British Prime Minister Theresa May is headed for India as the obligatory “first non-European” halt of her premiership. She is following in the footsteps of her predecessor David Cameron in taking a flight to New Delhi rather than Beijing first. But there the comparison ends. Unlike Cameron’s Britain, May’s is one characterized by mounting anxiety and uncertainty about the future of Britain’s place as a trading nation.
These are early days but the chances are that trade will top May’s agenda and terrorism Prime Minister Narendra Modi’s, with the two nations having forged a “strategic partnership”. Having taken steps to isolate Pakistan further for harbouring and encouraging anti-India terrorists on its soil, Modi will want to see other powerful countries, such as Britain, join in the condemnation—at the very least. May will also learn—she would have, first hand, had she been here on Diwali—about the growing sense of frustration among ordinary Indians about China, which is seen as nurturing a client-state in Pakistan.
But May’s attention lies elsewhere. She is scrambling to find markets for struggling British businesses amid a complete lack of clarity among the British public about the terms of Britain’s exit from the European Union. One of the main focuses of her visit, as a result of this urgent need to calm her domestic constituency, will be small and medium enterprises, or SMEs—the sector that drives economic growth but has remained neglected.
Britain is one of India’s major economic partners, and bilateral trade was £17.5 billion in 2015 (£12.6 billion in goods and £4.9 billion in services). They generate jobs in each other’s countries. Last year, India emerged as the second largest global job creator in Britain and retained its spot as the third largest source of foreign direct investment.
And Indian companies are helping the British economy grow. Together, Indian firms earned £4 billion more last year than they did in the year before—£26 billion in 2015, compared with £22 billion in 2014. Much of this has to do with big-ticket investments from multinationals such as Tata group, Vodafone, BP, British Aerospace, JCB, Infosys and Wipro.
But May, who will be accompanied by a business delegation, has a slightly different focus this time around—not the big boys but the small and medium ones. It will be wrong to say this focus is something entirely new, but previous efforts have failed to yield tangible results. According to one report, some 120 SME entrepreneurs are expected to join her on the trip. If so, it will be a welcome addition to the teams that have accompanied previous visits by British leaders to India—invariably the big names.
SMEs are crucial to economic growth in the two countries and, therefore, for growing trade between them as well. There are 5.4 million small- and medium-sized enterprises in Britain who make up a restive audience for Theresa May. In August, she attended a meeting of SMEs to hear their concerns about Brexit—the very real fear that European markets will dry up. In the run-up to the Brexit referendum in June, UK manufacturing contracted for the first time since 2013.
“This isn’t about dry economics,” May told the meeting. “Britain’s 5.4 million small- and medium-sized businesses provide people with jobs, put food on families’ tables and underpin the strength of our economy. They are a fundamental part of my vision of building a country that works for everyone, not just the privileged few.”
May sugar-coated her message by pointing to the opportunities presented by Brexit, such as exporting to new destinations. By the time her plane lands in Delhi, she would have gathered the views of SMEs to put some thoughts on the table. Among the steps Britain has taken is one aimed at focusing UK export credit financing more strongly at SMEs. The department handling export finance provides UK exporters of both goods and services, as well as investors, with payments to facilitate exports, risk insurance and bank guarantees. These businesses have to be in the UK, but their owners can be of any nationality. There are particular products that are geared to help SMEs—to raise export capital, for forex hedging, and to raise bonds.
According to the fourth All-India Census of MSMEs for 2006-07, the number of micro, small and medium enterprises (MSMEs) in India is estimated at 26 million, providing jobs to 60 million people. Of these 26 million MSMEs, only 1.5 million are in the registered segment, while the remaining 24.5 million (94%) are unregistered. In terms of their economic impact, says a report by PWC and UK India Business Council (UKIBC), MSMEs contribute 8% of India’s gross domestic product, 45% of manufactured output and 40% of exports. The match between the two sectors comes about because the British SMEs are more research and development (R&D) and technology oriented, whereas their counterparts in India, focused on engineering and manufacturing, are hungry for cutting-edge technology. Alongside, there’s the Modi government’s thrust on developing Indian manufacturing.
May and Modi will attend a technology summit in Delhi, which will undoubtedly create synergies between the smaller entrepreneurs from both countries. Already, India’s Smart Cities project has built in British partnership for three cities—Amravati, Indore and Pune. British firms will help design and build these smart cities, but this cannot be done without the involvement of Indian SMEs. That means all kinds of collaborations between Indian and British SMEs, which, in turn, will feed into Modi’s Make in India campaign. The PWC-UKIBC report identifies aerospace, defence, automotive and low carbon technologies as areas of particular interest for SMEs.
The problem is that several such previous attempts—admittedly of the pre-Modi years—have suffered from lack of execution and follow-up. Both sides have met, talked, exchanged ideas and visited each other’s factories but have then returned home to business as usual.
If execution of ideas and projects is Modi’s calling card, British and Indian entrepreneurs will hope he can give this particular effort the thrust it needs this time around. In the process, he could galvanize India’s clean energy programme. But for that to happen, Britain, too, will need to play its part in meeting the demand for clean technology transfer.
Dipankar’s Twitter handle is @Ddesarkar1