Mumbai: Emerging economies such as India will have to remove restrictions on foreign investment to facilitate free flow of business, Lord Mayor of the City of London Michael Bear, said in an interview on Tuesday. Bear, who was on a week-long visit to India to promote UK investment in Indian projects and bilateral trade, spoke on issues ranging from infrastructure to foreign banks’ expansion in India. Edited excerpts:
How do you look at India-UK trade relations?
We want to double the bilateral trade from £13 billion (nearly Rs 1 trillion) a year to £25 billion within the next four years. During this visit, we are focusing on financial services sector and infrastructure financing. UK, being a global financial centre, has a lot to offer to India, such as instruments and financial intermediation services. Infrastructure financing is hugely important given the $1 trillion investment India has identified under the five-year plan for potential projects. We are looking at how the private sector, internationally and that of London, can participate here.
Can you explain?
We have a dozen UK consultants working on projects here. Some are at the design stage and some have progressed to the construction level. The limiting factor is not a dearth of good ideas, but financing. The Britain-India Infrastructure Group—where very high-level practitioners from the legal fraternity, banks, engineers work together—will prepare a report, which will be ready in two weeks. This will be discussed in Mansion House (the Lord Mayor’s office) on 25 November. That is the very next stage of this exciting journey.
Has the Indian government taken adequate steps on infrastructure development?
They are moving in the right direction. The reforms have been very helpful.
Building relations: Michael Bear. By Hemant Mishra/Mint
Is there any aspect that you are unhappy with?
Unhappy is a very strong term. Our advice is that more reforms will be helpful. In my view, the No. 1 problem is protectionism. The world would benefit from liberalizing trade, business. Emerging markets like India have to remove the impediments to facilitate free flow of business.
What are your views on foreign investments in emerging markets, such as India?
They need to welcome the foreign investments without caps. There is a lot of confidence in the business community here, which makes us feel welcomed. Also, reciprocity (mutual cooperation in allowing companies operate in both countries) is equally important.
The Reserve Bank of India (RBI) is in the process of allowing larger play to foreign banks in India.
Foreign banks would like to increase their footprint in this market. So, we are negotiating with the Reserve Bank of India on how we can do that. We would like to open more branches and increase the exposure. We have to make the case that allowing more penetration for foreign banks is good for India. My sense is that asking for local incorporation is a very positive move and, provided it does not put them in worse taxation position and allows them to do better business, it can only help.
There is a view that the UK is not very forthcoming on Indian banks entering its market.
Absolutely not. We have a level playing field and we have only one requirement. That is, banks have to adhere to our regulations and laws. They have to satisfy the authorities that it is a properly constituted bank with right capital structure. There are 12 Indian banks there and they can have any number of banks branches there. As many Indian banks which satisfy the criteria and having good capital structure are most welcome.
How severe is the current European crisis?
We are living in challenging times, and the euro zone is in an element of crisis and they have come with a rescue package. But the confidence has not come back yet. From a UK point of view, this is not good news, because 50% of our trade is with Europe. We are working hard with our neighbours so that they come up with a solution.
A rising interest rate differential between India and developed markets threatens capital flows. Is RBI taking the right step by aggressively hiking rates?
We are battling inflation in the UK and you are battling inflation here. There are both monetary and fiscal policies that can help with the inflation battle. Interest rate mechanism is one which will help to squeeze excess money from the system and that is what they are using. We have to respect that battle and it is a worldwide battle.