A candid Cameron says the previously unsayable about the ‘licence Raj’
When David Cameron made India his first stop in Asia after being elected UK prime minister last year, he called for the two countries to forge “a new special relationship”, writes James Lamont.
But since then he has disregarded his civil servants’ counsel that the best way to deal with an often prickly New Delhi is first to flatter strongly, then double it.
Mr Cameron’s Indian hosts are unlikely to have expected his candour about their country’s notoriously opaque business culture and sluggish regulators. Last month, he wrote a letter to Manmohan Singh, his counterpart, to express concern about the stumbling blocks facing British business in what is the fastest growing large economy after China.
The UK has encouraged companies, such as the Tata Group, to acquire British companies and raise capital on London markets. Yet India is not so willing to open up its economy to outsiders. "I want to highlight my concern that some UK companies are facing difficulties which are hard to explain and that this is, in turn, affecting the wider business climate,” said the missive from Downing Street to Race Course Road.
Top of Mr Cameron’s list of complaints is the treatment of Vodafone, the telecommunications company, and Cairn Energy, an oil and gas explorer.
India is pursuing Vodafone for $2.5bn in capital gains taxes linked to its $11bn takeover in 2007 of Hutchison Essar, an Indian mobile phone operator, from Hutchison of Hong Kong – a transaction that was thought to have been exempt from taxes.
As urgent is the deadlock threatening UK-listed Cairn’s $9.6bn sale of its share of oilfields in the Indian state of Rajasthan to another UK-listed company, Vedanta Resources. What might have been a straightforward transaction has in past months become entangled in a lengthy state-led renegotiation of the original agreements surrounding the asset.
Another concern surrounds outstanding payments to British companies for services rendered during last year’s Commonwealth Games. The non-payment, in some cases, threatens the future of the companies.
Reading between the lines, Mr Cameron has asked Mr Singh, the mastermind of the financial reforms that liberalised India’s economy 20 years ago, whether the “licence Raj”, a byword for an era when bureaucrats and powerful family-led businesses choked the economy, is still in sway. Mr Singh replied in polite but only general terms.
The UK prime minister is not alone in wanting a sharper commercial edge. Samiran Chakraborty, the chief economist of Standard Chartered Bank in Mumbai, says that on his recent roadshow across the US he encountered a marked turn in sentiment towards India. The bank’s clients were particularly anxious about the inconsistent treatment of investments. They were also frustrated by mixed messages from the bureaucrats about tax treatment and other issues.
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