India UK update 2018

Published on 25 September 2018

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Boom!

It’s boom time for the Indian economy with growth rates of 7.7%. Prime Minister Modi is replicating the economic plan that he used in his home state of Gujarat across the whole of the nation. Interestingly 200 years ago the Indian economy was 5 times larger than the UK economy. Rapid globalisation fuelled by an Industrial Revolution changed that balance. Today India is once again on the cusp of overtaking the UK and propelling itself into third place behind the USA and China. The Indian economic giant is likely to keep growing at a faster pace than the UK, Europe or the USA.

Demonetisation and Devaluation

The 2016 Demonetisation programme led to an economic cash crunch as notes were withdrawn from circulation and were no longer legal tender. Dramatic as this may seem more of the economy is now conducted through proper banking channels. A secure and robust financial system is vital to proper fiscal controls and taxes in a developing and mature economy.

At the same time, the Rupee has been suffering a bit of devaluation against the US$ and to a certain extent the GBP as well (coming off the back of a high after the Brexit vote).

Generally, this is good for exporters but makes outbound investment and US$ denominated commodities more expensive.

UK Export Data, Brexit and India

UK growth and economic output is starting to falter and we had data highlighting that economic confidence has been declining – accompanied by negative sentiments creeping in. Commentators are now reporting that there is a greater chance of a “no deal” Brexit as there is a “soft” Brexit.

Where that leaves us in a UK-EU transition period is anybody’s guess. Whilst the EU is an important trading partner for the UK so is the rest of the world. India and the UK have been busy drawing up a new bilateral trading agreement but India seems in no hurry to ink the deal. Some of this reticence appears to be due to visa and work permit restrictions being imposed by the UK Government.

In the absence of an agreement, trade will fall back on to WTO (World Trade Organization) rules which whilst not a total disaster will lead to an increase in friction. Perhaps in response to this, the UK Government has just announced an inquiry by the Foreign Affairs Committee on how to engage with India.

We are part of Kreston International and as the UK continues its journey away from Europe we constantly look both West and East. If Europe is no longer going to be part of our closest trading partners then it is essential that we continue to develop our relationships outside the EU. Our goal in building these relationships is to be in the best position possible to advise and assist our clients in developing global markets.

For our UK clients looking East: https://kreston.com/publication/doing-business-in-india/

For our colleagues in India looking West: https://kreston.com/publication/doing-business-in-united-kingdom/

Our teams in the UK and our colleagues in Kreston in India are always available.

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