India surpassed Britain to become the world's fifth largest economy in the final months of 2021 75 years since obtaining its independence from the British empire.
While the London Stock Exchange (LSE) continued to fall down the international ranks – largely due to outdated regulations – India's GDP shot to $3.53 trillion at the end of Q1 2022, according to the International Monetary Fund (IMF). As the UK's economy continues to shrivel due to the astounding effects of an energy crisis, soaring prices and a severe talent shortage, Nayan Gala, founder of JPIN, the largest bilateral investment banking platform across the UK and India, explains how India has experienced staggering economic growth, and why the country holds massive potential in lifting the UK out of its looming recession. Marking a significant turn of events compared to a decade ago – when India was ranked 11th amongst the largest economies and the UK was fifth – India is set to become the fastest-growing economy by the end of the year and is projected to become a fifth larger than Britain by 2027.
Serving as a testament to its current status, India is dubbed as Asia's Silicon Valley – home to some of the world's most successful CEOs, who are at the helm of steering global conglomerates such as Alphabet, Microsoft, Twitter, Adobe, FedEx and most recently, Starbucks. The economic powerhouse is already one of the top destinations for investors looking for tech startups and despite global ‘stagflation', India continues to thrive in development, IT and digital technology. Because of this, newly-elected prime minister, Liz Truss has previously been vocal in stating her commitment to deepen trade, defence and diplomacy ties with India, expressing her admiration towards India's wealth of talent, world-class security and thriving science.
That being said, the UK's trade gap recently widened to a near record-high, with the deficit in goods and services rising from £1.2 billion to £27 billion from last July to this year, according to the Office for National Statistics (ONS). Gala argues that amidst Britain's current trade frictions, the completion of a trade agreement with India could pump billions more into the economy, generate further employment opportunities, attract skilled talent to fill a severe shortage, and improve digitalisation and tech expansion. The UK–India investment relationship is already worth £25.7 billion and supports 110,000 jobs across the UK. This represents an increase of 35.2% or £6.7 billion compared to 2021, but experts such as Gala assert that the total value of trade between both countries could double by 2030. Currently boasting over 100 unicorns, India is producing one every ten days and will be instrumental in supporting the UK’s tech and economic growth in the coming years especially after the Free Trade Agreement (FTA) is passed. Both parties publicly stating that they are working towards the completion of the UK–India Free Trade Agreement (FTA) by Diwali on 24 October, so maintaining a strategic partnership with India is likely to be a leading concern for Truss.
London's stock market has always been the destination of choice for companies, due to its' edge and prestige – however, a chairman of the LSE recently warned that the country must act fast in “tearing up decades-old orthodoxies and water down a host of stock market rules” to ensure that London remains a relevant destination for flotations and capital raisings. He added that the capital is no longer the “default” European venue for listings and equity raises, and that the LSE, once flying with the likes of New York, Shanghai, and Tokyo, could diminish to that of a regional exchange if it continues to shrink at the current pace. Experts like Nayan assert that Brexit has presented a a significant opportunity for the UK to branch out towards markets outside of Europe, however this should also be reflected in the implementation of reforms to keep in line with these changes. For instance, India's finance minister, Nirmala Sitharaman, has announced that the Indian government was engaged in dialogue with foreign backers to ease regulations for investments, which alongside the potential trade agreement, will likely increase the scope of collaboration between international economies.
Nayan Gala, investment specialist and founder of JPIN, explains why a UK–India trade deal is critical for Britain's economic growth:
“Despite a few dips in the past two years due to the effects of a pandemic and an ongoing war, India has continued to show signs of real development and record economic growth – which has resulted in a huge leap ahead of Britain. This monumental moment clearly illustrates how companies hailing from the country are successfully positioning themselves for the changing landscape in technology. As one of the leading hubs of IT and technology, I expect to see an increasing number of investors turning East in search of the startups that could shape the future of the global economy.
“London has always been an attractive destination for companies looking to go public, with a particular interest from international businesses. The last few years have evidently presented a few challenges – but now, particularly with the opportunities Brexit has provided, there are some outdated aspects of the UK’s stock market regulation that could also be reassessed to present further opportunities. This will likely assist with boosting the stock volume, value and quality, and could result in a significance bounce back of the LSE.”
“At a time when economies around the world are facing significant macro-economic headwinds, the importance of increased trade collaboration between countries is really coming to the fore. We could be just a few months away from seeing a lucrative free trade agreement being signed by the UK and India, which stands to significantly benefit both sides.
“A Diwali deadline has been set, and there don't appear to be many stumbling blocks that would prevent this from materialising. The UK-India relationship already supports 110,000 jobs in the UK, and foreign investment into Britain from India was worth £10.6bn in 2020, but this could just be the beginning of an even more fruitful relationship. It would also mark one of the biggest and most important steps in the post-Brexit era.”