Indian businesses are eyeing expansion campaigns in the UK, according to research from Grant Thornton. However, while 89% of India’s mid-market see the UK as the top market to grow into, many feel that a lack of a free trade agreement between the nations could be holding them back.

In spite of mounting human rights concerns relating to India’s incumbent nationalist government, UK businesses are clamouring to get tap into the country’s market. The country’s GDP is anticipated to expand by 8.2% in the current fiscal year, in spite of the global economy’s slower performance – and its huge population of 1.4 billion people, alongside its historically cheap labour market, means there is plenty of room for further expansion in the coming years.

At the same time, the country’s geo-political positioning seems to have boosted its standing – with both the US and Britain viewing it as a counterweight against the growing economic influence of China across Asia. This has seen India also benefit from the US and UK both trying to underscore their strategic alliance with business ties – meaning investing in India now looks likely to pay off for firms on multiple levels.

Trade isn’t only moving in one direction, however. The bullish performance of the Indian market has created many firms which are strong enough to turn to international expansion of their own. And thanks to the historic ties and economic bonds that are tightening by the year, most Indian businesses have their sights set on the UK as their next destination.

Source: Grant Thornton

According to new research from business and financial advisory firm Grant Thornton UK, while 69% of UK executives are weighing up India as their most important market for expansion, 89% of India’s businesses prefer Britain as the next location to grow into. The survey polled around 3,500 senior executives, and found that Indian mid-market businesses thought the UK was so attractive, due to its ‘strong infrastructure’, ‘strong innovation ecosystem’ and ‘digital competitiveness’.

Significant investments have already been made to this end. A group of Indian investors recently purchased a stake in the BT Group, demonstrate the continued interest from Indian investors in the UK, and UK assets.

But while Indian businesses recognise the opportunities for growth in the UK market, significant barriers remain that need to be addressed. The biggest barriers identified are the ‘high cost of doing business’ in the UK, ‘high cost of regulatory compliance’ and ‘immigration policies and visas’. 

Looking ahead, Anuj Chande, the head of South Asia business at Grant Thornton UK, commented, “The high cost of doing business here, due to high property rents and operational overheads, plus the costs that come from the reporting and compliance requirements of the UK’s regulatory system, including high legal fees and audit expenses, can be a significant challenge for any international company to address. Combined with the complexity of the UK’s immigration and visa policies, which require detailed business documentation and proof of economic contribution, it’s evident that there are challenges for any business looking to invest here.”

This has not been helped by the glacial pace at which talks over a free trade agreement (FTA) have progressed between the UK and India’s governments.

The prospect of an FTA has been touted ever since the UK’s Brexit vote in 2016, but official talks only kicked off in 2022. At the time, it was said that when a deal materialised, it would be the first FTA signed between India and a European country – but almost three years later, it is still being talked about as an “expected third trade agreement” since leaving the European Union – while India has already agreed a landmark first European FTA with Norway, Switzerland, Iceland and Liechtenstein.

In particular, migration, mobility, and a liberalised visa regime for Indian workers have proven to be a sadly predictable sticking point in the negotiations, with the Conservative administrations of Boris Johnson, Liz Truss and Rishi Sunak having each been pre-occupied with reducing immigration to the UK.

Source: Grant Thornton

Former Home Secretary, Suella Braverman, explicitly fed into this, with remarks on Indian migrants constituting the largest number of “visa overstayers” in the UK. Looking ahead, with the UK population in decline, and a Labour government marginally less encumbered by the immigration rhetoric of the Tories, a resolution is said to be in sight – but with Keir Starmer’s government having mostly sought to deliver more of the same on most other fronts so far, it remains to be seen as to whether that actually happens.

If the UK and India do finally make an effort to finalise their definitely-maybe FTA, it could be the factor which sees investments between the two economies finally kick into hyperdrive. A 73% majority of UK businesses agreed an FTA would encourage them to explore opportunities in India, while an even higher 92% of Indian executives said the same for the UK economy.

Chande added, “Streamlining regulatory processes and simplifying compliance, could help to alleviate operational burdens for Indian businesses looking to the UK. This would help facilitate their entry into the UK market and promote a more conducive environment for business growth.”

Changes to the rules to improve trade between India and the UK would also be within Grant Thornton’s interests. In 2023, the UK arm of the business announced it was drawing up plans to invest millions of pounds in its Indian sister firm. The plans emerged as talks continued for a bilateral free trade deal between the UK and India, which the government at the time suggested could conclude ahead of schedule – though that ultimately did not transpire, and a new government is now at the negotiating table.