Conference Presentation, Panel
Will EU Departure Strengthen Ties Between the UK and India?
Milken InstituteSimon Long, Jitesh Gadhia, Mohit Joshi, Rain Newton-Smith, Manish Singh, Richard Templar, Matt McGrath
- UK Prime Minister Theresa May designated India as her first post-Brexit bilateral visit and trade mission, signaling a strategic priority to maintain continuity with India despite the UK's departure from the EU.
- Both nations face significant economic shocks: the UK via Brexit and India via the November 8th demonetization event, which withdrew 86.4% of currency from circulation.
- Trade volume between the UK and India is currently low relative to other partners; the UK exports more services to Luxembourg than to India, and total trade is lower than with Belgium despite India's larger population.
- Experts identify financial services, specifically insurance and capital markets, as the primary sector for future UK-India growth, citing London's dominance in banking and India's need for bond market development.
- A structural gap exists in India's capital markets, where bank recapitalization is constrained by a small bond market; the UK is positioned to transfer expertise in creating direct "skin in the game" via bond markets.
- India currently ranks 137th globally in bankruptcy and solvency law, compared to the UK's 18th, highlighting a critical area for legal harmonization to support financial growth.
- The UK is a major market for Infosys, generating approximately $1 billion in annual revenue (10% of total) and employing over 3,000 people, with potential for expansion into northern England.
- Brexit poses indirect risks to UK-based tech firms like Infosys; if financial services clients move operations from London to Dublin or Amsterdam for passporting rights, technology and sales teams may follow.
- UK visa policies have tightened significantly over the past five years, with Tier 2 minimum compensation thresholds rising by over 50% and the introduction of skills and health levies.
- UK business leaders express concern that restrictive immigration policies could hinder the recruitment of high-skilled talent, which is crucial for sectors like cybersecurity where the UK holds a global advantage due to GCHQ expertise.
- Despite media narratives, there are currently no numerical limits on Indian student visas for bona fide applicants at authorized UK institutions, though data has been impacted by the shutdown of 920 bogus colleges.
- The UK government projects a shift toward "fewer numbers, higher skills" for migration, aiming to balance political pressure to reduce net migration (currently 335,000) with economic needs for talent.
- Liam Fox and Nirmal Sitharaman have agreed to an audit to identify the maximum impact of liberalizing trade, a precursor to potential formal free trade agreements or Memoranda of Understanding.
- "Masala bonds" issued by Indian corporates in the UK have reached $4 billion in value with 32 issuances since Prime Minister Modi highlighted the opportunity in Wembley Stadium.
- The UK and India have signed a Memorandum of Understanding to explore a bilateral vehicle with India's National Investment and Infrastructure Fund (NIAF), targeting an $830 billion five-year infrastructure plan.
- India's "JAM" framework (Jan Dhan Yojana for 255 million bank accounts, Aadhaar biometric identity, and mobile telephony) has solved the foundational identity challenge for financial inclusion, creating a unique fintech market.
- Manish Joshi noted that while Germany focuses on manufacturing, the UK's comparative advantage in services positions it to capture future demand as China and India shift toward service-based economies.
- Mohit Joshi emphasized that 40% of senior executives in Silicon Valley are of Indian or Asian origin, attributing US success to proactive global recruitment strategies that the UK must emulate.
- Rayne Newton-Smith noted India aims to reach 50th in the World Bank's Ease of Doing Business ranking by 2018, though this target is likely to be missed, with the current rank being 130th.
- Panelists agreed that while a formal Free Trade Agreement (FTA) with the EU and India has stalled for nine years, the UK could potentially leapfrog the EU to establish a bilateral deal with India within a reasonable timeframe.
- The "Act East" policy and RCEP negotiations remain India's primary trade focus, suggesting the UK must prioritize its own trade agenda to secure a position in India's "front of the queue."
- Questions were raised regarding whether the UK can effectively address India's infrastructure and unbanked population gaps, with panelists arguing that the UK exports consultancy and infrastructure delivery expertise effectively.
- A participant proposed a Silicon Valley-Germany-India coalition to solve unbanked and infrastructure issues, but panelists countered that the UK's "Aadhaar" identity stack is already superior to Western models for financial inclusion.
- The panel discussed the potential for Narendra Modi to emerge as a "leader of the free world," citing his conviction and the "steely determination" driving reforms in civil service and entrepreneurship.
- Panelists cautioned that while Modi has the largest electoral mandate in history, India's complex challenges, including an aging civil service (average age 60s vs. 40s in Singapore), require time to realize full structural change.
- Climate change was identified as a critical area for collaboration, with the panel noting the trade-off between India's manufacturing growth and maintaining a lower carbon profile compared to the developed world.
- Small UK businesses seeking to enter the Indian market are advised to utilize the "Britain is Great" portal and seek mentorship from similar-sized successful firms rather than relying solely on formal trade agreements.
- Jitesh Gadhia argued against focusing exclusively on trade deals, suggesting that economic partnerships prioritizing capital flows and regulatory harmonization offer more immediate value than tariff reductions.