Does the UK’s tech future lie in India?

Compared to the many other summits of Theresa May’s premiership, the Commonwealth Heads of Government meeting in London was a resounding success. Convened in April 2018, this gathering of 53 nations successfully struck agreements on everything from cyber policy and carbon reduction strategies, to LGBT rights and collective security.

Perhaps most important for the UK government, however, were the deals relating to trade. Two years earlier, the country had voted to leave the EU, and with negotiations still ongoing between London and Brussels on the terms of departure, the Commonwealth summit presented a clear opportunity for British business to expand beyond the fuzzy outline of Europe visible from the Kent coast.

One of the most enticing prospects was India. A country of 1.3 billion people and the world’s seventh-largest economy, the country’s GDP had grown at a remarkable 7% the previous year. That did not, however, automatically translate into an embrace of international trade. India’s Modi government was still as cautious and protectionist as its predecessors in its attitude toward foreign trade deals. Nevertheless, it saw some potential in liberalising trade with the UK, with which it shared strong linguistic, community and historical links. For Britain, meanwhile, a new trade deal was a no-brainer, with India representing a potentially vast new export market and one that already stood as the second-largest source of foreign direct investment into the UK.

This interest would eventually bear fruit at the Commonwealth summit, with a series of new commercial and trade agreements signed between the two countries. Perhaps the most important of these was the so-called ‘UK-India Tech Partnership,’ an effort to nurture the nascent business relationships between SMEs, VC funds, universities and other investors in both countries.

The partnership was a recognition, in large part, of the outsized role played by digital trade in any future economic relationship between London and Delhi. “The government believes this initiative could give the UK economy a significant boost,” read the subsequent press release. “It is estimated the UK-India Tech Partnership could contribute to an increase of thousands of tech jobs in the UK in the coming years.”

This was more than just rhetoric. The UK-India tech relationship has notably deepened in recent years. In October, Foreign Secretary Liz Truss concluded a new set of technology and infrastructure agreements in India worth an estimated £60m, as well as additional direct investment into green tech solutions aimed at helping the country meet its COP26 goals. It followed on from announcements by Indian tech companies earlier in May that they would be creating thousands of new IT jobs in the UK.

London’s ultimate ambitions for this new trading relationship are even grander. “The UK says it wants to double UK-India trade from the current total of about £23bn a year,” explains Julian David, CEO of techUK, a goal that hinges on the signing of a comprehensive free trade agreement by 2030. “We want tech to be a big piece of that.” Even so, significant challenges remain – not least in the ideological distance between both governments in their attitudes toward international trade.

Good faith investment

It was intended to be the physical manifestation of the UK and India’s blossoming tech relationship. Opened to much fanfare in May 2019, the UK India Tech Hub at the Royal Albert Dock in London was designed to provide the necessary desks and IT infrastructure for Indian start-ups to take their first, tentative steps into the British market. The aim was for the facility’s main sponsor, venture capital firm Pontaq, to host more than 50 such technology ventures in the following two years.

These ambitions were curtailed by the pandemic, which saw the office building shut down like most others in London during subsequent lockdowns (the current plan is for the facility to reopen early next year.) Even so, Pontaq’s chairman remains optimistic. For Mohan Kaul, the pull of the British market to Indian tech companies and investors remains inescapable. “The UK is seen as a place for the internationalisation of tech companies in India,” explains Kaul, a base from which they can raise significant venture capital. What’s more, the country is seen by the Indian tech sector as a crucial source of talent and expertise, second only to the US.

This is evidenced in the composition of Indian companies currently operating in the UK, 41% of which are technology firms. What’s more, recent estimates by Indian IT industry association NASSCOM valued tech-based trade between the two nations at $25bn last year. This trend has only been strengthened by the pandemic, says the organisation’s head of global trade development, Shivendra Singh. “We have seen a surge in demand for digital skills due to an unprecedented pace of digital transformation” in the previous year and a half, he says.

As such, several of India’s largest technology companies – including Tata Consultancy Services, HCL Technologies and Infosys – have recently expanded their operational presence in London. The capital’s FinTech scene will also prove a powerful lure for Indian investment in the coming years as interest in the sector continues to grow, argues Kaul, followed by closer links in health and green technologies.

This comes within the context of a fundamental shift in the Indian economy, explains David. With every passing year, he explains, the country’s middle class continues to grow. Private consumption has constituted some 70% of India’s overall growth rate since 2000, creating an unparalleled opportunity for British technology firms. This, says David, “is where you can start to see the relevance of the kinds of things we do” in the British tech sector, “which is very services-based.”

That is also leading to innumerable opportunities for investment among British companies in India, says Singh, in areas including urban development, biosciences, sustainability and public health. “A lot of solutions in these areas will be data-driven,” explains Singh. “Given how transformation at scale can be done, it provides a win-win partnership to both sides.”

The past decade has also demonstrated India’s capability in fostering a wealth of homegrown IT talent. “Look at any measure of tech excellence and you see Indian-based or origin people and companies appearing at the top of the pile,” says David. That, he argues, “speaks to the potential value you can get having a great connection with India, in terms of attracting talent”. Singh agrees. After all, approximately 58 million Indians are categorised as digitally skilled. “This is a huge value-add that makes British corporates competitive globally.”

That also has the potential to boost the government’s levelling-up agenda, argues David, by tapping into nascent talent in South Asian communities located in cities up and down the UK, though the extent to which Indo-UK connections can be leveraged to boost the latter’s tech sector is yet to be defined. Still, there’s plenty the UK could learn from India when it comes to technological innovation, not least in the realm of biometrics. “We’re debating exactly how we are going to do digital identity” in the UK, explains David. By contrast, India’s biometrics-based Aadhar scheme has laid down several important precedents for how such a scheme could and should work at scale.

UK and India: an equal relationship?

But is this a relationship that cuts both ways? “Have we been as significantly successful in India as Indian companies have been in the UK? I think the answer is, ‘Not yet’,” says David.

While UK tech firms certainly enjoy a unique advantage over their European competitors in terms of their shared linguistic and historical ties with India, significant challenges remain in their cracking the Indian market. One point of friction is the Indian government’s broader attitude toward international trade flows, which one former deputy director at the US-India business council Rick Rossow recently characterised as "pro-investment and anti-trade."

That hasn’t stopped British banks from leveraging Indian IT talent to drive enterprise innovation, explains Singh. “India strongly enables them to undertake digital transformation, personalisation and tech support,” he says. Even so, techUK has lingering concerns about restrictions on data interchange and localisation.

India needs to get a proper definition of what matters in terms of privacy.
Julian David, techUK

“We have said quite clearly – and we’re supported by NASSCOM in this – that India needs to get a proper definition of what matters in terms of privacy that doesn’t [inhibit] the data flows between our two countries and the broader global tech economy,” says David. “The UK Data Protection Act and our approach to online safety, we think, is something that India can join with us and work on.”

Equally, says Singh, the UK has to work on liberalising its work visa regime to allow the most talented Indian IT professionals to work in the country. “Indian tech companies operating in the UK need a streamlined and predictable regime that governs short-term, high-skilled workforce mobility,” he says – a principle which Boris Johnson’s government, which succeeded May’s in 2019, has only cautiously embraced.

These are just some of the contributing factors that have seen India remain only the UK’s 15^th largest trading partner. Nevertheless, there are straightforward steps that David believes could bind the two countries closer together in the absence of a free trade deal. One is the fostering of tighter connections between academic institutions in the UK and India. “Something like the research and development agreement we signed with the US would be interesting to do with India,” says David.

Another is simply showing the flag more often in the Indian cities that matter to the country’s tech firms and investors. “One of the things that we have called for in the past is to establish tech hubs in the key tech hotspots in India,” says David. Only by showcasing UK talent and expertise in cities such as Bangalore, Mumbai and Chennai can British business hope to enlist the wealth of IT talent that exists in the country.

Nevertheless, David is confident that these challenges will eventually be overcome. For one thing, the thrust of the UK’s foreign policy strategy is now focused on the Indo-Pacific, evidenced in recent months by the Integrated Review and the recent AUKUS pact challenging Chinese expansionism in the region. Indian interest in closer economic integration with the UK is also inescapable, argues David. More and more, he says, Indian companies are “actually looking to acquire more IP and more technology to go along with their previous excellence in service and delivery. And that’s where the UK excels: we are really strong at creating new digital-based solutions.”

Whether a comprehensive free trade agreement between the UK and India will ultimately happen, however, is debatable. While Singh says that “there is serious intent…from both sides to make this happen,” historically India has been one of the most protectionist economies in the world, commanding high tariffs on a wide range of imports and driving hard bargains for similar free trade agreements with Australia and New Zealand. And while David says that the absence of a free trade agreement with the UK does not prevent a closer relationship between the two countries on digital services, it is hard to see the relationship reaching its full potential without one.

The techUK chief’s optimism, however, remains undimmed. Many of the policy changes the organisation has been lobbying for are “getting quite a sympathetic hearing now,” says David. That, he says, is evidence of a fundamental shift in how both the UK and India are approaching the possibility of closer economic ties compared to four years ago. “Talking about some of those things, there wasn’t that much take-up by the governments,” says David. “But there is now.”