India is in the middle of hectic negotiations on the terms of the UK-India Free Trade Agreement (FTA). One of its key architects, Lord Dominic Johnson, Minister of Trade, UK, told Moneycontrol in London that while the agreement is still work-in-progress, “India needs to ensure that international investors feel protected. That their investments are safe.”
Asked how the Indian government can ensure that international investors feel safe, he responded: “Can the government intervene in disputes? What are the protections accorded by the courts? These are important in FTAs. Every country has to work at projecting that international investors are safe. It’s not like one country is better than the other but it’s how they project themselves,” he added.
Elaborating further, Johnson explained that “International capital should be treated the same as domestic capital. That there should be no favouritism when it comes to judgements.”
His comments come at a time when the Central Bureau of Investigation (CBI) is investigating Rolls-Royce and BAE systems of engaging in corruption in deals to supply fighter jets to India. The CBI has alleged that between 2003 and 2012, the companies had engaged in a criminal conspiracy to cheat the government of India. The investigation revives allegations of wrongdoing against Rolls-Royce that had reached a deferred prosecution agreement in 2017 with the UK’s Serious Fraud Office. Apart from that, the Indian government fought a long battle with Vodafone and Cairn over tax claims. Both cases went to the Permanent Court of Arbitration at the Hague.
India’s digital leap, IBC, and demonetisation
Johnson also said that India has continued to develop its economy and that recent reforms such as the Insolvency and Bankruptcy Code (IBC) are important measures. “Bankruptcy regulation is very important, because it was a very sclerotic process to try and recover lost assets. Legislation is very important in terms of changing the tempo on how markets can be liberalised and capital can be injected into the economy.’’
The second most important policy intervention, according to Johnson, was demonetisation, “Which was a shock to the economy, but again was very valuable. Because the more formalised the economy, the more the government can collect taxes, which could lead to lower tax rates, and help manage the economy better.”
The third, game changer, according to Johnson, is the Unified Payment Interface (UPI) “which we don’t have here,” he said.
“By giving people an identity and removing cash from the market while allowing capitalism to do its work, you set an exceptional stage for investment. I am really fascinated by the penetration of banking services, in the agriculture sector for example,” he said.
A believer in the India story, Johnson told Moneycontrol: “India is a very attractive market for the long term. It is a long way into structural reforms in the economy, and there is also a great sense of national endeavour. Britain had it in the 19th century, America had it. You can’t underestimate the cultural and psychological significance of strong initiative and the desire to get somewhere.”
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