India-UK Business Relations: Issues & opportunities

In News

• U.K. India Business Council (UKIBC) has recently recommended the Indian government on reducing its red tapism.

More about the recommendations

• Legal and regulatory processes:
  • Legal and regulatory impediments in India continue to be a source of “frustration” for investors looking to set up or expand operations in India. 
  • Land acquisition and “regular delays” in Customs clearances remain problematic, the U.K. India Business Council (UKIBC) has conveyed to the Government of India.
  • Duplication of regulation:
    • Duplication of regulation wherein two sets of regulations are administered by two different arms of Government on the same issue was cited as a key issue.
    • Such duplication leads to delays and costs, and are most common in areas on the Constitution’s concurrent list of legislations, such as labour, environment, food and personal care. 
    • The organisation added that there are several grey areas in compliance like tax or telecommunications.

• Reforms:

• Reforms to make greenfield and brownfield acquisition and development simpler would help businesses to open more stores, factories, and other facilities, thus enabling them to expand faster and provide gainful employment.

• Priority sector lending norms:
  • The Council has urged India to take a “broader view” of priority sector lending norms for foreign banks operating in India.
    • In certain cases, foreign banks are better able to serve and fully participate towards cross-border financing, trade finance and sustainable financing according to UKIBC.
• IP issues:
  • UKIBC also sought equitable tax treatment, while flagging rising instances of counterfeit product sales through e-commerce platforms as a deterrent for intellectual property (IP) owners.
    • UKIBC also noted that lack of enforcement of IP rights is problematic and can stifle innovation.
• Corporate tax parity:
  • The lower corporate tax rates, including a 15% levy for new manufacturing units incentivises investments. 
  • The UKIBC has said there is still a “significant disparity” between the effective corporate tax rates for foreign firms using a “branch model”, taxed at 43.68%, compared to domestic peers who are taxed at 25.17%.
    • This serves as a major disincentive for international businesses using this model, such as banks.
• India-UK FTA:
  • With India and the U.K. working to seal a free trade agreement (FTA) soon, the Council has said making it easier to do business is as important as the trade pact to bolster trade and investment flows.

Opportunities & potential of India-UK business relations

• Regional balance: 
  • Britain is tilting to the Indo-Pacific, where India is a natural ally. 
  • India, which is looking at a neighbourhood that has been transformed by the rise of China, needs as wide a coalition as possible to restore a semblance of regional balance.
• Trade, Investment & Jobs: 
  • India-UK trade was worth £23 billion in 2019, and both countries want to double the figure by 2030. 
  • Almost half a million jobs are supported across India and the UK through investments in each other’s economies.
• Market for British goods: 
  • A free trade deal of the UK with India – the world’s largest democracy, fifth biggest economy, a nation of 1.4 billion people will create a huge market for British goods like whisky, cars and services.
• Benefits for Businesses: 
  • A trade deal with India will break down barriers and make it easier for British businesses to secure more investments, higher wages and lower prices in Britain.
• Skilled Labour Access: 
  • India will be looking for concessions on Indian skilled labour accessing UK markets.
• Defence Strengths: 
  • Britain could also contribute to the strengthening of India’s domestic defence industrial base. 
  • The two sides could also expand India’s regional reach through sharing of logistical facilities.

Way Ahead

• In essence, the recommendations are about reducing bureaucracy, simplifying legal and regulatory complexities and taxation, developing world class IP and infrastructure environments, and enshrining investor protection.
• It is essential for both countries to become proactive and prompt in finalizing the bilateral agreement to rejuvenate the existing bilateral trade between India and the UK. 

Source: TH