The deep cultural, economic, political and social bonds between the UK and India are longstanding. But this week the partnership between India and the UK will reach another significant milestone, as chancellor George Osborne and the finance minister of India meet in London for their latest bilateral Economic and Financial Dialogue to discuss priorities for 2016.
It follows the visit of Indian Prime Minister Modi at the end of last year, a visit which reinforced the significance of the economic relationship between the UK and India. The UK is the single largest G20 investor in India, and British companies account for almost 10 per cent of all foreign direct investment (FDI) into the country. India is also one of the biggest investors in the UK and was the third largest source of FDI here in 2014.
To further strengthen financial services links between the two countries, the India-UK Financial Partnership (IUKFP) was launched by the chancellor and Indian finance minister in July 2014, and Sir Gerry Grimstone, chairman of Standard Life, and Uday Kotak, executive vice chairman and managing director of Kotak Mahindra Bank, were appointed to drive forward their vision. They are advised by a high-level group of senior private sector experts in India and the UK and are assisted by teams from TheCityUK and Kotak Mahindra Bank.
This initiative presents a tremendous opportunity for the UK and India to take our economic relationship to the next level. We have the world’s most advanced concentration of financial and related professional services expertise. At the same time, India’s financial services industry is growing and maturing and has specific insights and knowledge of its own. The opportunity for India to benefit from our world-leading expertise is substantial. As the world’s top financial centre, the UK can also help India raise the significant capital it needs for its development – as well as acting as a complementary source of capital to India’s own markets. The UK can learn from India’s experiences too.
But as both parties discuss next steps, it is critical that momentum is not lost. Recent successes have delivered a firm foundation for future work and there are a number of areas where progress can be made quickly to the benefit of both nations. This is where the IUKFP is focusing its efforts.
Infrastructure is a key priority and the Indian government is making progress by establishing a National Investment and Infrastructure Fund, while the UK’s infrastructure pipeline is currently worth £411bn up to 2021. There are benefits for both nations if cooperation in this field is enhanced, including for both the state and private sectors in delivering public services. Greater collaboration between a proposed Indian infrastructure advisory body and the UK’s new Infrastructure and Projects Authority is just one recommendation on the agenda today.
The two nations should also look to encourage the raising of rupee-denominated bonds offshore – and the UK is ideally placed to do this. Prime Minister Modi’s intention to launch the first government-backed rupee bond in London is a promising step in this regard, and more could now be done to ensure that Indian businesses have the capability to raise funds offshore.
The Indian government acknowledges that its insolvency laws are in need of an overhaul. The country is ranked 137 in the Resolving Insolvency category of the World Bank’s Doing Business rankings. The UK is in thirteenth place. The government of India is looking at many of the Partnership’s recommendations on insolvency.
As the Indian economy matures, changes to India’s bankruptcy system are important in themselves, but they need to be accompanied by broader liberalisation. The passing of the Insurance Laws Amendment Bill by the Indian Parliament last year means that many UK firms are now able to increase their investment, and this is an example of what can be done to help maximise the impact of the Indian government’s reform drive.
This year should also see steps taken to reform India’s pensions system. Just 4 per cent of the country’s population is covered by a pension plan. As the largest pensions market outside of the US, the UK system is well-placed to assist with this transformation.
UK-based financial and related professional services have a major role to play through both the provision of expertise and the realisation of investment opportunities. This relationship is one that is mutually beneficial: the UK can learn a lot from India and vice versa. By working together more closely and more effectively, both nations will flourish.