After 76 years of bilateral relations between India and the UK, a total turnover of INR 3,634.9 billion with nearly 4,66,640 employees has been supported by UK investments in the country. In 2021, the UK set up the roadmap for the trade relations between the nations to be achieved by 2031. Since then, significant progress has been made, including in health collaboration, advancing the transition to clean energy, cyber-security cooperation and the expansion of our defence and security partnership. The three megatrends—global offshoring, digitalization and energy transition—are setting the scene for unprecedented economic growth in the country of more than 1 billion people. Financial institutions like the British International Investment (BII) have been bolstering India’s journey towards a green transition by making sustainable agricultural investments and reducing pressure on natural resources with a current portfolio valued at $ 2.2 billion.
In October 2023, the UK Research and Innovation (UKRI) India team celebrated the 15 successful operations with its Indian partners. Their collective efforts were executed in collaboration with a range of government departments in India which included the Department of Atomic Energy, Biotechnology, Agricultural Research, Earth Sciences and Social Science Research amongst others. Additionally, Avaana Fund, a women-led climate-tech fund, received a £ 10 Mn investment as part of new UK projects launched in India. The fund assists innovative enterprises in developing solutions to climate change and creating opportunities for women in industries like clean energy, energy storage, and agriculture. An investment of £12 million was also received from the UK government’s Neev II fund for investments in Nutrifresh, an Agri-Tech start-up company that aims to increase agriculture’s sustainability through ecologically friendly vegetable cultivation.
Another example is Veritas Finance backed by BII, which provides small loans in India to SMEs. These businesses are seen as the ‘missing middle’ of financial markets, as they are often too large to be served by microfinance institutions and too small for commercial banks, falling into a ‘missing middle’. Veritas’ customers are typically SMEs run by families or individuals from low- and middle-income households. Since we invested, the company has grown from providing finance for 12,000 customers in three states, to more than 51,000 customers in nine states.
The ongoing discourse on the UK-India FTA is currently under its 12th round of negotiations, which is even set to serve as a template for agreements with the European Union (EU). In the aftermath of the pandemic, the “China-plus-one” policy of the West, has led to an influx of supply chain integration in India. An agreement could make it easier and cheaper to do business with India by removing or reducing a range of prohibitive tariffs currently applied to British exports.A trade deal with India is crucial for the UK as the ruling Conservatives face a tough election in early 2025. The various contours of negotiations include reducing tariff barriers, fueling the export growth of the nation and strengthening the labour-intensive sectors of India. At the moment, the fastest-growing UK company in India is Ayana Renewable Power Ltd., followed by Johnson Matthey Chemicals India Pvt Ltd – both registering a growth rate of over 100%. The top UK employer is G4S with more than 1,35,000 employees. Vedanta Ltd continues to be the highest revenue earning subsidiary of a UK company in India.
In the four quarters to the end of Q2 2022, India was the UK’s twelfth-largest trading partner. This accounted for 2.0% of the UK’s total trade. For goods, India was the UK’s thirteenth largest trading partner and for services, it was the tenth largest. These factors have furthered the interest of the government of the UK to enact the 2030 roadmap towards investing in India which includes the development of an India-UK space cooperation framework, strengthening bilateral dialogues on climate change and several fora on financial cooperation. Given the size of the Indian economy, its projected growth and the relatively high barriers to trade currently in place, this FTA represents a considerable economic opportunity – particularly compared to other trade agreements the UK is striking.
As per a Morgan Stanley Research Bluepaper, India is on track to become the world’s third-largest economy by 2027, surpassing Japan and Germany, and have the third-largest stock market by 2030. The 1.3 billion people of India, which includes a sizable youthful population, offer a huge opportunity for consumer-driven enterprises. The population has urbanised and moved out of agriculture. Productivity has improved, gross domestic product (GDP) per person has quadrupled and 300 million fewer people are living in extreme poverty. Maternal mortality is down, child malnutrition has halved, and literacy has increased. Improved visas for the nationals of both territories have given further impetus to the service professionals of India and the UK to work in both nations. India is also poised to become the factory of the world, as corporate tax cuts, investment incentives and infrastructure spending help drive capital investments in manufacturing.
Investing in India is a long-term theme, and one that comes with its share of risks, including the prolonged global recession, adverse geopolitical developments, domestic policy changes, lack of skilled labor, energy shortages and commodity volatility. However, in conclusion, India’s large and youthful population, diverse and growing economy, government reforms, low labour costs, and favourable demographics make it an attractive destination for investors looking to capitalise on the country’s potential. India offers the most compelling growth opportunity in Asia in the coming years.
Categories: Government/Sovereign, Micro VC
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