Trade is booming; will diplomacy follow?

India is today the third largest investor in Britain, after the U.S. and France, but successful trade ties must be supplemented quickly by political engagement as well

Updated - May 23, 2016 07:10 pm IST

Published - July 03, 2015 02:24 am IST

“Tata Motors accounts for 80 per cent of the estimated £19 billion turnover of the 41 fastest-growing Indian companies in the U.K.” File photo shows the Jaguar assembly plant in Castle Bromwich, Birmingham, central England.

“Tata Motors accounts for 80 per cent of the estimated £19 billion turnover of the 41 fastest-growing Indian companies in the U.K.” File photo shows the Jaguar assembly plant in Castle Bromwich, Birmingham, central England.

Britain is the only major Western country that Narendra Modi has not visited as Prime Minister. He went in April to neighbouring >Germany and >France , from where he must have enjoyed the sight of the majestic White Cliffs of Dover, but he was clearly not tempted to cross the English Channel.

The last prime ministerial visit to the U.K. was in 2006 by Manmohan Singh. Such a long gap — during which British prime ministers have visited India four times — is unprecedented, creating a perception that Britain seems to have fallen off New Delhi’s foreign office map. It reminds us of I.K. Gujral’s unfortunate description of the U.K. as a “third rate power” not worth cultivating.

There are reports that Mr. Modi might finally show up in November. But corporate India has, meanwhile, more than made up for the lack of political engagement by fully engaging on the economic front. Trade relations between the two countries are flourishing, with India leapfrogging to become the >third largest investor in Britain after the U.S. and France. At a critical juncture of the British economy, there are close to 1,000 Indian companies operating in Britain today, employing 1,20,000 people and generating hundreds of new jobs. On July 8, captains of Indian and British industry will meet in London for a high-profile conference on the “Future of U.K.-India Economic Relations” organised jointly by the Confederation of Indian Industry (CII) and the Confederation of British Industry (CBI). The conference is being held amid a mood of optimism generated by the unprecedented surge in Indian investment levels last year — there was a whopping 65 per cent increase over the previous year.

But also hanging over it will be the shadow of a growing row over the British government’s new visa regime for non-EU countries. Indian companies say these are arbitrary and will affect their operations in Britain. They are particularly upset over fresh restrictions on intra-company transfers which, according to them, will prevent them from drawing on their best in-house talent. Britain argues that such transfers mean that native Britons are denied the jobs that should have gone to them. It has been a long-running source of friction, but now it seems to have come to a head. Ahead of the conference, the CII has put out a strongly worded statement demanding a review.

CII president Sumit Mazumdar, while acknowledging British concerns, said the move would “undermine the contributions of Indian companies in the U.K., who are keen to partner in this process”. It seems that CII’s own new country head for the U.K. has had problems getting a visa.

Too much hype? Trade relations is arguably a big success story, but it needs to be seen in perspective in order not to be carried away by some of the hype around it. First, it is important to remember that Britain is the world’s number one investment destination in Europe, sought after even by the U.S., offering investors a gateway to Europe. So, there’s nothing unique about Indian businesses flocking to it. Indeed, it would have been surprising if they had not.

Second, much of the Indian investment in terms of financial value is accounted for by only a handful of big guns led by the Tatas, owners of Jaguar Land Rover, and the steel magnate Lakshmi Mittal. Others are mostly minnows. According to a study, Tata Motors accounts for 80 per cent of the estimated £19 billion turnover of the 41 fastest-growing Indian companies in the U.K. There are some whose turnover is as little as £5 million. The hype, thus, gives a slightly skewed image of Indian “domination’’ of the U.K. market.

Still, it is an impressive effort which Prime Minister David Cameron and his ministers seldom lose an opportunity to highlight. Britain desperately needs foreign investment to revive businesses, generate jobs and help with skills development, as it struggles to overcome the lingering effects of the 2008 financial crash. India, one of the fastest growing economies in search of foreign markets, is seen as the perfect fit.

China may be the bigger beast with deeper pockets, but it is India that evokes a greater sense of natural and cultural affinity, not to mention the bond of English.

What also makes Britain attractive to so many Indian companies is its investor-friendly environment. All you need is a few million quid and you’re in business, complete with fast-tracked visas, and, with a little top-up, even British residency. There was a time not long ago when the traffic was all one-way (from U.K. to India) but the tide has dramatically reversed. Today, there are few sectors of British economy — from manufacturing and hospitality to professional services, chemicals, health and IT — which don’t have some level of Indian investment. Financial, professional and business sectors account for the largest share.

Playing on Mr. Modi’s achhe din’ slogan, Britain’s Chancellor of the Exchequer, George Osborne, chuckled on a visit to India that “good days are coming for the investment we make in each other’s economies”.

Big-ticket Indian projects in the pipeline include a £100 million investment by pharmaceuticals company Cipla in U.K.-based research on a range of drugs; and a £20 million injection into the British economy by automobile giant Mahindra in developing its electric car technology.

Despite the recent surge, however, India-U.K. trade has still a lot of catching up to do, with the two countries setting a target in 2010 of doubling bilateral trade to £23 billion in 2015. The current level is well short of it.

Meanwhile, no doubt trade ties are important, but they need to be supplemented by political engagement at the highest level. Without that, issues like the visa row cannot be resolved. The CII protesting is not the same thing as Mr. Modi chatting up David Cameron while taking a selfie with him in Downing Street. That chat is now overdue.

(Hasan Suroor is a London-based journalist.

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