George Osborne and Arun Jaitley have a lot to prove. Both finance ministers have a lot to prove to their respective domestic audiences, as they do to each other.
Osborne is the heir apparent – the favorite to succeed David Cameron as the next prime minister of the UK. He is expecting to be slipping his feet under the desk at 10 Downing Street within the next 24 months or so, and is making no bones about it. Osborne is running a campaign, a machine like campaign, where he is positioning himself as real prime ministerial material. That means keeping a strong grip on the economy, but also being seen holding court with world leaders. “Hard Hat” photos ops – which sees Osborne lobbying for UK jobs and investments is the standing order with both Treasury and now increasingly Foreign Office officials.
On the other hand, Jaitley makes no pretenses. There is no vacancy for the top job, and he is too smart a politician to think any differently. Modi has very evidently dug himself in for a two term haul and has claimed the biggest chair in the land for himself and himself alone. But Jaitley remains by far the sharpest brain and the most trusted of Modi’s cabinet colleagues. Yet a period of bad health in the first year of office and growing criticism domestically that much anticipated economic reforms are either not happening or not happening faster or deep enough has created an atmosphere of anxiousness amongst many loyal supporters, including India’s still hugely influential old money circles – traditionally staunch friends of the urbane Jaitley. If India had the equivalent of the Clampham Omnibus, then the chatter doing the rounds would be that Jaitley’s economics is not been felt in the pockets of the ‘common man’. Modi still, just about, remains beyond reproach. The heat however is on Jaitley. And he knows it.
Though his glowing legal career has to exposed Jaitley to all the Englishness to breed total familiarity and probably also a touch of admiration, Jaitley is considered much more comfortable with his American counterparts. In contrast, Osborne is suspected of having more confidence in the Chinese than the Indians. Therefore, when both sit down for the annual UK-India Economic & Dialogue this week, obvious and meaningful affirmations of each others Great Nations, and a combined Glorious Future won’t go a miss – just in the same way as Cameron and Modi so successfully led the way during the latter’s now historic (and possibly, legendary) visit to the UK in November last year.
Osborne and Jaitley have an opportunity to be really ambitious, and take ownership of the relationship the Modi’s UK visit has reset. A superbly confident Indian Prime Minister came to UK shores and not only buried the divisive past but articulated a shared vision as genuine partners. Cameron had at last found the partner he was looking for since 2010 to build a truly strategic relationship with trade and economics at the heart of it.
Britain’s Key Role
Britain has a key role to play in Modi’s vision of economic transformation of India including being a stepping-stone for Indian companies seeking to establish a global footprint.
The Prime Ministerial joint statement pointed out several initiatives including raising funds in the UK to using UK expertise and knowledge in various areas of India’s growth story. And there were £9.2 billion worth of cross border deal announcements across a range of sectors with investments flowing to both countries.
Increasing the deal flow between UK and India must be paramount on the agenda of the two Finance Ministers – that is the key to boosting the jobs and growth agenda shared by both nations, especially at a time of economic uncertainty and possible downturn forced by the now very suspect Chinese economy.
The current numbers don’t look bad in isolation. India and UK are 3rd highest sources of Foreign Direct Investment for each other and trade between the two countries grew from $12.6 billion in 2010/11 to $14.38 billion in 2014/15. In 2011/12 and 2013/14 the trade levels did reach higher at $15.7 and $15.8 billion respectively. Though now clearly plateauing.
However, in context of a combined nominal GDP north of $5 trillion and the fact that UK has dropped from being the top trading partner of India to the 18th in two decades – there is serious room for improvement. There are opportunities as well. Just consider this, the expected spending on transformation of Indian Infrastructure will be between $750 billion – $1 trillion over the next few years.
Considering the relationship goes far beyond just economy and encompasses history, culture, and the UK’s increasingly influential Indian diaspora community – we should aim much higher in annual trade and investment volumes between the UK and India.
Taking the Next Steps
Relatively large enterprises on both sides have benefitted from the existing UK – India relationship and government support, and undoubtedly will continue to play a significant role in bi-lateral trade. However, if the two countries are to really fulfill the potential of the trade relationship, the opportunities must be shared with mid-tier or even smaller companies who have specific skills that can be harnessed. The Modi government’s recent announcement of tax free holidays and light touch regulation for start up businesses, if implemented, will make India at last a seriously attractive economy for ease of doing business.
It’s not that the UK mid-tier companies are unaware of the opportunities that are available for them to capitalise on but they lack the knowledge and resources to identify their point of entry, finding the right partner along with knowing where the low hanging opportunities lie. Trade organisations such as the UK India Business Council have a major role, but a paltry budget to facilitate this. Bluntly put, Osborne needs to put his money where his mouth is and bring business support activities with India on par with the many millions more he ploughs into China.
A lack of liquidity and access to capital often also act as deterrents. Reforming capital markets with more mature deal financing options in India would be necessary to facilitate this and unlock economic growth. The City of London and its professional services industry can and must support this. Though the strained voices in the UK calling for the opening up of India’s legal services sector and further liberalisation of other sectors will continue to be heard, I suspect for sometime more.
Ideally, if the Economic and Financial Dialogue can lay out a framework to help relatively smaller British companies to target opportunities within some of the flagship programmes of the Modi Government such as Make in India, Digital India, among others it would undoubtedly be welcome in both markets.
The challenges are similar for Indian companies venturing into the UK focusing on the right opportunities & sectors, the points of entry and financing. On financing, there is a lack of awareness of different capital structures that need to be addressed. However, with a new generation of business leaders with a lot more exposure, including in many cases having been educated abroad, this will fade over time.
I firmly believe engaging SMEs in bi-lateral trade discussion including successful start-ups would provide the catalyst to take the relationship to a completely new level with quality jobs and growth for both countries. To get it kick started, the Finance Ministers need to set the tone on how best both markets can harness the disruptive innovation delivered by these SMEs.
Some potential threats
While the potential of the relationship is beyond doubt there are some concerns that could prove to be bottlenecks that require frank discussions such as UK immigration policy, the EU referendum and the patchy reforms agenda in India among others. India cannot not have a view on the UK’s in-out referendum. It must not hide behind traditional diplomatic niceties. Obama has made it known, Xi has made it known, the Indians have every right given the significant nature of the bi-lateral relationship, to let it be known that India’s interests are best served with the UK remaining an active and integral part of the EU. The rest is detail for the Brits to sort out.
However, despite the challenges, there is no doubt in my mind that the UK India relationship will be one of the most defining relationships of the 21st century. This week, India’s vocal and vociferously independent Governor of its Reserve Bank has said that India needs only three things – “implementation, implementation, implementation” to make its way firmly into the big league of economic powers. Its for Osborne and Jaitley to demonstrate that they believe in the relationship in the same way that Cameron and Modi so evidently do, and then to demonstrate that they are the true implementers of that shared promise.
The article was first published on India Inc.
Manoj Ladwa is the founder of India Inc. and chief executive of MLS Chase Group @manojladwa