India-UK relations are coloured on both sides by the long colonial experience. The setting up of English medium educational institutions specialising in the sciences, engineering and medicine was crucial in building Indian capacities and skills. On the downside, at Independence, Indian indicators of per capita income, literacy and public health were way below those of Western countries; this was not the case prior to British rule.
For the first few decades post Independence, India-UK ties were shaped by those educated in the UK and the English-speaking elite since they were dominant in government, armed forces and business circles. The overwhelming non-English speaking majority has been gradually asserting itself politically, first in the states and finally in Delhi since the Bharatiya Janata Party came to power with an absolute majority in 2014. This could dilute India-UK interactions further.
The UK’s anxieties about diminishing employment opportunities and unfettered immigration within the EU was starkly manifest in the referendum result to leave the European Union (EU). Future India-UK exchanges could be complicated since Scotland and Wales want to remain in the EU while Northern Ireland wants to exit along with England. UK Prime Minister Theresa May has announced that the process to leave the EU is to start by March 2017. As disengagement with the EU has to be completed within two years of kick-off, the separation of ways could take effect by March 2019.
German Chancellor Angela Merkel and the EU Council and Commission Presidents Donald Tusk and Jean-Claude Juncker have publicly indicated that the UK would not be allowed to cherry-pick and retain trade and investment privileges while restricting free movement of people within the EU. Indian IT and other companies, which have invested in the UK with a view to sell into EU markets or vice-versa, could be adversely impacted. India’s total exports to the UK in 2015-16 amounted to $8.8 billion and was 24.8 per cent of its exports to the other EU nations. Investments from the UK into India in 2014 of $1.1 billion amounted to 15.1 per cent of investments from the remaining EU countries.
UK’s approach to India-Pakistan relations is straitjacketed by concern about radical elements within its 1.5 million Pakistani-origin population and particularly dual citizens, who can move freely between UK and Pakistan. Indians see the UK’s support for the US invasion of Iraq, armed intervention in Libya and now in Syria as misguided. Given China’s growing global economic footprint, the UK is likely to be increasingly deferential to it. UK media is shouting itself hoarse about Russia’s role in Ukraine and takeover of Crimea. UK decision-makers should understand Russia’s near-abroad concerns and that the days of the Charge of the Light Brigade are definitively over.
With this heavy and complicated baggage as backdrop, May is visiting India from November 6-8. Unlike France, which has maintained fighter aircraft and nuclear power production capabilities or Germany whose cars and precision machinery are good value for money, the UK, on its own, has limited similar capabilities. The UK’s exports amount to 32 per cent of gross domestic product of which 19 per cent is exports of goods and the remaining 13 per cent exports of services. Exports of financial services account for 29 per cent of the UK’s total exports of services. Exports of financial services could be vulnerable to a diminution of London as a financial centre post separation from the EU.
Although this is not in India’s long-term interest, its financial and other sectors such as petroleum, power and steel are at present dominated by majority government-owned banks and public sector undertakings. At summit meetings between heads of government, it is easier for India to strike deals in strategic and economic spheres if both countries have sizeable public sectors. For instance, the recent India-Russia summit in Goa on October 15 resulted in a number of defence and commercial agreements.
In 2012-13, the Indian and UK governments exchanged notes on setting up a Bengaluru-Mumbai Industrial Corridor. This proposal was ignored by the Department of Industrial Production & Promotion on the Indian side on the grounds that the Delhi-Mumbai Industrial Corridor and the Chennai-Bengaluru corridor need to be completed first. The Indian government should diversify its partners to include the UK in improving transportation and communication linkages between its major metros. One of the points of disagreement on a trade and investment agreement with the EU is about confidentiality/integrity of data in Indian IT firms. If the UK accepts the competence of the Indian IT sector in this matter, which incidentally the US has, there could be progress on bilateral trade arrangements.
On collaboration between companies, British Petroleum (BP) and Reliance Industries Limited (RIL) had announced a tie-up in 2011 for BP to pick up 30 per cent stake in RIL’s 23 oil and gas blocks by investing $7.2 billion. That agreement has waded into troubled waters, with the pricing of gas becoming an issue. Vodafone has invested over $16 billion in India and continues to be embroiled in a retrospective tax issue with the Indian Department of Revenue. As for Indian investments in the UK, the acquisition of Jaguar-Land Rover by the Tatas for $2.3 billion has been a profitable investment. Given the sustained downturn in steel prices the acquisition of Corus Steel for $12.1 billion is proving to be disastrous for the Tatas.
Two tycoons being pursued by Indian tax and other departments for violation of Indian laws, namely Lalit Modi and Vijay Mallya, have found the UK a congenial location to spend their millions. The finer points in UK law notwithstanding, Indians are left with the impression that the British financial sector’s interest in retaining illicit funds is the paramount consideration.
Former UK prime minister David Cameron was heard humming to himself as he walked back into 10, Downing Street just after announcing his departure post the Brexit vote. This was quintessentially British and is worth emulating by Indians, who hold high public and private office all too self-importantly.
The author is Reserve Bank of India Chair professor in Indian Council for Research on International Economic Relations and a former Indian high commissioner to the UK; j.bhagwati@gmail.com
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