Welcome to the second panel in today’s hearing on the India free trade agreement. Thank you very much indeed to our witnesses for joining us. We have brought this panel together to focus on issues around services exports. Alex Ballinger will open the questioning.

Thank you and good afternoon. We have had an excellent panel looking at goods just now, but of course services trade with India is larger than goods and has been growing more quickly. The first question is: how does this trade agreement that we have affect services trade and which sectors stand to gain or lose the most? John, we will start with you.

Thank you very much. In general, this is an agreement that does much more for goods than for services, it is fair to say. You heard in the last session about tariff reductions and so on, while I think for services, the agreement—where it applies to services—is much more about confirming existing conditions of access rather than doing anything new. Of course there are some areas that I am sure my colleagues will talk about, like legal services, where there is absolutely nothing at all in the agreement. As for the services that are likely to do well or do badly, there are certainly some business services in chapter 8 of the agreement that are mentioned, where there are fairly good conditions of market access. When one gets to chapter 9 on financial services, the commitments are much sparser, and the market opening is no better than it has been in the past. Indeed, in some areas such as insurance, the equity cap for foreign investors is 74%, which is lower than for the cap that has been agreed to in domestic law in India, meaning that India is effectively reserving the right to move back to 74% if it wished to do so. I think that is the general picture.

Thank you. Amanda, it was mentioned there that the legal services were a big missed opportunity. How has the agreement affected your sector, if at all?

From the perspective of Deloitte, in terms of professional services—we do have a legal services practice as well—the way we are viewing this agreement is that it is certainly an important foundation for stability and certainty for this trade corridor. In a time of geopolitical instability, it does stand out for businesses to look at this market as one that they should be exploring more. From our perspective, I agree with John that this is very much more beneficial for those providing goods because of the tariff reductions. However, we see this as a great opportunity because increased trade and activity increases the demand for all professional and business services around it, whether that is export finance, legal support, clearing goods and trade, structuring your supply chain or establishing businesses. Therefore I think it is a great opportunity for British exports.

The same question, Dr Zimmermann.

Sorry, specifically on legal services?

Yes.

On legal services, obviously it appears to be a missed opportunity that those were not included. That does not diminish the overall value for the commercial relationship between the UK and India of this entire FTA. With legal services having been left out, the situation is that foreign lawyers and law firms wishing to be active on the Indian market of course face significant barriers to practising law and to delivering legal services.

Thank you. Finally, Pankaj, the opposite side of that is a different version of sectors that have been opened up for Indian companies that are operating in the UK. How is that being received in India and what advantages are there for you?

First, to go back to your earlier question, I believe that the UK has always been very strong on financial services. If you drill down, financial services are the strength in the UK. In India, the strength has been IT services. The confluence of the two—when you marry financial services and IT in financial services—I think is the area that would bear the biggest benefit of this free trade agreement. Secondly, in terms of how it is viewed, I think it just brings the focus back on the UK-India partnership. The trade corridor, just because of the additional focus, has already led to some positives. The premier institution for the Indian IT trade is a body called Nasscom. Just last week Nasscom announced the UK chapter. On the back of the July signing, there were a lot of activities that happened and Nasscom announced the UK chapter. The interactions with the UK Government and business and trade divisions and so on increased after that. There have been some announcements already coming up from the IT sector of investment into the UK on the back of this agreement. Simplistically, the focus has increased and is exacerbated by the fact that the US, for example, has an onerous visa regime. There are organisations, Indian firms and others, looking at alternatives. This is also helping the cause.

Thank you.

I will just pursue that for a moment. The technology prosperity deal that the UK has signed with the United States is obviously still to be implemented. If India has a free trade agreement with the UK, and the UK has a good bargain on technology with the US, does this begin to multiply opportunities for UK-India in the technology space?

Yes, it does, and quite a lot, because in some senses the UK and the US are very complementary in terms of IT capabilities, but in a different sense because they are doing the high-end work in AI and AI models and so on, there has been more coming out of the US. There is a big catch-up that the UK can do jointly with India. The heritage of India has been volumes in terms of technology: the whole outsourcing and offshoring wave started with the factor cost arbitrage. That was the genesis, compared with the UK, which was more high-value, high-skilled stuff. The volumes are still prevalent because there is a big $1.2 billion population out of India and services effectively are the human capital, at the end of the day. Physical goods are almost next to nothing. I believe the partnership between UK and India can unlock a set of opportunities beyond the current one. In the immediate or quick win kind of view, you might look at opportunities that are more operational in nature: cost savings, efficiency improvements, performance improvements and so on. I see two categories of opportunity that will unlock. One is very pointed to things that did not have a business case before, for example, in the financial services context, setting up a KYC utility, which will require capabilities that jointly reside in the UK and India, as well as investments from both parties. The business case would not have made sense earlier, but gradually with DCC and some of the other stipulations here, I think it will help the cause. The third is the most exciting part, which I referred to right at the beginning on US-based competition via the US and China. I think there are opportunities that have not been thought of before with the advent of AI, crypto, Web 3.0 and so on. I think those opportunities, which currently do not exist, would be unlocked.

Interesting. How big an opportunity is that if you were to speculate about the market size for that sort of trade in the future? Give us a sense of the scale.

I was initially concentrating on just the IT sector and the UK-India corridor. The presentations and the discussions that we had last week were a joint thing in London between Nasscom, the UK delegates, business and so on. There we were talking of a half a billion trade corridor. There are wider opportunities and this also has potential for access to the Indian market and the market in public services, for example. Provided we go beyond the regulatory challenges, the FCA here are the equivalent of what the regulatory regime might open up. Annually there are 4,000-plus tenders that are released in India, which is equivalent to £40 billion in value. Not all of them will be open to the UK, but the similar status between UK and Indian companies—or at least there being no differentiation as a philosophy—will help companies to participate in more tenders and more business when you go services by services: public services, professional services, IT, financial services and so on. John mentioned insurance. I think there is a huge amount of collaboration that is possible in insurance because India is underinsured, so there is great potential to increase the amount of insurance that is sold in India. The UK can help there.

John, just to close the loop, UK-India services trade has doubled from £12 billion to £25 billion in about three years. Given what Pankaj has said about the potential impact of this deal on the cost base in financial services, do you think we needed more in this deal on services or is this just going to be self-propelling because the economics are going to propel it?

I think there are two parts to the question. The agreement itself does not provide much new market access for financial services, but I completely agree—it is something I perhaps should have said at the beginning—that to the extent that services support merchandise trade, and they pretty much all obviously do in finance, insuring, trade finance, shipments and so on, we would expect there to be a growth in services trade as a result of the growth in goods trade. On the particular point of insurance and the need for more insurance in India, my information is not completely up to date, but when I was at the Association of British Insurers some years ago, we were certainly extremely interested in the opening up of the Indian insurance market, which I think could probably go further. At the beginning, I think the Insurance Regulation and Development Authority deliberately took a fairly cautious view of the number of new firms that it was ready to authorise because it wished its supervision to be absolutely up to being able to supervise the businesses that were authorised. I think that could go further. I also have the impression that there may be room for more of the innovation that the London market can provide in terms of insurance products—for instance, reinsurance. There are limits on the extent that reinsurance can be taken outside India at the moment; if I am right, a lot of reinsurance must go first to the General Insurance Corporation of India before reinsurance risks can be taken outside India. Those are all areas of capacity and perhaps innovation where more can be done. In connection with that—this is a point that I left out at the beginning—I do feel that a lot will depend on every opportunity being taken during the implementation process of this agreement. There are plenty of provisions for consultations of various kinds. There are the existing financial and economic dialogues conducted by Ministers. There are a lot of opportunities to raise new issues for services and get them under discussion, provided that both sides are absolutely ready to do that. If we found, for instance, that there was a regulatory authority in the UK that said that it was not staffed adequately enough or that it could not afford to get to India for the dialogues, that would be an implementation opportunity forfeited.

First, if you break it down into ICT, so skilled labour, and contractual services, the contractual services will help in the short term, so that I can get contractors back and forth. That movement will be very helpful. I see that as a movement more from UK to India than India to UK. There is an equivalence and reciprocity that will need to happen there. John mentioned about the IRDA and what happens in London markets and all that. The overall maturity in the Indian markets is lower than in the UK and that can be a significant benefit. On the ICT side, what used to happen, because of the pre-DCC era, is that it was very onerous to have social security and others in two places. That makes the UK a very attractive destination. We have been talking of a simple comparison with Germany. Germany of late has been very attractive—or has been making it increasingly attractive—for students to come and stay in Germany and get work experience and continue. This is a very good way to negate some of the opportunities or some of the challenges that the UK might face in the global market. I think that ICT candidates will be far greater, especially in areas like financial services and professional services.

I would like to ensure that we keep immigration and mobility very separate. The DCC, the double contributions convention, applies to that mobility aspect in terms of removing uncertainty and additional cost by having to pay social security contributions twice in each country. I think that this is positive. I would not anticipate a significant increase in mobility because of this convention being agreed. It is about in the middle of where the UK ordinarily negotiates—somewhere between two and five years—and this is set at three, so not overly generous or mean. That is a good thing; it gives lower cost and certainty to everybody. All of the other provisions around mobility remain—the need to require a visa and to pay the health charge, certainly for those coming into the UK. For intracorporate transfers, it is beneficial for both countries.

I very much agree with what Amanda has said. In TheCityUK, we regularly press for these mobility provisions in FTAs because they are important. They are important to ensure that in the UK we have access to global talent, which is a very important thing for competitiveness. On the one hand, I agree that this agreement will not drive a coach and horses through immigration limitations. There have been those who have suggested that it did, and I would not agree with that. On the other hand, there is of course the risk that—

I just want to make sure that we have that point. Your view is that this will not add to immigration pressures. Is that your view?

Yes, because it allows only very limited pathways for migration and they are pathways that are largely in the hands of business, such as cases like ICTs, intracorporate transfers. This will not result in overstayers and that sort of thing. I would add that from the point of view of access to talent, the agreement also does not create any new visa routes. All mobility routes are for temporary stays, only the points-based immigration system will apply, and Indian professionals must meet existing UK visa conditions. If all of those things were applied in an extremely restrictive way, it could lose us the competitive benefit of having access to global talent. A lot of this is very much in the hands of the UK authorities as to how much it is used.

I do not personally for financial services. I would not like to speak across all other occupations.

What about IT? Is there a risk of undercutting in the UK IT sector?

There is a different flavour. When you look at this in totality, for example, while the focus is on ICT and the individual, the skilled resources coming, there is not provision for the family. To the point that Amanda and John talked about, this ensures that the population is still migrant and not immigration heavy. That is one point I wanted to highlight. The case is similar with healthcare. There is no implication on healthcare here. Some of these stipulations that have not been covered are ensuring that you do not have heavy immigration. On the question of what happens to the UK worker, what we find at a global level is that there is a pyramid, and pointedly so for the IT sector. The skills at the top are far and few between, with very few skills at the top. As the pyramid expands, you have a bigger volume of the junior resources, the people who are coming out of university or graduation. I think that the FTA will ensure that you get the capability at the top so that the pyramid can be bigger. As the pyramid can be bigger, the opportunities for the people at the lower end will start increasing.

One of the challenges that we have at the moment is that there is no mutual recognition of professional qualifications between the UK and India. Is there scope for that agreement to build on the FTA and are there more sectoral agreements that the UK Government could make that would improve the situation? I will come to Amanda first on this one.

I agree that the legal sector is marked in terms of being left out of this agreement and that would be advantageous to pursue. It is important to be realistic about mutual recognition. It takes a long time and a concerted effort. We have not been successful, nor have countries and bilateral talks generally. There are very few mutual recognition agreements out there already—I can name architectural services with Canada—so we should be realistic about this opportunity. However, it is very positive that there would be engagement between the regulator or competent authorities that regulate legal services or others. I would like to make a point about services access. We talked about insurance, but there is consultancy and assurance. There are many services that we could be providing, if we think about export for a moment, that we are not. Most of our exports of services are tourism and education, but we are a brilliant services economy that is not only built on tourism and education. When we were talking about IT, for instance, we have some world-leading cyber expertise—AI, innovation, engineering and energy capability. All of this will be in demand in India. It is important that we recognise each other’s competence, capability and professional qualifications, but there is a whole raft of services that we could also focus on exporting or importing to each other’s benefit. We should definitely get those dialogues going on recognition.

The UK does not currently have a bilateral investment treaty with India; it was cancelled recently. Is that in scope after this agreement and how much difference would that make? Dr Zimmermann, can we come to you on this one?

There is definitely room for pursuing negotiations in that regard to expand the scope of sectors covered, which could also cover the legal sector. You could bring it in, potentially, in that way. In so doing, it is an important point for me and for my firm to stress that opening up the legal sector not only leads to growth for the legal sectors on both sides, but leads to the legal sectors realising the potential enablers of growth of other sectors. It is quite telling that 40 out of the 50 largest UK firms currently have India desks with some key expertise in the region and are very active on cross-border deals, but they have to do so in a very strictly regulated and very cumbersome regulatory environment.

Pankaj, do you think an investment treaty might be feasible? What benefits would that offer?

For me, that is a necessary second step. The first step is to get some focus. As Amanda mentioned, we have stability and certainty on how you would conduct business. I think that what will happen with the bilateral investment treaty is the proverbial “put your money where your mouth is” and it will also get focus. We talked about AI. Do both countries want to invest jointly within AI? Do they want to invest in agentic AI? Do they want to invest in some other area? At the very high level, it will set the broad goals on what investment should be put in, but it will also help to get focus on where that money should be put.

Finally, John, where should the UK be focusing if it does want to unlock greater access to financial services in India?

There are a number of improvements that could be made. There are points on digital trade, which is important for financial services, and where at the moment the agreement says very little, partly because the Indian laws on data are in a drafting stage at the moment and have still to be passed, as I understand it. The Indian side was very reluctant to negotiate on that aspect at all. That would be one important thing. It also affects data localisation, which at the moment is a rather open question. Data flows relatively freely now and has done in the past, but where India will precisely stand on data localisation is something that has yet to be found. On bank branch licences, the negotiations did not succeed in securing any improvement on the part of India from what is already in the India-Australia free trade agreement and Australia is a much smaller economy and banking sector than the UK. Delegation for portfolio management is something else that is important to the UK and where the Indian side was not in a position to make any offer. On senior managers and boards of directors, we would like to have any conditions on nationality and residency removed in the case of Indian subsidiaries of UK financial services suppliers, but some remain. Finally, there is the general question of “forward” MFN, which is the stipulation in an agreement that if one or other party concludes an agreement with a third trade partner with better conditions of access, those will apply to the existing two parties. In the UK we very much had in mind that there is an EU negotiation with India and there is also a US negotiation. If either of those secured better market access, we would have liked that to apply automatically to the UK, and it does not under the existing text.

This is an open question for anybody. Will the agreement have a meaningful influence on UK firms pursuing procurement opportunities in India?

I was in India two weeks ago and there is a high degree of interest in India in this trade agreement. There is at the moment lesser interest in the trade corridor generally from the UK, from my experience so far. That may be something to do with the wait for ratification. With the trade organisations, we are organising conferences and discussions with those impacted parties. In terms of meaningful impact, the most important thing is to focus on the foreign exporter: focusing on India as a market, understanding the culture, building the distribution network, using the high commission or any routes you can—such as trade organisations—to open those doors, and working out whether there is an opportunity for your business. A treaty like this is only a framework. All it is doing is providing you with that foundation. It is up to both Governments and businesses to take advantage of the framework and make the trade happen.

At the moment India is not part of the agreement for Government procurements. This trade agreement seems to unlock a lot of ability for UK firms to take part in Government procurement in India. Will we see an influx of British companies bidding for procurement opportunities off the back of this?

I would hope so, but they need the support of the Department for Business and Trade in getting transparency, visibility and the enthusiasm and motivation to see that there is an RFP out there, to put your pitch forward and to see the opportunity. In terms of a foreign Government’s procurement programme, these things can be quite opaque, so anything that can be done to help business understand the opportunity will make the difference here.

Is the DBT currently geared for showing those opportunities to British companies?

It does have, through embassy or high commission networks, a great opportunity to understand what is going on locally and to provide business with that local network and contacts. There are trade organisations as well. There is this Ricardo Fund and business could tap into that more. It is almost like advertising the opportunities and being prescriptive about what is coming. Perhaps that is something that could be taken on board as we implement the trade agreement, if we do.

I want to pick up on that because the provisions in the agreement are very important. It is a first for India to open its public procurement market at all. Equally, because it is a first, there are big questions that the various Indian authorities will also have to get themselves used to of how they advertise opportunities for tendering, how much information is given, whether there is information given on who was successful in a tender after it is closed and those things, so that British firms can tell clearly what has been gazetted by way of an opportunity and how this market is working in practice.

Do you think that the DBT has a plan for that specifically?

You can ask it later in the afternoon.

We have Minister Bryant this afternoon, but what is your view?

I would have expected that for the export promotion part of the high commission in Delhi and also the deputy high commission in Mumbai and so on, it ought to be relatively easy to develop a system for tracking opportunities that are advertised, if they are clearly advertised. That goes back to how the Indian authorities organise themselves to do this for the first time for foreigners.

If I may build on John’s well-put point about transparency, it would be negative for productivity if British firms were consistently bidding for procurement contracts and not understanding why they were not winning or getting transparency about win rates.

It is a market that is 10 times smaller than ours, spread across 40,000 tenders and £950,000 per tender on average. This is potentially a much smaller number of much smaller opportunities.

They would have to be well targeted to be productive, I would suggest.

Would you say that it might look like a good headline, but in reality it will not move the dial? Or do you think it has the opportunity to?

I do not know; I cannot tell. Those are some of the challenges: how open and transparent it will be and how quickly we can learn where the successful opportunities are going to be—not just having the opportunity to bid, but winning and securing those tenders. That is where there is an important transparency point, as John says. We are likely, as a British firm, to be successful in this route.

Do you mean for public procurement?

We are worried that there is a thicket of non-tariff barriers at the state level that will defeat the objectives of the free trade agreement.

For the area of financial services that my members are interested in, to take one example, a lot of this is regulated at the federal level and the conditions—what is required—for making an investment or a change of control or a takeover of a financial services business are probably decided by the central authorities for that. For other services, which may be much more localised and less highly regulated, I imagine that the state level has more of a say, but you may know, Pankaj.

I have one key point to add. The regime is similar across states in India, but the incentive structures are different and they are not written in blood, so it is not like one type of incentive. Depending on the nature of the services business, depending on the need at the time, you would have different incentives that are provided for British companies to invest and execute in India. From that perspective, you will find a differentiation. The way to look at India across the different states and sizes is almost a conglomeration of countries like Europe. Spain is very different from France. While you overall think of it as the EU, and the EU regime is similar, the individual state outlook would be different.

This goes back to the point that John made on the challenges. For example, data localisation is a challenge. The way that I would look at it is, for example, that India has what they call STP and SEZ—software technology processing and software electronic zones. These are zones that were started by some states and the philosophy has percolated across the board. Rather than a state-wide incentive, the incentive is more at a city level: what they are trying to promote, where they are going, and what classification they have. Within the gamut of that, you can then talk of data protection and IPR. This FTA will only go so far, but there will be another detailed version of what happens on the ground in terms of a business contract. All those things would be governed by that.

Finally, once we get to the debate in Parliament, which I hope the Minister is going to commit to in about half an hour’s time, is there anything else that you want to flag to Parliament as part of its debate on this free trade agreement? Is there anything else you think you would like to draw Parliament’s attention to?

Alex just mentioned the bilateral investment treaty. My point is that this is a continuum rather than a one-point thing. I would like to flag that this is a first step. Maybe we can talk about whether we include legal or not, whether we get a bilateral investment treaty and then go into details. To me, it is a continuum.

Parliament should not lose sight of the ambition to at some point also include legal services in a revised version of the FTA. Right now, UK firms operating in India can only advise from outside India on very strict fly-in, fly-out requirements and subject to important registration fees. With a broader liberalisation, we could realise that potential for other sectors, as I said before, making international business between the UK and India so much easier across all sectors—goods, services and intellectual property rights—and thereby contribute to economic growth and give a boost to the existing liberalisation that was achieved in the other concluded parts of the FTA. Nearly all international commercial transactions require the services of lawyers from at least two, if not more, jurisdictions. Right now there are huge frictions in costs because you often need to involve parallel firms—a UK firm advising from outside co-operating with a local firm. If firms could properly team up, or if there were a possibility to found joint ventures as we see in other jurisdictions such as South Korea, where it is possible for a UK firm to enter into a joint venture with a Korean firm—by the way, my firm was the first foreign firm to enter into such a joint venture with a Korean firm—we would see the benefits and how much easier it becomes to advise UK companies on the ground in the jurisdiction they are dealing with in the commercial transactions.

Mr Madders’s question about navigating state-level barriers is a good one, because this is a federal-level treaty. The fact is that it is hard to navigate the state regulations, particularly for services. When you are looking at a good and you have rules of origin, you have that physical product: you have cleared it and you have worked out the tariff, if there is one, or the quota, which is more straightforward. For services, it can be quite hard to work out whether it is a cultural barrier or a regulatory barrier and, if so, how to undo it. It goes the other way for Indian businesses wanting to trade into the UK. What is the ongoing dialogue going to be? You have to try it to see what the barrier is and then raise it so that perhaps the two Governments or the states can work out between them what the processes are to support unblocking.

Implementation. This is an agreement that, in terms of past agreements concluded by the UK, does not break much new ground, but in the case of India it is the biggest thing that India has done. Both sides are saying that it is a floor, not a ceiling. If we are going to build on that floor, implementation and taking all the opportunities for discussion and contact and smoothing edges that remain will be terribly important, more than in many other agreements.

That has been helpful. Thank you very much indeed for the candour and clarity this afternoon. That has been much appreciated. That concludes this panel.