Enablers and Obstacles for UK-India Trade: Banks and Diasporas

India is the UK's most important trading partner within the Commonwealth, accounting for nearly a quarter of Commonwealth imports. Yet as a proportion of either country's total trade, UK-India trade is small. For instance, India accounts for 2% of total UK imports against China at 7%.

This three-year project, co-designed with non-academic partner the Federation of Indian Chambers of Commerce and Industry (FICCI), will investigate why this is the case by examining two areas which shape UK-India trade: the role of credit for export-oriented small Indian manufacturing firms, and the role of UK-India diasporic networks in shaping UK-India supply chains and trade.

Theme one focuses on credit access for Small and Medium Enterprises (SMEs). Small firms constitute 95% of industrial units, account for 40% of total value addition in manufacturing and 35% of exports. Firms' growth is strongly shaped by access to credit, and a key concern is whether SMEs are credit constrained, as reflected in the Reserve Bank of India's priority sector lending targets, but there is little evidence on this topic because most studies in India are based on datasets for larger, mostly listed firms which report audit information.

We intend to analyse purpose-collected survey data to study SME credit constraints and the implications for exports.

Theme two focuses on how UK-India diasporic links shape trade and supply chains for Indian manufacturers. Despite its size and potential, systematic studies of how the diaspora supports trade and the relationship between it and formal trade policies, are missing. Gaps include how exactly diasporic networks currently facilitate trade, and what types of formal and informal diasporic networks are most significant in aiding trade between the two countries.

We aim to understand what type of information is shared as well as most significant in increasing trade between Indian and UK firms. This would include insights into how Indian firms receive information about what, how and with whom to do business. These questions have policy implications because designing supportive policies to strengthen trade between the two depends on understanding how exactly diasporic networks do and can strengthen trade.

Data suited to answering both questions do not currently exist, so a major project-objective is to undertake two surveys with Indian manufacturing firms. The first, focused on SMEs, will gather detailed information about their needs and experiences of seeking credit from banks and informal sources. The second will gather information on diasporic networks from firms in the textile and garments sector, spanning small, medium and large firms.

This survey will also undertake a small number of qualitative interviews with firm owners to probe the role of diasporic networks in depth.

Dissemination and impact are key project planks. Our findings will be of value to academic audiences (trade economists, firm management, scholars of diasporas, global supply chains) and non-academic ones alike (trade and industry-focused civil servants, policy figures responsible for UK-India bilateral trade relations, business and finance media, UK-India bilateral investment).

The project will leverage the significant networks of the King's India Institute, King's Business School and FICCI to involve Indian and UK civil servants, bankers, corporate leaders and academics. A select number have agreed to be part of a project advisory group who will shape the project directly. We will share project progress and findings more widely at dissemination events: a workshop in Bangalore in May 2022 and London conference in January 2023.

Finally, the project will create significant outputs: publications (5 journal articles and a co-edited volume); two survey datasets that will be made publicly available via the UK Data Service, and a number of policy papers/blogs to be disseminated via a project website, other blogs, newspaper columns and social media.