In the summer of 2016, India's government employees heard some welcome news. The country's 10m current and retired civil servants are to receive a pay rise of 23 per cent, in a move that will stoke consumer demand.
In a second key decision in August 2016, Prime Minister Narendra Modi's administration finally approved a law for a single tax system across India, designed to cut through the red tape of 29 state-controlled systems.
Both moves are likely to make a resurgent Indian economy even more attractive to UK businesses.
India's GDP growth for 2016/17 stands at an enviable 7.6 per cent.1 At the same time, says HSBC's Chief India Economist Pranjul Bhandari, the country has turned around key indicators that looked grim just three years ago – narrowing its deficits, curbing inflation and boosting inward investment.
She sees a renewed energy in the reforms being pursued by the Modi administration, with the passing of the Goods and Services Tax a prime example.
"This reform promises to make India one national market, rather than 29 little ones. There will be much freer movement of goods and services, and it will increase foreign investment because of the ease of doing business," Bhandari says.
"We estimate that in a five-year horizon, this reform could add 0.8 per cent to GDP growth rates – potentially making India the largest-growing economy in the world."
The generous public sector wage rises will further boost spending in an economy whose growth is already consumer-driven, Bhandari points out. Services such as tourism, transport and finance are set to benefit alongside consumer goods.
"India has had a high unmet consumer demand, but e-commerce has been a game-changer in the last couple of years," she says. "The floodgates are opening as people in smaller towns and villages can now access goods previously only available in the big cities."
Bilateral UK-India trade hit £16.5bn in 2015,2 and Modi's visit to the UK in November 2015 cemented new commercial deals valued at £9bn.3 Merchandise trade between the two countries is not currently among the highest, but the prospects are exciting, Bhandari believes.
Mark Emmerson, Head of Global Trade and Receivables Finance, HSBC UK, agrees: "British brands are well respected and appreciated in India, and I can see continued growth in exports in both directions."
If trade flows have room for expansion, investment flows are already much more robust. Britain is the G20's largest source of FDI in India – and UK corporates have been strengthening their Indian presence in recent years.
The number of UK companies incorporated in India up to the year 2010 was more than double those incorporated in the century up to the year 2000, according to a HSBC/UK India Business Council study.4
"Around 80 per cent of those companies have preferred to set up a subsidiary in India – suggesting a long-term focus in the country," Emmerson points out.
Advanced engineering and manufacturing, financial and professional services are best represented. However, firms in other sectors are now gaining momentum, including education, retail, consumer products, life sciences, healthcare and infrastructure.
In part, this reflects the success of the 'Made in India' programme, designed to turn the country into a global manufacturing hub by promoting low-cost, high-quality, eco-friendly manufacturing.
The government's ambitious plans for new infrastructure spending should also be of interest to foreign businesses, according to Emmerson.
The £10bn smart cities project, for example, will see urban areas equipped with basic infrastructure, efficient transport, IT connectivity and e-governance mechanisms. Modi's UK visit sealed an agreement for the UK to contribute technological expertise.
"India is projected to spend $1tn by 2020 on a huge range of infrastructure projects, from the smart cities initiative to road, rail and power schemes," Emmerson says. "That's of interest not just to UK companies directly involved in construction but in related services."
HSBC is already supporting several companies in their bids for major Indian projects, he adds. The bank also uses its local knowledge to provide introductions to potential Indian business partners, as well as guiding firms through the local regulations.
EY's most recent 'attractiveness survey' saw 60 per cent of UK investor respondents placing India in their top three investment destinations, more than half of them ranking it their most attractive market.5
Emmerson is unsurprised: "India's labour cost, skills, domestic market and macroeconomic stability all rank as some of its most attractive features. The opportunity is tremendous."