During the past year, UK-India relations have witnessed an intense period of activity encompassing the 70th Anniversary of India’s Independence and a whole series of events to mark the UK-India Year of Culture.
One of the highlights has been an exhibition at the Science Museum in London called “Illuminating India – 5000 years of Science and Innovation”. It captures the amazing contribution of India to scientific discovery, technology, mathematics, engineering, communication, space exploration and medicine - including a set of weights and measures going back to the Indus Valley Civilisation and the world’s first written record of zero contained in the Bakhshali Manuscript from India stretching back 2,500 years, on special loan from the Bodleian Library at Oxford University. The exhibition runs until 31 March 2018 and is a powerful reminder of the rich and historic strengths of our bilateral relationship.
Looking forward, 2018 promises to be an equally active year, with a return visit by Prime Minister Narendra Modi to UK, in April, for the Commonwealth Heads of Government Meeting. Earlier the same month, Finance Minister Arun Jaitley is also expected to visit London for the annual Economic and Financial Dialogue with his counterpart Chancellor Philip Hammond. We should also see more clarity on the Brexit negotiations which will define how more than 800 Indian businesses in Britain can continue to access the European Union (EU).
Going into the New Year, the two countries face contrasting macroeconomic and geo-political dynamics. India starts the year with a spring in its step. This confidence was on full display in Davos this week when Prime Minister Modi addressed the opening plenary session of the World Economic Forum, articulating his vision for New India and the attractions of the country as an investment destination. The Indian economy goes into 2018 with the wind in its sails; the World Bank recently confirming expectations for 7.3% GDP growth with further “enormous potential”.
In contrast, UK is facing headwinds and a more mixed picture. The economy has slowed down, with consumption particularly subdued. At the same time, the overall picture is more resilient than anticipated with exports and manufacturing surprisingly buoyant. With 8 out of the 10 largest countries showing synchronised global growth, the UK boat has been lifted by the rising tide of the world economy.
Brexit, however, remains an all-consuming national narrative. The outcome of the negotiations will be important for Indian businesses operating in the UK who employ over 110,000 people and recorded revenues of £47.5 billion. In particular, the risk of ‘no deal’ has diminished following the outline agreement reached last December on Phase 1 of the withdrawal talks with the EU. Going forward, it appears that Britain is heading towards a Canada style free trade agreement (FTA) and must agree upon Heads of Terms by March 2019. A transition phase lasting until the end of 2020 will follow during which the FTA will be finalised and ratified by all Member States. In the intervening period, Britain will remain in the EU in all but name. For many, this might not be an ideal outcome but we may be forced to accept a “take it or leave it offer” from the EU with the hope of improving it during the transition period. Indian businesses, particularly those who use UK as an entry point to the rest of Europe, will be watching intently.
I have argued in the House of Lords, that Britain’s focus should now shift to securing a soft landing for a hard Brexit. We should not become too obsessed with an FTA. Businesses know that it is ultimately competitiveness that matters for trade - not deals done by politicians. So, for example, continued access to skills; R&D collaboration; and integrated supply chains are arguably more important – and where the Government still holds relevant policy levers and must decide upon the best customs procedures. Similarly, UK-India relations should not focus solely on an FTA either but encourage all forms of economic activity ranging from raising masala bonds in the City of London to more tourism or increasing bone fide Indian students. Indian businesses will be particularly interested in the new Immigration Bill expected from the UK Government and also the investigation into the impact of international students commissioned from the Migration Advisory Committee.
Finally, one of the biggest opportunities of 2018 will be persuading India to take a more pro-active leadership role in the Commonwealth, where it represents more than half of the 2.4 billion population of its 52-member nations. The Commonwealth is a complex issue for India given the colonial connotations, but it should discard the historic baggage and look at the opportunity of harnessing such a powerful network. Where else, for example, can India engage with African countries without direct Chinese competition? For Britain, rejuvenating the Commonwealth is also an important prize if it wants to demonstrate how Brexit can be made a success.
As we move into the New Year, it is clear that both India and UK are at important crossroads – and the events of 2018 will help shape their future destiny.
