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INSIGHT INDIA

FOREWORD INDIA, THE UK’S BIG POST BREXIT OPPORTUNITY Dear Reader, Welcome to the third edition of Insight India magazine. In this issue we cover two subjects which will impact on all our decisions over the coming months: the immediate impact of the referendum vote on the UK-India bilateral economic relationship, and what it means to trade policy going forward. Following June’s referendum, we assess the UK-India post-Brexit opportunity. Starting on page 17 we look at the current UK-India bilateral relationship, its strengths and weaknesses, the opportunities available right now and ways in which, we believe, it can improve. Although the UK’s future relationship with the EU and the single market remains uncertain until negotiations conclude, one thing is clear: this is a ‘ALTHOUGH THE UK’S FUTURE RELATIONSHIP WITH THE EU AND THE SINGLE MARKET REMAINS UNCERTAIN UNTIL NEGOTIATIONS CONCLUDE, ONE THING IS CLEAR: THIS IS A GREAT OPPORTUNITY TO FORGE BETTER TRADE AND INVESTMENT RELATIONSHIPS WITH THE STRONGEST ECONOMIES IN THE WORLD.’

great opportunity to forge better trade and investment relationships with the strongest economies in the world. And India should be at the top of the UK’s list of countries where a dialogue should be planned. The country is now the fastest growing major economy in the world with a 7.5% GDP growth forecast for 2017. Indeed, 81% of UK businesses polled in a recent UKIBC poll believe these growth projections make India an attractive market to do business in. Turn to page 16 to find out more

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investment facts in our latest infographic. In addition, we investigate digital disruption and the new areas of collaboration it offers the UKIndia relationship. We analyze the rapid change taking place within India’s education system due to the nation’s increasing population and the requirement for more skilled workers than ever. At present 700 universities educate 28.6 million students. To accommodate the expected increase in student numbers it is estimated that India will need another 1,500 institutions by 2030. If this were to depend on building new bricks and mortar educational facilities it would be impossible. The answer: digital distance learning. Find out more on page 8. Meanwhile, we look at London’s ever growing FinTech industry and how it can support the development of an affordable and effective banking system in India on page 22. Finally, we ask top business leaders from the UK-India CEO Forum this edition’s ‘big question’: What could the UK and Indian governments could be doing better to boost business? To discover the answers, turn to page 24.

We’d love to know your thoughts on this issue and the subjects it addresses. You can do this by tweeting @UKIBC.

Richard Heald OBE Group CEO UK India Business Council

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FRONT COVER IMAGE:WWW.GETTYIMAGES.CO.UK

CONTENTS ISSUE 03

03 FOREWORD

Richard Heald OBE, Group Chief Executive, UK India Business Council

06  UKIBC VIEW Corporate Social Responsibility in India

INSIGHT INDIA is the UK India Business Council’s flagship publication, which highlights business opportunities between both countries, predicts trends, profiles success stories, offers tips and practical advice, and carries in-depth interviews and analysis with business leaders and policy makers.

Richard Heald OBE, Group CEO of the UK India Business Council, examines the impact of the Companies Act on Indian businesses’ CSR activities

Editor Jessica McGreal Jessica.McGreal@ukibc.com Assistant Editor Simon Jones Simon.Jones@ukibc.com

Printed in the UK by Buxton Press www.buxtonpress.com

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10 PROFILE Leading the ‘Bengali Renaissance’

At this year’s G20 summit, the proactive nature of India’s foreign policy under Narendra Modi was on full show. Simon Jones examines India’s new place in the world, in light of the G20 summit in Hangzhau, China in September 2016

16 BREXIT INFOGRAPHIC

Investing in India: The post-Brexit opportunity

For magazine enquiries please contact comms@ukibc.com UK India Business Council HEAD OFFICE 12th Floor, Millbank Tower 21-24 Millbank London SW1P 4QP United Kingdom

17 COVER STORY The time is now

We explore what the UK-India bilateral trade and investment relationship will look like following Brexit

Designed and published by Inspire Publishing 23 Grafton Street London W1S 4EY

+44 (0) 207 592 3040 enquiries@ukibc.com www.ukibc.com

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Kevin McCole, Chief Operating Officer at UK India Business Council, examines the future of India’s education system and the opportunities it presents

13 INDIA IN THE WORLD

MISSION STATEMENT

The fact that the UK is the No 1 investor in India reinforces this. Through our insights, networks, policy advocacy, services and facilities, we support UK businesses to achieve this success.

08 ANALYSIS: EDUCATION

West Bengal’s Finance Minister, and chair of India’s empowered GST committee Dr. Amit Mitra, talks to the UK India Business Council about his career, current role, and the GST Bill itself

Published every six months, the magazine is aimed at business people interested in bilateral trade opportunities between India and the UK.

We believe passionately that the UK-India business partnership creates jobs and growth in both countries, and that UK businesses have ideas, technology, services and products that can succeed in India.

07 UKIBC NEWS ROUND UP

13 INDIA IN

THE WORLD

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THE TIME IS NOW

21 TECH COLLABORATION ‘Make In India’ - Finance in the UK

Alok Sharma MP reveals why the relationship between India and the UK is going from strength to strength

22 TECH COLLABORATION Digital disruption

We investigate the future of the finance industry, and why FinTech is the perfect area for UK-India collaboration

24 THE BIG QUESTION What could the UK and Indian governments be doing better to boost business? Members of the UK-India CEO Forum answer our big question

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28  HOW TO… Enter the indian market

Himanshu Godara, Manager – Business Advisory at SKP Business Consulting, shares top tips when for businesses looking to sell and export in India

29 CASE STUDY Perkins: a ‘Make in India’ success story 30 ROUNDUP Looking beyond Brexit

Dr Naushad Forbes, President of the Confederation of Indian Industry, gives his take on UK-India business relations post-Brexit

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UKIBC VIEW

Corporate Social Responsibility in India Richard Heald OBE, Group CEO of the UK India Business Council, examines the impact of the Companies Act on Indian businesses’ CSR activities

August 2013 saw the President of India giving his assent to the Companies Act. Section 135 of the Act contained an extraordinary provision. Indeed, one which is unique in the world. It specifies that certain classes of Indian registered companies will in future be required to spend up to 2% of their

three-year annual average net profits on qualifying corporate social responsibility (CSR) activities each financial year. This is potentially a hugely impactful provision – not merely in the amount of funds which could be deployed – but in the change in corporate attitudes. As Mr. Ratan Tata recently stated, CSR is

an “avenue for innovative thinking to improve the quality of life for the people of India…a very powerful tool.” CSR IN PRACTICE This ‘tool’ is increasingly being felt. The recently published India CSR Outlook Report described a substantial increase in CSR activity on a year-on-year basis amongst BSE 250 companies. Some 10 companies were each reported giving in excess Rupees 50 crores (approximately £6 million) to healthcare projects. The same number of companies reported giving a similar amount to education and skills projects. After an initial period spent launching systems and ensuring compliance, fund allocation and expansion of projects are accelerating. It is estimated that CSR spending amongst the top 91 companies has risen by some 27% over 12 months. Recognising this initial impact of Section 135 in generating funding, the Government of India is examining ways to encourage flexibility in the process by looking at ascribing a monetary value to CSR directed manpower. The value will be linked to relevant professionals – technicians, marketing managers and engineers – that play a role in the success of their company’s CSR projects. EFFECTIVE IMPLEMENTATION There is, though, work to be done for the full benefits of Section 135 to be realised. Despite the growth in CSR spend to date, the estimated total annual CSR spend of Rupee 6,000 crores (£714 million) is less than one-third of the total estimated potential mandatory annual amount. CSR spending is required by any company with a net worth more than Rupee 500 crores (£60 million), or revenue over Rupees 1,000 crores (£120 million), or a net profit of over Rupees 5 crores (£600,000). It is estimated that there are some 8,000 companies registered in India which fall under Section 135 with a total potential annual CSR spend of Rupees 22,000 crores (£2.7 billion). The reasons given for this inability, or unwillingness, to fulfil obligations are various: l It is the first year of implementation. l There are issues around the adoption of long-term social projects.

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There is difficulty in finding an implementing agency. l There is a possible feeling among boards that the ‘name and shame’ provisions for non-compliance will not be enforced. In practice, the obligations imposed under Section 135 are complicated and, for smaller companies, onerous. It is therefore not surprising that larger companies have more actively embraced this initiative: they have a higher profile, big budgets and their operations are in large part pan-Indian or at least operate across Indian states. This offers more availability of qualifying projects. l

THE SOLUTION A potential mooted solution is greater regulation coupled with the creation of what is termed a ‘Presidents Fund’. However, this could represent an abrogation of responsibility and potentially undermine the whole ethos of CSR. Mr. Tata puts it very well, “CSR has to come from somewhere in your soul”. The danger is that such interventions would increasingly cause the impact of Section 135 to be seen as akin to yet another tax. There are better solutions. This is where, I believe, big business can play a part. Many major Indian promoters are already significant, generous and longstanding donors in their own right with an aggregate annual estimated giving of some Rupees 35,000 crores (£4 billion). Moreover, many UK companies operating in India are not only already active in CSR both globally and in India but the level at which they engage in India is significantly higher than that specified under Section 135. Indeed, in the Sterling Assets in India: UK Investment Creating Indian Job Report, it was estimated that on average the 533 identified UK companies operating in India spent some 4.4% of the net profits annually onto CSR qualifying projects. Professor Joseph Nye, the American political scientist, recently wrote that “credibility is the scarcest resource”. There is an opportunity for the largest companies in both Indian and UK to deploy their ‘soft power’ in this area to catalyse CSR in India, to welcome third party donations and to lead by example.

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UKIBC NEWS ROUND UP HON’BLE CHIEF MINISTER, GOVERNMENT OF MADHYA PRADESH CHOUHAN VISITS LONDON

MAYOR OF LONDON MEETS UKIBC MEMBERS

On 26 September 2016, Shri Shivraj Singh Chouhan, the Chief Minister of Madhya Pradesh visited London for a two-day visit to discuss areas of collaboration between the UK and his state. The Chief Minister was in the UK to promote business links with Madhya Pradesh – a state coined the ‘beating heart of India.’ Placed in a strategic location in the centre of the country, with great connectivity to major cities and ports. Mr. Chouhan participated in two events – the first being a presentation and discussion on UK Smart Cities Expertise, in which areas of collaboration between the UK and Madhya Pradesh were explored as part of Prime Minister Modi’s Smart Cities programme. The UK India Business Council, together with the Confederation of Indian Industry (CII), also organised a seminar and discussion session at Methodist Central Hall in London to highlight business opportunities in the State.

The Mayor of London, Sadiq Khan hosted a meeting at his City Hall office by the river Thames with 17 companies already working with London, including the Tata Group, Infosys, Wipro, among others, to discuss expanding their links with London after Britain’s decision to leave the EU. “London is open for investment and business from around the globe and the city already has an excellent trading relationship with India,” the 46-year-old Khan said. “I am looking forward to meeting with leading Indian businesses to reassure them that our great city remains open to the best global talent, and I’m keen to discuss how we can strengthen and support further investment in London,” he added before the meeting. Indian businesses employ around 50,000 people in London and are the second-biggest foreign investors in London. The city has attracted more foreign direct investment (FDI) from India than both Japan and China, with only the US investing more.

LONDON

FUTURE UK-INDIA TRADE RELATIONS The UKIBC and CII recently completed a survey and a series of 3 workshops, in London and Delhi, to capture the views of businesses on the future of UK-India trade and investment. With the UK creating a new relationship with the EU, this could open the possibility of a UK-India economic cooperation agreement. As can be seen by the strong response to this initial phase of consultation – 200 businesses of all sizes and from all

sectors – there is huge interest in examining and unlocking the potential of the trade and investment partnership. We will be developing this dialogue in the months ahead, including via the UK-India CEO Forum, and will be seeking business views as we start to narrow in on specific themes and sectors. To take part in these discussions please join our LinkedIn Group

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Analysis: Education Kevin McCole, Chief Operating Officer at UK India Business Council, examines the future of India’s education system and the opportunities it presents The Indian education system is undergoing rapid change. To succeed in this environment, UK universities need to look differently at India as digital disruption and progressive government policy mean the next decade will be nothing like the last. India will become the most populated country on the planet by 2022, and it will have the largest number of people of college-going age by 2030 – a staggering 140 million. Currently, 700 universities educate 28.6 million students in India. To accommodate the dramatic increase in student numbers, it is estimated that India will need another 1,500 institutions. This challenge is intensified by a rising gross enrolment ratio. Today it is 23%, compared to 57% in the UK and 89% in the US. Nevertheless, it is rising and the Government of India has set a target of reaching 30% by 2020. To add to India’s education issues, it is estimated that between 30-40% of departmental positions in Indian universities are vacant. Enabling access, equity and quality of education will be the greatest hurdles for India to overcome in the coming decades. With around one million young people entering the labour market every month and the workplace looking for increasingly well-qualified people, India will lose its demographic dividend if its young people are considered

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unemployable by businesses. It could also have a major impact on the economy. The chief economist of the Asian Development Bank, Dr. Ifzal Ali, believes that India could “step back from 7-8% growth to 3-4% growth very easily within 5 to 6 years if unemployment and under-employment is not addressed.” A university qualification is widely recognised to boost an individual’s employability. At a time when many low-skilled jobs are tipped to become automated, being highly skilled will undoubtedly be increasingly important.

THE ANSWER IS ONLINE

Rick Levin, the CEO of Coursera, the American educational technology company, termed India’s objectives as “hugely ambitious” and the challenge as “...frankly almost impossible if such an expansion were to depend on building new bricks and mortar universities.” As of now, India only has around 3.5 million students on distance learning degrees. The scope and need for growth is obvious. New, innovative and digital forms of education are going to have to play a significant role. This challenge can become an opportunity for a country like India, which is developing rapidly across all sectors. A chance to lead the world by using its increasing internet penetration and its ability to deploy tech expertise at huge scale to deliver high-quality digital education of

hundreds of millions of people. The UK can play a role in this.

WHAT DOES THIS MEAN FOR UK UNIVERSITIES?

With the tightening of student visas in the UK, India must not be just about student recruitment. Instead, UK and Indian partners should come together to create and deliver next generation, digitally-delivered, education. There is already considerable UK-India higher education collaboration. The UK India Business Council’s Innovation in the Economy Report, featured several examples of this collaboration in practice, including the Newton-Bhabha Fund and the UK India Education and Research Initiative (UKIERI). These can be expanded, and priority given to digital education

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‘TO ADD TO INDIA’S CHALLENGE, IT IS ESTIMATED THAT BETWEEN 30 AND 40% OF DEPARTMENTAL POSITIONS IN INDIAN UNIVERSITIES ARE VACANT.’

related research and collaborations. It is important, in developing digitally-delivered education, to keep in mind two of the conclusions drawn from another UK India Business Council study – Meeting India’s Education Challenges Through E-Learning. Firstly, e-learning must be education-led, not technology led. For this to be impactful it is wise to use online tools already familiar to students such as YouTube, gaming and Skype.

WHAT ELSE SHOULD UK UNIVERSITIES BE DOING IN INDIA?

Attracting Indian students to the UK should continue to be a part of a UK university’s strategy. The number of students coming to the UK may not rebound soon, but will eventually. Indians, like the Chinese before them, will

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enjoy rising GDP per capita levels, which will change the economic equation.

Here are just two areas for collaboration: Academic institutions As of now, UK universities collaborate with just 2.5% of the Indian education sector. So there is significant scope for expansion. There are several ways of achieving a deeper level of collaboration: joint degree programmes, which will enhance Indian graduate’s employability; PhD projects with researchintensive organisations; delivering blended learning programmes; and promoting twinning programmes. In establishing partnerships, there is much to be said for looking beyond the top ranking Indian institutions. Many of the emerging private sector

engineering and business schools are first rate. Corporate engagement Engagements with Indian corporates should also be central to a UK university’s strategy. The UK India Business Council’s extensive engagement with these businesses have shown they are now looking to connect with universities, to access both R&D capability and talent. This trend is intensifying. There is no doubt that the UK universities active in India have had to change what they do and how they do it. If they haven’t, time is running out. It is equally clear that education within India is going to be disrupted. It has to be if the country is to succeed in the mammoth task of fulfilling the needs of a burgeoning young population.

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West Bengal’s Finance Minister, and chair of India’s empowered GST committee Dr. Amit Mitra, talks to the UK India Business Council about his career, current role, and the GST Bill itself

LEADING THE ‘BENGALI RENAISSANCE’ PROFILE: THE HONOURABLE DR AMIT MITRA For 5 years now, Dr. Amit Mitra has been at the forefront of Indian politics. In his current role as the Finance Minister for the Eastern state of West Bengal, and Chair of India’s Goods and Service Tax (GST) committee he is carving out a strong image for himself in domestic politics. Yet, it is easy to forget the wealth of experience he holds on an international level too. He has received honours recognising his work in several countries, including Italy and Japan – where he was awarded the prestigious ‘Order of the Rising Sun’ in 2005 for his contribution to improving Indo-Japanese relations. He is well-versed in the art of international negotiation, having overseen the technology transfer in defence with the US on behalf of India, and he talks of his immense privilege of being an advisor to the Minister for Industry and Commerce at the World Trade Organisation Summit, as part of his role at the Federation of Indian Chambers of Commerce and Industry (FICCI) – which he also chaired. Dr. Mitra talks of these years fondly, and there is a sense that he holds immense pride at having spoken for India on the international stage. “This was a life that was policy based, international relations based, and based on looking at India and reaching out,” he explains. His period at FICCI was marked with improvements across the board. The number of conferences organised by FICCI rose from 10 to 500 between 1994 and 2011 and its revenues saw an increase from Rs 3 crore to Rs 110 crore under Dr. Mitra’s stewardship. As someone who has a track-record of service to both the public and private sector, he is keen to point out that while at FICCI, he ensured that the national interest always came first. “There were times when what we perceived as policy interest for the country may not be consistent with a business group. That’s when you have to convince them, you have to be on the ball,” he says.

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BACK TO BENGAL Many eyebrows were raised when Dr. Mitra left FICCI after a hugely successful stint, to move into politics as a Member of the Assembly for Khardaha – a seat he won from the sitting Finance Minister, Asim Dasgupta by a margin of 26,154 votes. After his election, he was appointed Finance Minister for West Bengal by Chief Minister Mamata Banerjee – who he had worked with previously at the

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transport ministry. On his decision to leave FICCI and go back to Bengal to enter politics, Dr. Mitra is unequivocal about his motives. “My family’s legacy was about working for society – fighting for independence. There’s a station in my mother’s name because of her contribution to national freedom fighting. This is a backdrop to the fact that I felt persuaded that Bengal could go back to its great period of renaissance. As someone who is not a Bengali – Gopal Gokhale once said, ‘what Bengal says today, India thinks tomorrow.’” The Bengali Renaissance he speaks of is an idea rooted in history. The State is proud to have produced all four of India’s Nobel Prize winners, and has a record of political, cultural and religious reformism. This, combined with Dr. Mitra’s view that Mamata Banerjee would win in West Bengal in 2011, influenced his decision to come back and play a central role in reviving the State after 34 years of decline during communist rule. The changes Dr. Mitra has overseen as Finance Minister, under the watchful and supportive eye of Mamata Banerjee are plain for all to see. The State’s GDP has more than doubled, from Rs 4,60,959 crores to Rs 9,39,471, and the fiscal deficit has also been halved to 2.65%. Crucially though, the tax take has doubled from Rs. 21,129 crores to Rs. 42,920 – boosting the State’s coffers significantly. This considerable rise in tax receipts is attributed by Dr. Mitra to his team’s decision to introduce e-taxation across the state. “The Asian Development Bank in 2005 said that there was a rate of 40-50% for non-compliance in Bengal. With e-taxation there was immediate compliance – because there was no hassle,” he said. This increase in revenue from taxation is also linked to the State’s rising GDP and a steady

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increase in the amount of investment flowing into West Bengal. Dr. Mitra points to the example of Tata in the region. “Take Tata Metaliks, it was almost closing when we came to office. Today they are employing 1500 people. They are making profits. Tata Hitachi was floundering when we came to office. Today, not only is it doing well, but it has three Japanese subsidiaries in our own industrial park in Kharagpur. TCS are opening a new campus in Rajarhat. When at capacity, the Tatas will employ 60,000 people in our State.” On this evidence, Mamata Banerjee’s dispute in 2008 with the previous government over the Tata Nano Singur controversy seems to have been confined to history. The recent Supreme Court ruling in favour of the position Banerjee took vindicates her stand against the communists, with leading barrister Justice Gowda calling the actions of the State Government of the day “grossly perverse” and “illegal” – prompting Banerjee to declare that she can now “die in peace.” With Tata investment at record levels in West Bengal, and providing employment for thousands of Bengalis, it is clear that Mitra’s assertion that there is “no issue” between the company and the state government is indeed true. GST, AND THE CHALLENGES FOR THE FUTURE Finance Minister Arun Jaitley appointed Mitra as Chair of the empowered Finance Ministers’ committee on the long-awaited GST. They handed him a key role in establishing the states’ position and liaising with the Central Government on what is perhaps the most important economic reform in decades. Dr. Mitra sees GST as a reform that must be bottom-up, and not imposed on states’ by the Central Government. In this regard, he says, the wording of the Bill is key. “I fought very hard on the wording of the Bill. The [previous] wording was ‘States will be compensated for a loss of revenue, up to a period of five years.’ I worked very hard to get this wording changed to ‘for five years.’ Before this, any time in the five years it could be stopped. This is the reason why it previously couldn’t be passed – because states were worried.” Consensus is the name of the game for GST, and Mitra is determined to try and meet the deadline of April 2017 – although he says this will not be easy. “40,000 pieces of paper have come to our committee [asking for exemptions] … This is the world’s largest reform in the fiscal space – we will have to see how the chips fall in terms of timing.” Dr. Mitra’s family history of freedom fighting and public service is poignant when considering the challenges he currently faces. One thing is clear – if he sees through the passage of the GST to completion, and succeeds with the ‘Bengali Renaissance’ he talks of, he will be well on the way to carrying on this legacy.

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Kolkata – West Bengal’s capital city

WHAT IS GST? The GST is a single tax on goods and services across India, applied to manufacturers and consumers alike. It has been heralded widely as the starting point of a single market across India, improving economic efficiency and productivity. It will effectively act as a ‘Free Trade Agreement between India and itself,’ in the words of India Economist at J.P. Morgan, Sajjid Chinoy. It will remove the current web of taxes and tariffs between states, making it much easier to conduct business operations across the whole country. WHAT WILL BE ITS FORMAT? The GST will be in dual format, meaning it will have a federal structure. There will be three types of taxes – central, state and integrated GST to tackle inter-state transactions. WHICH SECTORS WILL BENEFIT MOST? Manufacturing and retail and consumer sectors are expected to benefit the most from the introduction of GST, giving further momentum to the Government’s “Make in India” campaign.

WHAT GOODS AREN’T INCLUDED? One of the main pitfalls of the GST is the exclusion of alcohol and key petroleum products, which will continue with their existing tax arrangements. This waters down one of the key aims of the bill – which is to create a single market applying to all goods and services. WHAT TAXES WILL THE GST REPLACE? In terms of central taxes, the GST will replace: l Central Excise Duty l Service Tax lA  dditional Customs Duty (CVD) lS  pecial Additional Duty of Customs (SAD) l Central Sales Tax l Central surcharges and cesses. The state taxes the GST will replace include: l Value Added Tax l Octroi and Entry Tax l Purchase Tax l Luxury Tax l T  axes on lottery, betting & gambling l State cesses and surcharges l Entertainment tax l Central Sales Tax.

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India in the world

At this year’s G20 summit, the proactive nature of India’s foreign policy under Narendra Modi was on full show. Simon Jones examines India’s new place in the world, in light of the G20 summit in Hangzhau, China in September 2016

This year’s G20 Summit in Hangzhou, China, was an opportunity for Modi to assert his foreign policy programme on the world stage. He departed for China promising to stay true to the theme of “strengthening policy coordination and breaking a new path for growth.” In doing so he made his positions clear on a number of relationships – praising President Obama, reinforcing ties between New Delhi and Beijing, and emphasising the “opportunities” for a new economic relationship with the United Kingdom in his first bilateral meeting with Prime Minister Theresa May. Modi’s assertiveness was a reflection of his desire to establish India as a truly global power – both economically and politically. India’s economy could overtake the United States to become the world’s largest economy by 2030, according to the World Bank. With this in mind, the Prime Minister is well aware of the need to improve India’s standing at summits such as the G20, in line with the country’s increasing reputation as an economic powerhouse. The meeting with Xi Jinping, China’s President,

took place against the backdrop of several areas of concern for both countries. For India, the $46 billion China-Pakistan economic corridor, which runs through Pakistan-occupied Kashmir is a key area of concern. For China too, India’s close ties with the US have caused some worry in Beijing, but the partnership between the two nations remains integral to the economic growth of both countries. THE END OF THE BRICS? With Brazil entangled deep in a corruption scandal running right to the heart of government, Russia in recession as gas and oil prices fall, and South Africa’s progress stalling; the strong and steady growth of both India and China has meant that the two neighbouring Asian nations have been left as the sole BRICS representatives among the world’s fastest growing economies. China’s GDP has grown at figures over 6% consistently since 1990, while India’s has grown at 5.5% or over every year since 2003, with the exception of 2008 – the year of the global financial crash. This is in comparison to retracting growth in Brazil and Russia, whose 2016 numbers were -3.8

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and -1.9 respectively, showing again that a BRICS split is potentially on the cards. Both Brazil and Russia look set to come out of recession in 2017, but the growth figures of the two countries lag significantly behind India’s and China’s. At the same time, South Africa – although not in recession – saw growth figures of less than 1% last year. However, Manoj Ladwa, London-based CEO of India Inc and former Communications Director for Modi’s 2014 election campaign, is careful not to write off the BRICS just yet. “Despite the economic slowdown, the BRICS countries remain significant global economies. The configuration has provided a forum and voice for the big emerging economies, and initiatives such as the BRICS bank is noteworthy and useful,” he said. The BRICS remain an important grouping, and it was evident at this year’s G20 meeting between the five countries, that they are committed to deepening ties moving forward. Ladwa added, “I don’t think that the BRICS, which represents almost half the world’s population, can or should be written off because of one economic cycle.”

the importance of increasing connectivity between India and its neighbours in Southeast Asia. Announcing his new emphasis on ‘Act East,’ Modi said, “to achieve this extremely important goal, we look at ASEAN, not only for inspiration but also for its leadership; and [ASEAN] have achieved a great deal of success in leading us in that direction. A new era of economic development, industrialisation and trade has begun in India.” Dr. Roger Hayes, Honourary Advisor to the Federation of Indian Chambers of Commerce and Industry (FICCI), is another to talk up the prospects of Modi’s ‘Act East’ policy. “The current government has adopted a more dynamic Act East policy, which is driving excitement because ASEAN view India as a centre of economic development and because it gives India access to a vast catchment area,” he commented. Despite China recently becoming India’s top trading partner, with bilateral trade growing from roughly $US7 billion in 2003-2004, to $US65 billion in 2013 2014, there is a growing feeling in New Delhi that China’s dominance in the region needs an effective counterweight and ‘Act East’ is the starting point for this.

‘ACT EAST’ – UNLOCKING THE POTENTIAL OF SOUTHEAST ASIA Modi’s pledge to transform the ‘Look East’ policy into an ‘Act East’ policy combined with growing Indian investment in Southeast Asia may lead to the forming of new partnerships in the region. The partnership with ASEAN is a top priority for Modi, and on a visit to Laos in September he highlighted

COUNTERING THE RISE OF CHINA Japan is a key pillar of this new ‘Act East’ direction, and Shinzo Abe’s Government have been integral in supporting India in fending off border encroachments from China. The trilateral relations between India, Japan and the US have been key in this regard, and the three countries met this summer to discuss cooperation on maritime security amid China’s growing assertiveness in the South and East China seas, as well as the Indian Ocean. The US has become an even closer partner for India under Modi, who has made concerted efforts to collaborate further with Washington on issues surrounding relations with China, Pakistan, and Afghanistan, with regards to defence, trade and investment. Modi has visited the US twice in the last year for bilateral talks with President Obama. During his 2015 visit, the Prime Minister visited Silicon Valley, meeting with entrepreneurs – several of whom were of Indian origin – involved in successful microelectronics, digital communications and biotechnology start-ups to promote his Government’s Make in India initiative. Russia too is a key strategic partner for India, particularly in the supply of defence equipment, with India currently the second largest market for the Russian defence industry. The two countries share deep historical bonds, described by former Russian President Dimitri Medvedev as a “common heritage” and despite close ties with the US, India has always been keen to keep Russia on side. The relations with Japan, USA and Russia again show that there is a level of concern from Modi’s

‘BOTH BRAZIL AND RUSSIA LOOK SET TO COME OUT OF RECESSION IN 2017, BUT THE GROWTH FIGURES OF THE TWO COUNTRIES LAG SIGNIFICANTLY BEHIND INDIA’S AND CHINA’S.’

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government about the rise of China as an economic and military superpower, as all three countries Modi has made significant efforts with are also unsettled by Chinese hegemony. At the same time, Modi is trying to improve economic relations with China, as there is no doubt that closer ties between the world’s two most populous countries will accelerate the economic growth of both. Bilateral trade between the two nations is increasing, but hugely in China’s favour. The whole premise of policies such as Make in India could be under threat if making across the border in China becomes preferable. THE FUTURE OF UK-INDIA RELATIONS Mr Modi’s bilateral meeting with UK Prime Minister Theresa May gave an indication of the potential for closer UK-India relations post-Brexit. Although trade negotiations cannot take place until the UK has formally left the European Union, officials in London and New Delhi have been keen to play up the prospects of a trade deal in the coming years, and this was again evident at the G20.

Ho Chi Minh City: Vietnam looks set to become a key trading partner for India

Alok Sharma, Minister of State at the Foreign and Commonwealth Office, has been keen to highlight the prospects of closer UK-India ties in light of the UK’s decision to leave the European Union. “While our future relationship with the EU is still to be determined, working with India remains an important priority for the British Government… We are working with international partners, including India, to play our part in ensuring a safer, healthier and prosperous world,” Mr Sharma commented. “The British Government is committed to our relationship with India and I am deeply honoured to play my part in building ever stronger bonds,” he added – again emphasising the current strength of the UK-India relationship. India’s place in the world is solidifying, and as the economy develops further, so will the prospects of joining the top table for good. While India may be ‘acting East,’ it is certainly still looking West, and with the UK Government pledging to re-engage with the world post-Brexit, the partnership between India and the UK will only flourish further in the years to come.

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INVESTING IN INDIA: THE POST-B EXIT OPPORTUNITY INDIA IS CURRENTLY THE 9TH LARGEST ECONOMY IN THE WORLD AND IS PREDICTED TO BE THE LARGEST BY 2030 (1)

INDIA

1

ST

IS THE FASTEST...

9TH

FORECAST GDP GROWTH

FY 2017:

7.5%

(3)

81%

UK BUSINESSES SAY THESE GROWTH PROJECTIONS MAKE INDIA AN ATTRACTIVE MARKET (4)

THE

MAJORITY OF UK BUSINESSES SAY MODI GOVERNMENT REFORMS HAVE MADE THEM INCREASE THEIR INVESTMENT IN INDIA (4)

GROWING MAJOR ECONOMY IN THE WORLD (2)

7/10

UK BUSINESSES GIVE THE MODI GOVERNMENT A SCORE OF 7/10 ON OVERALL PERFORMANCE IN THE TWO YEARS OF BEING IN POWER (4)

(1) Worldbank (2) Delhi Central Statistics Office (3) IMF (4) UK India Business Council For more information about the UK India Business Council’s support network visit: www.ukibc.com

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THE TIME IS NOW We explore what the UK-India bilateral trade and investment relationship will look like following Brexit www.ukibc.com

COVER STORY The UK and India’s “current trading relationship is strong but, more importantly, there is so much future potential”. These were the words of the UK’s International Trade Secretary, the Rt Hon Dr Liam Fox MP, on a visit to India in late August. Following the UK’s decision to leave the European Union on 23 June, the country has set out exploring new bilateral trading partnerships with the rest of the world. The fact that four UK ministers have visited India since July alone highlights the renewed focus on the importance of this economic relationship, which is only set to get stronger post-Brexit. Over the past 14 years, the UK has been the biggest G20 investor in India. Some 530 British businesses employ almost 700,000 people in the

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nation and have an estimated combined revenue of $54 billion, according to the Sterling Assets India Report by CBI, PwC and the UK India Business Council. At the same time, India is the third largest investor in the UK. Indian companies invest more in Britain than the rest of the EU combined. More than 800 Indian companies are currently in operation, employing more than 110,000 people, a recent Grant Thornnton report has shown. Post-Brexit it is vital that a Comprehensive Economic Partnership Agreement (CEPA). This should act as a huge catalyst to boost bilateral economic relations even further and put the UK-India relationship on an entirely new footing for the 21st century. A FUTURE UK-INDIA FREE TRADE AGREEMENT A comprehensive CEPA would be a great prize for both countries, but it won’t come easy. The negotiators will need to navigate some of the same issues that exist in the currently stalled EU-India FTA deal. These include: l The elimination/reduction of tariffs for cars, wines and spirits. l Addressing key non-tariff barriers, such as licensing and customs regulations. l Improved access to the Indian public procurement market. l Harmonisation of regulations and standards. l Liberalisation in India of service sectors, such as legal, accounts and maritime services. l Mode 4 – temporary access to the UK for Indian skilled professionals. l The recognition of India as a ‘data secure’ nation. On top of these specific issues, UK-India negotiations will take place in a world where populist political rhetoric has led to public protest against globalisation and trade deals. Specifically, the Trans-Pacific Partnership Agreement, the Transatlantic Trade and Investment Partnership, and CETA – the Canada-EU deal. We should keep in mind that until Brexit plays out and our ongoing relationship with the EU is decided, the UK remains part of the single market. It is prohibited by this treaty to negotiate any form of bilateral agreements – trade treaties and bilateral investment treaties included. Prime Minister Theresa May has indicated she will evoke Article 50 by March 2017. It is estimated that it will take two years for discussions on Brexit to be concluded before any direct government-to-government talks can commence, let alone agreements reached. As a result, signing of a bilateral economic agreement with India will potentially begin in 2019 at the earliest. CURRENT LANDSCAPE Consequently, it is vital businesses and governments focus on the current realities. The UK and India bilateral economic numbers are good, although individual items could be improved.

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In absolute terms, UK-India bilateral trade increased by 170% between 2004 and 2014. Yet, India’s overall trade grew by 800% in the same period. Additionally, India’s goods exports to the UK grew by 226% between 2004 and 2014. The UK’s goods exports to India grew by 153% in the same period. However, despite these impressive numbers, the UK was just India’s 12th largest trading partner in 2015-16. India trades more with Indonesia, Germany and Japan, than with the UK. Plus, while the UK is the second largest exporter of services in the world, and India has the second fastest growing services sector with a CAGR of 9%, UK-India services trade is disappointingly low. In 2014, the

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Left: Dr Liam Fox met with India’s Commerce and Industry Minister Nirmala Sitharaman. They discussed how to forge deeper trade and investment ties between UK and India IMAGE VIA FLICKR/BRITISH HIGH COMMISSION NEW DELHI

‘TIME WAITS FOR NO ONE AND IT IS IMPORTANT THAT COMPANIES DON’T WAIT FOR THE BREXIT DUST TO SETTLE AND A COMPREHENSIVE BILATERAL ECONOMIC AGREEMENT TO BE INKED TO DO BUSINESS – THE OPPORTUNITY IS NOW.’

UK imported over 10 times more services from the US than it did from India, and the UK’s service exports to India make up just 7% of its total service exports to Asia. These numbers could be improved, especially post-referendum. Since June Indian companies can buy from and invest in the UK almost 20% more cheaply – due to the depreciation in Sterling. Indian businesses will find UK companies are increasingly looking to India for partnerships. At the same time, the UK economy remains fundamentally strong. It is the sixth largest economy in the world, the second fastest market in the G7, and one that, in the words of PM Theresa May, is “bold and outward looking.” Just like India.

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On the other hand, for UK companies, India is increasingly open to FDI and is moving up the ease of doing business rankings. Just as importantly, there is a rising interest demand for UK goods, services, technology, and know-how to help achieve the goals set out in programmes such as Make in India, Digital India, Skill India and Swachh Bharat. SO, IS THERE ANYTHING THAT CAN BE DONE NOW? THE SHORT ANSWER IS ‘YES’. There has already been an announcement from Dr Liam Fox and the Indian Minister of Commerce, Nirmala Sitharaman, that they will convene an

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BUSINESS VIEW

KEY BARRIERS TO INVESTMENT (UK HQ)

1. Taxation policy 2. Complex and length procedure between central and state governments 3. Regulatory framework 4. Difficulty in obtaining a licence or authorisation 5. Presence of quality infrastructure

ongoing dialogue on what the shape of future trade policy should look like. The discussions will be an important building block in establishing common purpose in any economic dialogue. The talks underscore that time waits for no one, and it is important that companies don’t wait for the Brexit dust to settle and a comprehensive bilateral economic agreement to be inked to do business – the opportunity is now. A CEPA does need not be in place for bilateral economic relations to grow. There is an important mutually beneficial relationship which can be built between India and the UK, based on British development of technology and innovation supporting the Indian industry and economy. The opportunities are multiple for UK and Indian businesses to buy and sell right now. Here is a selection of examples:

KEY BARRIERS TO TRADE

1. Tariff barriers 2. Regulatory issues 3. Other non-tariff barriers 4. Complicated and lengthy customs procedures 5. Lack of international standards

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The UK India Business Council and the Confederation of India Industry surveyed UK and India businesses about the future of UK-India trade relations following Brexit. Here are the highlights from the research findings:

70.4%

said UK-India trade and investment has become more important in light of the EU referendum

88.7%

believe a UK-India FTA will improve trade

Consumer-focussed products. Domestic, consumer-led, consumption are significant drivers in both the UK and Indian economies. Yet there is little trade in food, drink, fashion, beauty products and FMCG goods. Although textiles and garments are in India’s top five exports to the UK and spices in their top 10, much more can be done in both directions. Looking into India, UK companies will find a fast-growing, aspirational and value conscious consuming class with an affiliation to British brands. Make in India. There are several manufacturing sectors that offer substantial scope for UK-India innovation collaborations, however, defence and aerospace are perhaps the most prominent. India has extensive modernisation plans for the defence sector, increasing its FDI in defence to 100% from 26% just two years ago. Healthcare. India is currently looking to roll out universal healthcare – the UK’s NHS system is a prime example of delivery of this level of care and it would be beneficial for Indian healthcare providers to work with their UK counterparts. At the same time, India’s innovative and top quality healthcare providers have developed processes and systems that could be applied within the NHS. Overall, there is optimism and positivity on both sides that a UK-India CEPA can be negotiated and agreed post-Brexit. Recognising the complementary nature of our economic strengths and objectives, there is also currently much goodwill in the relationship. However, the devil, as ever, will be in the detail. So, when the discussions turn into negotiations, and obstacles emerge, it will be important that political and business figures retain the positivity and goodwill. They must also show the leadership.

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‘MAKE IN INDIA - FINANCE IN THE UK’ Alok Sharma MP reveals why the relationship between India and the UK is going from strength to strength TECH COLL ABORATION As Minister for Asia and the Pacific, I want to do all I can to accelerate both Britain and India’s prosperity. Our trade and investment relationship is vital to the strength of both our economies. Our bilateral trade was worth nearly £16 billion last year and we believe there is room to grow. In my former role as the Prime Minister’s Infrastructure Envoy to India, I was involved in encouraging Indian companies and public sector entities to see the City of London as the natural home for raising offshore finance. It was therefore my great pleasure to attend ,in August, the launch of the first rupee-denominated Masala Bonds in London by an Indian company: Housing and Development Finance Corporation (Rs 30 billion raised), closely followed by the National Thermal

Power Corporation launch. There are more of these ‘Masala Bonds’ in the pipeline and our clear aspiration is for the City of London to become India’s international destination of choice to raise funds, particularly to finance India’s ambitious infrastructure plans. Our mantra is: Make in India, Finance in the UK! The UK is keen to support Prime Minister Modi’s reform ambitions. British experts are advising in areas such as better regulation, smart cities and skills, as well as providing technical assistance to support the massive expansion of renewable energy which will be central to India’s growth aspirations. The recent move by the Government of India to further liberalise foreign direct investment will help boost employment and attract investment into India. The introduction of a unified tax for Goods and Services in August should boost growth and competitiveness. Prime Minister Modi’s efforts to improve ease of doing business in India are achieving results too: India moved up four places from its rank last year in the World Bank report on Ease of Doing Business. During my visit to India in July, I discussed with Indian Government Ministers and businesses the decision of the British public to leave the European Union. The UK continues to want the strongest trade and investment relationship with India. It was very encouraging to hear directly from Indian business leaders that the UK remains a key investment destination for them. While our future relationship with the EU is still to be determined, working with India remains an important priority for the British Government. We are committed to our relationship with India and I am deeply honoured to play my part in building ever stronger bonds.

The UK is partnering with India for its 2016 Technology Summit and Knowledge Expo this November to demonstrate our entrepreneurial skills and collaboration. Tech Summit will showcase the best of British and Indian capabilities and technologies in a number of eye catching events and installations.

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DIGITAL DISRUPTION

We investigate the future of the finance industry, and why FinTech is the perfect area for UK-India collaboration TECH COLL ABORATION Digital disruption is set to transform the world. Every sector from retail – where it’s already pretty obvious machines are replacing staff – to infrastructure – Transport for London’s DLR has been completely automated since launch and more driverless tubes are underway. However, it’s perhaps new financial technology that is set to cause the biggest disruption to the modern working world. FinTech businesses aim

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to take on the traditional banks by offering faster, more innovative, accessible, and cheaper services. Vivek Belgavi, Partner and FinTech Leader at PwC India, explains the basics, “FinTech is the emerging financial services ecosystem enabled by digital technology. The sector is seeing tremendous growth with considerable interests from VC’s and other investments. Global investments in the sector nearly tripled last year, growing from about $4 billion in 2013 to over $12 billion in 2014.”

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THE PERFECT PARTNERSHIP London is leading the way in Europe in terms of financial technology, with the UK FinTech sector worth £6.6 billion in revenue annually. The UK is the number one FinTech hub in the world, a recent report by EY revealed. This is based on market size, investment, regulation and workforce. Commentators and industry leaders are confident this will remain the case after Article 50 is triggered. At the same time, the majority of Indians do not yet have access to bank accounts. Plus, with up to 1 million new young people entering the workforce every month, the Government of India’s Ministry of Finance is committed to replacing cash transactions with electronic money to increase transparency, squash corruption and get rid of black money for good. Additionally, a KPMG AND IAMAI study has highlighted that India is the third largest global market for smartphones with the country set to have 314 million mobile web users by next year. These factors make India the perfect place for FinTech to flourish. Britain is equipped with the right expertise and experience to support the enhancement of FinTech in India. As a world renounced tech hub, the UK can assist the regulation of the Indian banking industry in an affordable and effective way. This is a perfect collaboration that has the potential to boost both countries’ economies. POTENTIAL CHALLENGES However, it’s not quite that simple. The big banks complain that increased pressures and scrutiny are hindering their profitability. So reducing costs and squeezing out inefficiencies is an obvious direction. Robotic process automation and similar technologies offer a solution, but with inevitable loss of jobs. As a result, this is a difficult transition for big players. Belgavi offers advice, “The more established FinTech companies will need to be able to wade through regulatory requirements while simultaneously trying to expand operations without losing momentum. Traditional players will need to develop quick turn-around go-to-market propositions in order to compete and evolve their business models as the industry re-shapes itself. The key to differentiating and winning in this space will be through the effective use of digital technologies to maintain operational efficiency while providing a superior customer experience.” Job losses will be a major challenge. The Government of India is expecting banking growth to provide 1.6 million new high quality jobs by 2020, the National Skill Development Corporation has said. This number may well be cut by increased use of technology to automate knowledge-based, but nonetheless repetitive jobs.

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CASE STUDY: MPHASIS AND ROBOTIC PROCESS AUTOMATION One of the aims of the UK India Business Council is to create better understanding of India’s contribution to the UK economy, particularly India’s world-leading IT consultancy businesses. A common misconception is that India only provides cheap offshoring. Now with Indian IT consultancies providing increasingly sophisticated support to industries using local talent, we are keen to stimulate a betterinformed dialogue. For example,UK India Business Council member, Mphasis, based in Bangalore with a London hub, is a leading player in the fintech sector. Mphasis is at the forefront of the Robotic Process Automation (RPA) developments transforming banking and other industries, for example telecommunications and Mphasis has been able to reduce its clients’ related costs by 18% - 25%. It has already automated 70% of the back office operations of a leading European insurer – automating quotes and renewals has reduced its client’s turnaround time by 90%. This demonstrates the advanced and sophisticated technologies of Indian IT consultancies, like Mphasis. By differentiating themselves through innovation and quality of delivery, we anticipate that India’s technology consultancies will continue to expand their reach and create value for clients in the UK and across the world.

This challenge can be overcome by deploying the right education and training to upskill workforces, with a focus on technology (turn to our education analysis on page 8 to find out more). This will ensure staff are better equipped to take on new challenges as the work environment changes, as well as limit job losses. FinTech offers both the UK and India a new and innovative way to collaborate that can benefit both nations. Patricia Hewitt, UK India Business Council Chair, concludes, “We have an extraordinary opportunity now to take the UK-India relationship to a completely different level, to the great benefit of people in both countries.”

WHAT NEXT? Follow us @UKIBC on Twitter to keep up-to-date with the latest tech developments.

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THE BIG QUESTION

WHAT COULD THE UK AND INDIAN GOVERNMENTS BE DOING BETTER TO BOOST BUSINESS? Members of the UK-India CEO Forum answer our big question

UKIBC VIEW KEVIN MCCOLE COO, UK India Business Council

It is important that the UK and Indian governments take a holistic approach to growing bilateral trade and investment. Imports, exports, inbound investment and outbound investment are mutually reinforcing and, if there is a comprehensive UK-India deal, it should cover all four elements. To maximise the benefits of a such a deal, the right trade promotion support and guidance for businesses also

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need to be put in place. It could be argued that more of the same will not achieve the full potential of the relationship. For example, there are a great deal of business delegations in both directions, and their success is often judged by their size. But there is a case to be made that smaller, focussed and betterprepared delegations would lead to more deals being done. We would also advocate that the current trade architecture could be enhanced. Each group - JETCO, EFD, IUKFP, and the CEO Forum – is valuable. But a strong alignment would generate strong results.

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SIR GERRY GRIMSTONE Chairman, Standard Life

It is important both governments continue to build on the strong foundations of relationships we have established in recent years. Here in the UK the number of Indian companies is growing at over 10% per year. Similarly, investment by UK businesses in India is developing strongly with British companies completing deals in India worth £5.1 billion in 2015-16. India’s recent FDI reforms in sectors such as insurance, defence,

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pharmaceutical, aviation, retail, e-commerce, and real estate are very welcome and will strengthen such investment. We have also seen a number of transformational policy changes. For example, the passage of India’s first national bankruptcy law which will have a

‘WE ENCOURAGE BOTH GOVERNMENTS, AT THE HIGHEST LEVELS, TO CONTINUE TO ACTIVELY SUPPORT SUCH PARTNERSHIPS TO TAP IN TO THE BEST OF EXPERTISE ACROSS UK AND INDIAN BUSINESSES.’

powerful impact. It will ensure a consistent supply of credit, attracting new capital and expertise into business revival, and boosting the development of the corporate bond market.  Critically, these developments have been supported by the flow of practical ideas emerging from the India-UK Financial Partnership, an Indian and UK government-driven initiative to strengthen the development of India’s financial markets. We encourage both governments, at the highest levels, to continue to actively support such partnerships to tap in to the best of expertise across UK and Indian businesses.

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PROFESSOR LORD AJAY KAKKAR

Chairman, University College London Partners and UK Business Ambassador for Healthcare and Life Sciences

In healthcare, the bilateral relationship between the UK and India is already exceptionally strong. More than 25,000 doctors trained in India work for the NHS. Pharmaceuticals is the second largest sector for UK investment in India. Indian pharma exports to the UK are worth £239 million. The Indian healthcare industry is expected to grow seven-fold during this decade and public spending on health is increasing. If this investment is to be efficiently and effectively translated into improved outcomes for patients, the Government of India will need to collaborate closely with international experts and empower Indian companies to do the same. In establishing the UK-India CEO Forum, Narendra Modi and David Cameron identified the exchange of skills and best practice in training healthcare professionals as a priority. Indian demand for doctors and nurses is enormous; the UK has worldleading medical schools and teaching hospitals ready to share their expertise. The Government of India has announced that it will review the role of its medical education regulator, the Medical Council of India. Revised regulations which allow foreign universities and hospitals to help train and certify Indian doctors and nurses in India would bring great benefit to both countries. ‘THE INDIAN HEALTHCARE INDUSTRY IS EXPECTED TO GROW SEVEN-FOLD DURING THIS DECADE AND PUBLIC SPENDING ON HEALTH IS INCREASING.’

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IVAN MENEZES CEO Diageo

We are committed to contributing to the growth and prosperity of the communities we operate in. In our highly taxed and regulated industry there is always scope for governments to make it easier for us to do that. For example, excise rates are still too high in the UK; while in India the proposed GST reforms exclude alcohol. I’d like to see both changed. In India, alcohol is mostly regulated at state level. The drive to improve governance in all states and spread the best, business-friendly practice is beginning to show results and has great potential. But looking ‘I KNOW BOTH PMS HAVE SAID THEY WANT TO PRIORITISE SUCH A PARTNERSHIP: I’LL CERTAINLY DRINK TO THAT!’ 

ahead, what could add most value for us is an ambitious and comprehensive trade and economic partnership between India and a post-Brexit UK, which among other things would eliminate the 150% tariff on Scotch whisky coming into India. I know both PMs have said they want to prioritise such a partnership: I’ll certainly drink to that! 

SIR MARTIN SORRELL

Founder and CEO WPP Simply, negotiate a free trade agreement. Brexit is likely to have a negative impact in the sense that overseas investors – including many Indian firms – saw the UK as a gateway to the EU, and that is now changing. However, on a more positive note, there may now be an opportunity for a bilateral trade agreement between the UK and India. Some, including the Confederation of Indian Industry, believe that would be simpler and faster to implement than an agreement between the EU and India, which has been under discussion for almost 10 years. Having said that, India and the UK already have a close relationship, our bilateral ties are strong and we do see our governments, businesses and other organisations working in concert for the benefit of both countries. This is not as well-known as it could be, and we could certainly do more to promote what we already do rather well together. The excellent GREAT Britain and Make In India campaigns are good examples of how greater awareness of the existing relationship, and its benefits, can be built through improved communications. Another area for improvement is one for Britain rather than India. The UK has not done as much as it should to build Anglo-Indian relationships. In my experience, for example, Indians seem more interested in American universities than British ones. India is the one bright spot in the BRICs economies, its GDP growth continues to be strong, it has a growing youth population and it has tremendous intellectual firepower. The connections between the UK and India will therefore only become more important over time.

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RAKESH KAPOOR Chief Executive at Reckitt Benckiser

IMAGE: WWW.SHUTTERSTOCK.COM

We know that health brings wealth. A myriad of data confirms that economic progress is inextricably linked to improvements in health and hygiene. For example, investing $1 in improved water, sanitation and hygiene returns up to $34 to an economy, (depending on the region), according to the WHO. By giving people innovative solutions for healthier lives and happier homes, India has become one of our fastest growing markets and will soon rank in Reckitt Benckiser’s top three countries in revenues. Yet businesses like ours have a responsibility to deliver value to society beyond shareholder returns. To this end, we applaud PM Modi’s progressive partnerships between government, businesses and the media to address the rising need of hygiene and sanitation in India. Clean India is an ambitious programme to end open defecation in India by 2019,

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and will mark the 150th anniversary of Mahatma Gandhi’s birth. Given our long history and continued strategic focus on India, we are encouraged by the early engagement of the new UK Government and the continuing strong bilateral relationship between the two countries. We welcome the recent structural and policy reforms in India, and the considerable progress made in defence and civil aviation. In conjunction with the Make in India initiative we believe the necessary groundwork is being laid for even greater UK-India partnership. We also look forward to playing our full part in support of the ambitious ‘Smart Cities’ initiative and other essential infrastructure development programmes. As members of the UK India CEO Forum we look forward to continuing our work with industry partners and both governments. In particular we look forward to building further cooperation in research, science and technology, and in enhancing the skills and training necessary for further collaboration in advanced manufacturing.

WARREN EAST CEO Rolls Royce

Building on the agenda of Make in India, the power and warmth of the India-UK partnership can best be harnessed by cocreation – of markets, products and services, leading to exports from India to world markets. Energy, digital connectivity, infrastructure and strategic deterrence are India’s key aims and UK companies’ expertise in research and development, manufacturing technologies, commercialisation, and ‘INCREASING THE AVAILABILITY OF SKILLS AND CAPABILITIES IN INDIA WILL HELP ADD VALUE, NOT JUST REDUCE COST.’

financing make us natural partners. Wholeheartedly supported by the UK Government, we are keen to co-create, in India, the next generation defence technology, leveraging relationships built over our 80 years in India. Increasing the availability of skills and capabilities in India will help add value, not just reduce cost. Examples include the engineers, with a thirst to learn and grow, in the RollsRoyce engineering centres in Bangalore and Pune, and our continuing commitment to the Chevening scholarships, enabling mid-career professionals to pursue further learning at Oxford University. Realising projects in true partnership, co-developing new technology, will be the strongest impetus for growth in bilateral business. Let’s be clear about the priority projects of interest to both countries and have every government-togovernment meeting make real progress on the realisation of those projects. We are already beyond the relationship building stage, it’s time for delivery.

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HOW TO...

ENTER THE INDIAN MARKET Himanshu Godara, Manager – Business Advisory at SKP Business Consulting, shares top tips when for businesses looking to sell and export in India For foreign companies, it is important to consider the right mode of entry to do business with India. This should be evaluated in terms of size of investment, short and long-term business plan, nature of business activity, tax and legal liabilities. There are two options to consider:

INDIRECT PRESENCE

If you want to enter India with limited financial and legal risk, appointing independent local distributors would be an ideal choice. However, in this case your success completely depends upon identifying the right distributor, here’s how: l Supply chain and distribution analysis – Companies must understand the prevalent supply chain and distribution model from a tax and commercial perspective. It will help you draft the roles and responsibilities of identified distributors and in designing an efficient distribution model. l Detailed due diligence of identified distributors – To choose the most appropriate distributor you should select distributors after considering various parameters such as financial strength, access to potential customers, key management background, and

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the ability to grow business in defined market. l Set-up systems and processes to gather required financial and performance data from distributors – When entering India through the indirect route, distributors become key sources of reliable data. It is necessary to have systems and processes that facilitate and guide distributors to provide market information on a regular basis. l Consider distributors as long-term partners – It is important to develop trust with local distributors and treat them as long-term partners rather than just an entry vehicle

DIRECT PRESENCE

Companies with direct presence in India through a liaison office, branch office, limited liability partnership or wholly-owned subsidiary give better control over operations, financial and marketing activities compared to an indirect presence through distributor(s). However, the type of entity completely depends upon the nature of business activity, tax and legal implications and business strategy. Meanwhile, if you have limited resources it may be necessary to leverage third-party expertise on non-core functions such as logistics, accounting and

book-keeping for initial years and focus your efforts on marketing and brand building. There are many third party logistic companies that provide customised support right from freight forwarding, custom clearance and warehousing, setting up distribution channel and inventory management. Similarly, you can take professional support from financial outsourcing companies for accounting, book keeping, compliance management and payroll. There are many success stories of foreign companies doing business with India. At the same time there are plenty of instances where organisations were not able to make their ventures profitable. The difference between success and failure lies in preparation as well as approach towards entering the Indian market. Complex regulations, cultural diversity and fast changing business landscape are all hurdles companies will have to overcome to be successful.

WHAT NEXT? Visit www.skpgroup.com or email skpgrp.info@skpgroup for more information

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CASE STUDY

PERKINS: A ‘MAKE IN INDIA’ SUCCESS STORY India is a shining star in the world economy and with an estimated GDP growth rate of 7.5%, it is on its way to becoming a global economic powerhouse. High on the agenda of any rising economy is the opportunity to improve domestic infrastructure. Programmes such as Make in India, Skill India, Digital India and Smart Cities have enabled the country’s manufacturing industry to flourish. Perkins is at the heart of India’s economic growth having committed to a Greenfield investment project in Aurangabad, Maharashtra, built to manufacture the Perkins® 4000 Series diesel engine range. The powerful 4000 Series engine is the largest in the Perkins portfolio and considered the engine of choice for the power generation market between 750 to 2250 kW. The 4000 Series supports a variety of applications, such as providing prime power for offices and factories, as well as standby power in buildings such as hospitals and datacentres. The Make in India campaign aided a convergence of skills and expertise and the project progressed at pace until Aurangabad Engine Centre (AEC) was commissioned and operational in April 2015.

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THE AIM

The objective was clear, achieve world class standards right from the word go in all aspects of performance including safety, quality, delivery and cost. Richard Cotterell, Chairman of Perkins India, explains, ‘‘Our aim was to establish a world-class engine manufacturing facility equipped with state-of-the-art technology and proven innovative processes. At Perkins India we manufacture diesel engines of the highest quality with an unmatched level of service, catering not only to the Indian market but also to the rest of the world.’’ A ‘Zero Injury’ safety philosophy was adopted from the construction phase of the project itself and a comprehensive Safety Induction Programme was administered to more than 16,000 personnel. The result being 10 million man hours of injury free operation to date. The National Safety Council has acknowledged and commended this achievement as truly world class.

ACHIEVING EXCELLENCE

Data based analyses, stop to fix, process capability, right first time and built in quality are among the phrases commonly used in the manufacturing industry, and for Perkins India they have become mantras for excellence. This has helped the facility to

achieve 100% adherence to Customer Shipment Dates (CSD) and As Delivered Quality (ADQ) within the first year of operation. With a motivated team of over 500 local employees, operating in a safe working environment and taking advantage of an excellent local base of quality suppliers, the business has truly become a world-class global supplier of dependable diesel engines from the Aurangabad facility. The commitment to Make in India is also apparent through our two distribution partners, Gmmco Power and Powerparts, each of who have made significant investments in modern, well-equipped facilities, across the country. They have also invested in people, establishing highly trained teams to provide advice and service support to Perkins end users. Of course the company’s Aurangabad facility is served by a network of established suppliers, many of are based in Maharashtra, and who supply a range of components for Perkins’ dependable diesel engines. The business continue to work closely with our suppliers and develop an Indian supply chain. For Perkins, the Make in India ethos connects us to the India growth story while enabling Perkins to win business all over the world.

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ROUNDUP LOOKING BEYOND BREXIT Dr Naushad Forbes, President of the Confederation of Indian Industry, gives his take on UK-India business relations post-Brexit

The joint statement made during Prime Minister Modi’s visit to UK in November 2015 heralded the beginning of a new phase in the engagement between the UK and India. Although trade has been slow to grow, there is huge potential given the existence of a conducive bilateral framework. On the economic front, our investments in each other’s countries have grown over the years and there is a renewed energy in collaborations. The UK is the largest source of FDI in India from amongst the G20 nations and India has distinctly emerged as the third largest investor in UK economy.

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According to the latest version of ‘India Meets Britain,’ a report on the fastest growing Indian companies in the UK, over 800 Indian companies operate in the UK and support 110,000 jobs. The fastest growing of these companies, with growth rates of at least 10% or higher, have a combined turnover of £26 billion. Their investment spans technology and telecoms, pharmaceuticals and chemicals, financial services and other sectors. With nearly 40% of Indian companies heavily concentrated in and around the London area, 34% are spread in South, 15% in the North and 10% in the Midlands. For these companies, Brexit has been a pressing concern. Indian companies operating in the UK have expressed apprehension around single market tariffs, passport rights, patenting, Intellectual Property Rights (IPR) regime, and ease in global talent mobility, all of which will be determined, bit by bit, in the terms of UK’s exit from the EU. They will have to adjust and adapt. However, even in a post-Brexit scenario, we see positive opportunities for the UK and India to work together. With Britain’s departure from the EU, India would have to negotiate a fresh trade agreement with the UK. This may be easier to accomplish at bilateral level. India and the EU have been negotiating a Free Trade Agreement (FTA) for nine years. The sticking points include India’s concerns about imports of wine and cars. In the UK’s case, there will be no concern over wine and the cars might come from an Indian owner! Given India’s strong cultural and historical ties with Britain, ‘POLICY MAKERS IN THE the UK could also consider UK ARE PUTTING relaxing its investment regime, TREMENDOUS FORCE and easing global talent BEHIND ECONOMIC movement to facilitate greater AND COMMERCIAL investments from Indian firms. COOPERATION BETWEEN Much attention is being paid THE TWO COUNTRIES.’ to economic and commercial cooperation between the two countries. A strong action plan has been developing via bilateral mechanisms like the India-UK CEO Forum, and the India-UK Joint Economic and Trade Committee (JETCO) – both of which CII is proud to support. All of this is not to discount real concerns and uncertainties that businesses are faced with. The long-term future relationship between India and the UK, particularly concerning industry, is strongly positive. But until the terms of Brexit are clear, uncertainty will limit Indian investment in the UK. The sooner this is resolved, the sooner we can move on. Given the positive economic outlook for India and the efforts of our governments to build confidence, we can over time make this the best era for our industries to collaborate.

www.ukibc.com


INDIA

A bright spot on the global economy

India is currently one of the fastest growing economies in the world. Over the past year, the government has liberalised FDI norms for several sectors making India the most open economy in the world for FDI. We help you navigate through the Indian business environment by providing integrated, customised solutions across Assurance, Advisory, Taxation, Compliance and Process Management to help you achieve your business goals. To know more, write to our Partner, Manoj Gidwani, at manoj.gidwani@skpgroup.com. www.skpgroup.com



Insight india | Issue 3