India and the UK: a golden opportunity?

Blog posts

11 Nov 2015

Sam Swift

Sam Swift

With Diwali upon us, it seems appropriate to consider a country whose society is as dynamic and colourful as its fireworks. Sam Swift casts an eye on the Indian labour market, and ponders where the world's second biggest country is heading.

Around this time of year English and Indian cultures collide serendipitously, the fireworks commemorating the New Year segueing near-perfectly with those commemorating that time that God saved the King. This is far from the only instance of Anglo-Indian harmony: Chicken Tikka Masala, the 8th Nawab of Pataudi, and ‘Brimful of Asha’ are fine examples of this Eurasian line being blurred. I mention this as, due to globalisation and the predicted ‘Asian century’, the partnership between Britain and India is likely to deepen, and their well-linked economies and intertwined histories could be used strategically. David Cameron visited India three times during the last Parliament, possibly sowing the seeds for increasing co-operation. This will have ramifications on their societies, economies, and the area I will focus on here: their rather different workforces.

A partnership with a growing, developing, populous economy is currently occurring through new links between Britain and China, as revealed by Chancellor Osborne's summer trip and President Xi Jinping’s much-vaunted visit to the UK. However, India could fill the same role and provide the same benefits to Britain's economy, and perhaps would co-ordinate more smoothly, as is discussed later.

In labour market terms, whilst both Britain and India will face challenges in an uncertain future, they will be of a very different nature. Much has been made of Britain's problem with productivity, and through a changing relationship with Europe and migration legislation, skilled workers may become more difficult to attract. On top of which there are myriad issues surrounding the fact that as a nation, we're all getting on a bit.

India's issues are very different. India will not struggle with an ageing population for some time; the latest census reported that there are more girls in India under the age of 6 than there are people in the United Kingdom, and although life expectancy is increasing the population pyramid is much more sustainable in the medium to long term. Productivity is also less of an issue, with India's Central Statistical Office recently putting India's healthy 7.4 per cent GDP growth in 2014-15 down to the fact that Indian industry is getting more efficient, with manufacturing profit margins in particular continuing to improve. India's issue with migration is an interesting one; as with many developing countries there is something of a brain drain, but Indian émigrés’ remittances last year were worth over $70 billion, or around 4 per cent of GDP. India is modernising rapidly, and has a vast pool of capital and labour to draw on as it continues to grow into this century.

However, it would be dangerous to look at India's future as rosy. The problems India faces are very different, but in no way less serious. Gender inequality is rife, and this slams a handbrake on India's economy, with McKinsey suggesting that narrowing the gender gap in the workforce could be worth $700 billion to GDP by 2025. By 2025, India is predicted by PWC to be the world's third largest economy, but this may not readily translate to modernity due to a taxation system that is utterly nonsensical. Agricultural workers (ie two thirds of the country) are exempt from paying income tax, and a vast casualised and informal labour market also slips through the net, meaning that a shade under 3 per cent of Indians pay income tax. Some form of remedying this, with a European-style progressive taxation system, could massively alleviate poverty, but the size and diversity of the nation makes this a Herculean task.

India’s eclectic ethnic make-up also presents issues. De Gaulle famously lamented trying to run a country with 246 types of cheese. Whilst in India the humble paneer is dominant, it has 780 languages, and was the cradle of numerous major religions and a damaging entrenched caste system that still pervades. Also, it is all very well having 780 languages provided you can read and write in at least one of them. Another issue India has is literacy; India's illiterate citizens make up 4 per cent of global population. India and Britain have very different problems, and perhaps increasingly working together could be the key in smoothing out these issues.

As well as the different problems and social opportunities, India’s labour market has interesting characteristics that are perhaps sometimes overlooked. Prevalence of agriculture and the paradigm of a ’head office-shop floor’ relationship with China, mask some interesting facets about India’s development. Far from being a technical backwater generating its way of life from the plough, India spends over a billion dollars a year on its space programme, and the last TES world university rankings put its best higher education institution (the Indian Institute of Science in Bangalore) above four members of the Russell group. The aforementioned casualisation of the labour market and massive informal economy looks set to continue, but earnings and consumption are on the up, and this is reflected in the labour market’s buoyancy. A PwC report suggests that to maintain India’s high growth an extra 10-12 million jobs will need to be created every year for two decades; roughly an entire Australian labour force every year. The future is uncertain, but India’s transformation looks to be significant in shaping future labour supply and the global economy.

As with any uncertain future, there are potential pitfalls with India's situation. India's growth is likely to be concentrated in a burgeoning middle class, which will involve increased skill levels and consumption. This could produce a positive outcome, being that of higher wages in a high-skilled, increasingly white collar labour market as the economy and working conditions improve. Alternatively, supply could outstrip demand, leading to an overskilled society that generates a brain drain to more developed countries where better prospects would still remain, as has been seen in South Africa, Iran, and neighbouring Pakistan. There are opportunities and threats, and as such, incentives to stay and a sustainable growth strategy will need to form the crux of India's development policy.

All of this is extremely relevant to Britain, be it within or without the EU, reformed or not. Twenty per cent of Indian exports go to Europe, the nation freeing the shackles of a colonial past to develop an increasingly symbiotic relationship, and this largely has its roots in Britain and India’s long, often turbulent history. Indeed, India is the third largest foreign investor in the UK. David Cameron in 2010 described UK/Indian relations as ’the new special relationship’, signalling perhaps a shift towards bilateralism on this front. The next few years are likely to build on this, both countries led by modernising, tech-savvy liberal conservative Prime Ministers who will certainly be able to find common ground.

Strategically, Britain has an opportunity; both nations have Westminster democracies, English is an official language, and the UK’s excellent universities and relatively high wages are attractive to many a skilled Indian. British investment in India could galvanise the nation, creating a stable economy and labour market, and bringing modernity and development to over a billion people. The future of both nations is uncertain, but there is no reason that, with careful management and inclusive dialogue, it cannot burn as brightly as the fireworks that light both nations’ skies every autumn.