.1 billion in 2019-20.
While the economic damage caused by Covid-19 is no doubt extreme, the positivity around the UK-India bilateral relationship, from both governments at JETCO and now businesses in both countries, is reason enough for a cautious optimism and cheer amid these times of pandemic-triggered economic gloom.
The author is the Group Chief Executive Officer, UK India Business Council (UKIBC). Views are personal.