Building Bridges: Reawakening UK-India ties Contents

3Trade, investment and movement of people

9.“Prosperity sits at the heart of the UK-India relationship”, according to the FCO.17 But while India is among the top four investors in the UK, and the third largest creator of jobs,18 trade is lagging behind its potential.19 While it is true that UK-India trade has “grown rapidly” in the last two decades,20 India’s global trade has grown three times faster. As a result the UK has gone from being India’s second-biggest trade partner in 1998–99 to 17th in 2018–19 (see graph, below).21 We have “a smaller slice of a much bigger cake”, as Minister Field put it.22 This inquiry highlighted three key factors that hold back trade and investment: trade barriers; challenges in India’s business environment; and UK restrictions on the movement of Indian nationals.

Trade barriers

10.There are significant barriers limiting UK exports to India.23 While leaving the EU may mean that the UK can sign a bilateral trade agreement with India to remove some of these, a comprehensive deal is highly unlikely to be completed in the near future.24 India, which only has nine bilateral trade agreements—and none with a Western country25—has made clear that it is not “in a rush” to make a deal with the UK, and that it would demand concessions on movement of people, which have been a sticking point for the UK in EU-India trade negotiations.26 The FCO told us that India is “not in the first tranche of countries for an FTA”, and that the Government was prioritising negotiations that would be “relatively simple”.27 Our evidence called on the Government to focus on other tools to build the trade relationship, including bilateral forums; sector-specific trade initiatives; the removal of non-tariff barriers; and support for India’s pro-business reforms.28 Although the Government has said that Brexit offers an opportunity to increase ties with India, witnesses said that the UK was not communicating this effectively.29 Some raised concerns that the UK might in fact become more closed.30

11.As India has boomed over the last two decades, the UK has fallen behind other countries in its share of India’s fast-growing trade with the world. This is an expensive missed opportunity. The Government has said that Brexit will allow for a closer relationship with India, and that the country is central to its aspirations for a more outward-facing Global Britain. However, a full UK-India trade deal is unlikely to be signed in the near term and Indian policy and business communities do not have a clear sense of the UK’s plan to be more open to the world. The challenges of concluding a full trade deal should not mean that the Government places economic ties with India on the back burner. The Government should prioritise trade talks with India and do more to lay the groundwork for an eventual deal. The FCO should lead a bold, well-resourced cross-government initiative to communicate clearly the approach and goals of Global Britain to Indian decision-makers, including the appointment of a champion for UK-India ties.

India’s business environment

12.The complexity of India’s business environment constrains trade and investment. As the FCO told us, “British companies do not always find it easy to operate in India”.31 The Modi government has taken big steps to improve this but there is much still to be done.32 Complicated laws on tax, imports, and foreign direct investment, and variations in the business environment between India’s federal states can all hinder doing business.33 In this context, the Government’s work to help UK firms in India to navigate regulations and make the right connections is vital.34 According to Sir James Bevan, “What you do need, whether or not you have a free trade agreement, is entrepreneurial British businesses to come out and active British diplomats working to try to open the doors for them.”35 But we received evidence that UK businesses operating in India were not always aware of the UK Government support available to them, and that these efforts were underfunded.36 In a private roundtable we held with figures in the UK-Indian business community, we were told that small- and medium-sized UK businesses in India struggled to access support. Attendees also drew attention to the absence of a dedicated trade envoy to India—a surprising omission when parliamentarians serve as envoys to more than 50 other markets.37

13.Recent improvements in India’s business environment are impressive, and we hope that they will drive stronger bilateral economic ties. However, there is much still to be done, and UK businesses face a challenging operating environment in India. The Government must improve access to targeted support for UK businesses in India, particularly start-ups and smaller businesses. In its response to this report, the Government should set out what it will do to respond to the criticism that UK businesses were not aware of the support offered by the Government and that accessing such support was a struggle for some. The Government should appoint a high-level and long-term dedicated trade envoy to India, with experience of the country’s business environment.

Movement of people

14.Limits on the movement of people are a major constraint on UK-India ties. Many Indian nationals come to the UK, and nine in every 10 Indian visa applications to the UK are granted.38 However, skilled workers, students, and tourists find the system unwelcoming, expensive, and difficult to navigate.39 This has hit key UK export sectors such as education and tourism, and Indian export sectors such as IT services. We asked Minister Field how the FCO reconciles the goal of cutting net migration with that of enhancing ties with countries, such as India, that seek greater access to the UK. He told us that “a lot of this is driven by the Home Office”.40

15.Businesses in the UK—particularly in the IT and restaurant sectors—face perceived difficulties in bringing skilled workers from India.41 Combined with the lack of post-study leave, these factors have dented the UK’s ability to attract talented individuals from India.42 The UK’s December 2018 Immigration White Paper set out proposals to overhaul rules on skilled worker visas that were broadly welcomed by the Confederation of Indian Industry and by Indian newspapers, though some warned that high minimum salary levels could still damage Indian businesses.43

16.The UK has lost ground in its share of India’s students and tourists. In 2012 the Government cancelled a post-study work visa that had allowed international students to work for two years after graduation.44 The number of Indian students dropped by more than half (see graph, below).45 As one witness warned us: “The perception has now seeped in that the UK is not a good place to go.”46 Of the 750,000 Indian students studying abroad in 2018, fewer than 20,000 were in the UK—two-thirds the number in New Zealand.47 In March 2019 the Government set out plans to soften its policy, allowing most international students to work for six months after graduation.48 The UK is also losing ground in its share of India’s tourists: France is now a more popular holiday destination than the UK for Indian nationals.49 Witnesses highlighted the cost and time investment of applying for visitor visas, even for Indian nationals who travel frequently to the UK.50 One forecast predicted that, while Indian tourist numbers would grow 52% worldwide by 2025, the number of Indians holidaying in the UK would rise just 3%.51

17.Tensions around migration and movement of people have a profound impact on the bilateral relationship.52 This has undermined crucial opportunities to build ties—for example, the Prime Minister’s 2016 visit to India was widely considered to have been dominated by the issue of migration.53 Indian students who go to the US or Australia do not develop ties with the UK, changing the way the UK will be seen for generations to come.54 The damage is increased by a perception that Chinese nationals have easier access to the UK.55 Under a 2016 pilot scheme, Chinese nationals were given access to a two-year multiple-entry visa that is almost four times cheaper than that for Indian nationals.56 The Government’s list of “low risk” countries that enjoy relaxed student visa requirements includes China, but excludes India.57 Sir James Bevan told us that the primary reason for these differences was the perception that Indian nationals were more likely to overstay, whereas the families of Chinese nationals might face “consequences” if the person did not return.58 One Indian business leader told us that this was problematic: “After all, you are a democracy, like we are.”59

18.Several witnesses argued that the short-term movement of people—for Indian nationals on temporary stays in the UK, including students and skilled workers—should be considered separately from long-term migration.60 This could involve removing students and those on short-term work visas from net migration figures,61 and giving UK universities a greater role in approving student visas.62 There have been some positive initiatives: the Government has launched a Migration Dialogue to consult Indian officials on proposals set out in the Immigration White Paper.63

19.There is a tension between the FCO’s promotion of a “Global Britain”, and some wider Government efforts to reduce net migration. While the Global Britain strategy is barely being communicated in India, the “hostile environment” message is being heard loud and clear. It is short-sighted for the Government not to do more to open doors for Indian entrepreneurs, tech workers, tourists and students, who offer clear benefits to the UK and often plan only a short-term stay. Facilitating the movement of these groups is inseparable from the goal of increasing trade with India. We are concerned that Government policy has been driven by the single-minded objective of reducing net migration, championed by the Home Office, and that the FCO has not been able to play enough of a role in formulating Government policy towards India. The Home Secretary has resolutely stuck to the stated Government policy of reducing net migration “to the tens of thousands”. This is completely incompatible with a post-Brexit immigration policy that will allow unlimited numbers of students, workers within certain sectors, seasonal workers, and key workers. This incompatibility must be addressed as a matter of urgency. The Government cannot achieve both goals, and—given that most post-Brexit trade deals will require a relaxation of current immigration policy—the Government must be honest about which it will prioritise, especially in relation to India. This has led to a lack of coherence, with policies on movement of people undercutting the UK’s broader strategic objectives for the relationship. Certain decisions risk needlessly offending our partners: something has gone wrong if it is more difficult for citizens of a strategically important democracy that shares our values, language, and history to visit or study in the UK than those of an autocracy. The Government told us that it was not “picking winners” in Asia, but its policies on movement of people sometimes suggest otherwise.

20.Foreign policy goals must be balanced against the need for migration controls, but there is no excuse for the policies that have led the UK to lose ground in attracting Indian students and tourists. These groups are vitally important, not just as consumers of a profitable UK export, but as a means of cementing lasting ties between the countries, and generating invaluable goodwill with India’s future leaders. Failure to reverse this trend would squander cultural capital built up over many decades of familiarity, and the international reputation of the UK’s universities and cultural sites. The Government’s recent steps to offer a six-month post-study work visa, and to set a target for increasing international student numbers, are welcome but do not go far enough.

21.The FCO should ensure that the goal of improving the overall relationship with India is woven into the broader Government migration policy. It should push for reforms to make it easier for India’s skilled workers, students, and tourists to enter the UK. This should include offering Indian nationals a bespoke multiple-entry visa on at least equivalent terms to those available to Chinese nationals, and steps to facilitate the movement of skilled Indian professionals for short-term projects. In its response to this report, the FCO should set out its assessment of how far proposals in the Immigration White Paper would meet this goal, and the actions it is taking to feed the outcomes of the recent UK-India Migration Dialogue into the policymaking process. The Government should urgently review its policies towards Indian students, particularly the decision to exclude them from the “low risk” list. It should commit to increasing the post-study visa available to international students to cover at least two years, and should review the possibility of involving universities in visa application processes. Having the UK’s leading universities able to issue a limited number of visas directly to the best Indian students would increase competition at home and decrease bureaucratic hurdles for those looking to develop their skills in the UK.

17 FCO (GBI0015), para 18

18 There are more than 840 Indian companies operating in the UK, employing more than 100,000 people, with a total revenue of almost £48 billion. Meanwhile, the UK is the fourth largest investor in India, and the second largest from the G20. Some 600 UK companies operate in the country, employing nearly 800,000 people—one in every 20 jobs in the organised private sector.FCO (GBI0015), para 35–36; India meets Britain Tracker, Grant Thornton and the Confederation of Indian Industry, 26 April 2019, page 3; Sterling Assets India 3: Britain Meets India, Grant Thornton and the Confederation of Indian Industry, 11 December 2018, page 12; Dr Liam Fox addresses the UK-India JETCO, UK Export Finance, 12 January 2018

19 Q91 [Lord Bilimoria]; UK India Business Council (GBI0018), para 1; EPG Strategic Communications Ltd (GBI0023), para 1.3; Confederation of Indian Industry (GBI0031); Ranjan Mathai (GBI0036), para 6; Indian Professionals Forum (GBI0039), para 5

21 Data from: Export Import Data Bank, Government of India, Ministry of Commerce & Industry, Department of Commerce, Total Trade, Top n Countries. 2018–19 data refers to the period April 2018 to February 2019

22 Q202 [Minister Field]

23 Q98 [Dan Mobley]; Q126 [Lord Bilimoria]; EPG Strategic Communications Ltd (GBI0023), para 1.11; Indian Professionals Forum (GBI0039), para 5

24 Association of British Insurers (GBI0005), para 7; Lord Karan Bilimoria (GBI0009); Indo-British APPG (GBI0016), para 13; Chatham House (GBI0017), para 11; UK India Business Council (GBI0018), para 5

25 Q113 [Lord Bilimoria]; List of Free Trade Agreements (FTAs) / Preferential Trade Agreements (PTAs) signed by India, Indian Directorate General of Foreign Trade

26 Q13 [Rahul Roy-Chaudhury, Sir James Bevan]; Q113 [Lord Bilimoria]; Dr David Scott (GBI0012), para 6; Chatham House (GBI0017), para 11; Aaditya Dave (GBI0028), para 6; India in no rush to do a trade deal with post-Brexit Britain, Politico, 4 April 2018; Lack of trust permeates Indo-UK ties, says former British High Commissioner Stagg, The Hindu, 4 July 2018

27 Q207 [Fergus Auld]; FCO (GBI0015), para 28

28 Q15 [Sir James Bevan]; Q111 [Dan Mobley]; TheCityUK (GBI0004), para 16; Association of British Insurers (GBI0005), para 7; Indo-British APPG (GBI0016), para 12

29 Qq110–111 [Shishir Bajoria, Devie Mohan, Lord Bilimoria]; Aaditya Dave (GBI0028), para 4

30 Q111 [Lord Bilimoria]; UK India Business Council (GBI0018), paras 33–35; EPG Strategic Communications Ltd (GBI0023), para 3.6; Henry Jackson Society (GBI0040)

31 FCO (GBI0015), para 34

32 Q126 [Shishir Bajoria, Lord Bilimoria]; UK India Business Council (GBI0018), para 21; Doing Business 2019, World Bank Group, 31 October 2018

33 Q55 [Dr Reuben Abraham]; Q111 [Dan Mobley]; Aaditya Dave (GBI0028), para 7; BuffaloGrid (GBI0030)

34 Q119 [Dan Mobley]; TheCityUK (GBI0004); BuffaloGrid (GBI0030)

35 Q15 [Sir James Bevan]

36 Qq118–119 [Lord Bilimoria]; EPG Strategic Communications Ltd (GBI0023), para 3.8; BuffaloGrid (GBI0030)

37 FAC private roundtable, Westminster, 25 April 2019; Trade envoys,

38 Q17 [Sir James Bevan]; Immigration statistics, year ending December 2018: data tables, Home Office, 28 February 2019

39 Q47 [Dr Reuben Abraham]; Q87 [Shishir Bajoria]; Q143 [Lord Bilimoria, Shishir Bajoria]; UK Council for International Student Affairs (UKCISA) (GBI0002), para 3; Indo-British APPG (GBI0016), para 11

40 Q209 [Minister Field]

41 National Association of Software & Services Companies (NASSCOM) (GBI0003); Lord Karan Bilimoria (GBI0009); UK India Business Council (GBI0018), para 40; Confederation of Indian Industry (GBI0031)

42 Q142 [Devie Mohan]

44 UK Council for International Student Affairs (UKCISA) (GBI0002); Observer Research Foundation (GBI0014); Chatham House (GBI0017), para 15; UK India Business Council (GBI0018), para 39; Major changes to student visa system, Home Office, 22 March 2011

45 UK Council for International Student Affairs (UKCISA) (GBI0002), para 5; Chatham House (GBI0017), para 15
There were other factors behind this fall, including a crackdown on bogus schools set up to provide visas.
Dr Ruth Kattumuri (GBI0007), para 7.3
Data from: Higher Education Student Statistics: UK, 2017/18, Higher Education Statistics Agency, 17 January 2019

46 Q47 [Dr Reuben Abraham]

47 There were 211,000 in the US, 124,000 in Canada, 87,000 in Australia, and 30,000 in New Zealand.
Indian Students studying in Foreign Countries, Government of India, Ministry of External Affairs, 18 July 2018; Higher Education Student Statistics: UK, 2017/18, Higher Education Statistics Agency, 17 January 2019

48 Plans to boost international student numbers and income, Department for Education, 16 March 2019

49 Royal Commonwealth Society (GBI0011)

50 Q47 [Dr Reuben Abraham]; Q87 [Shishir Bajoria]

51 VisitBritain (GBI0027)

52 Minister Field told us that this issue was “overwhelmingly” ranked as the top priority by his Indian counterparts.Q42 (Dr Reuben Abraham); Qq212–213 [Minister Field]

53 Q112 [Lord Bilimoria]; EPG Strategic Communications Ltd (GBI0023), para 2.2; Henry Jackson Society (GBI0040)When we questioned the FCO on this point, the Head of the South Asia Department acknowledged “some of the difficulty” around the 2016 visit.
Q214 [Fergus Auld]

54 Q45 [Dr Reuben Abraham]; Q218 [Minister Field]

55 Q112 [Lord Bilimoria]; Royal Commonwealth Society (GBI0011); UK India Business Council (GBI0018), para 41; Aaditya Dave (GBI0028), para 6; Bridge India (GBI0029)

56 Q112 [Lord Bilimoria]; Confederation of Indian Industry (GBI0031); Wipro Limited (GBI0032)
Minister Field noted that: “the China deal was very much regarded as a pilot and the Government are still examining the efficacy of that pilot as to whether it will continue. […] If it is regarded as being a success, I hope we could try and get that replicated for India.” Q217 [Minister Field]

57 Lord Bilimoria called this “a kick in the teeth” for the Indian government.Q112 [Lord Bilimoria]; Observer Research Foundation (GBI0014); Frank O’Donnell (GBI0026), para 7; Changes to the Immigration Rules, Home Office, 7 March 2019

58 Q21 [Sir James Bevan]

59 Q90 [Shishir Bajoria]

60 Indo-British APPG (GBI0016), para 28

61 Q114 [Lord Bilimoria]; National Association of Software & Services Companies (NASSCOM) (GBI0003); Wipro Limited (GBI0032)

62 Q47 [Dr Reuben Abraham]; Qq215–216 [Minister Field]

63 Q223 [Fergus Auld]; UK and Indian governments discuss future migration relationship, British High Commission New Delhi, 17 January 2019; Proposed New UK Immigration System To Benefit Indians: British Officials, NDTV, 17 January 2019

Published: 24 June 2019