As the United Kingdom and India move steadily toward signing of their historic Free Trade Agreement (FTA), there is growing recognition of the FTA’s potential to redefine bilateral economic engagement.
- Among the most promising areas of collaboration is the rapidly evolving ecosystem of Global Capability Centres (GCCs) — a sector where India leads, and the U.K. can be a pivotal partner.
About Global Capability Centres (GCCs)
- GCCs are in-house offshore units set up by multinational companies to perform core business functions such as IT, finance, R&D, and analytics.
- For instance, if a US-based company like Google sets up an office in India to manage specific operations, that Indian office is its Global Capability Centre.
- These centres are not merely third-party outsourcing units; they are an integral part of the MNC’s own operations.
Reasons for the establishment of GCC
- Cost-effectiveness: Labour is often cheaper in countries like India compared to their home nations.
- Access to diverse talent pools: India, for example, offers a vast and diverse pool of skilled professionals.
- Scale of Operations: Initially, GCCs focused on smaller, more routine tasks such as tax operations and data analytics.
- However, their scope has significantly expanded to include complex and high-value functions, including: Cybersecurity, Research and Development (R&D), Artificial Intelligence (AI), Product Innovation etc.
India: A Prime Destination for GCCs
Currently, there are over 1,500 working GCCs in India, employing more than 1.9 million people. India stands out as an ideal location for establishing Global Capability Centres due to several inherent advantages:
- Vast Talent Pool: India possesses an enormous pool of engineers, scientists, and finance professionals, with millions of graduates entering the workforce annually.
- This provides MNCs with ready access to a diverse and skilled workforce.
- Cost-Effectiveness: Labour costs in India are significantly lower, making it an attractive destination for companies seeking to optimise operational expenses.
- English Proficiency: A large segment of the Indian workforce is proficient in English, which facilitates seamless communication and integration with international operations.
- Strong Tech Ecosystem: Major Indian cities like Gurugram, Bengaluru, Hyderabad, and Pune boast robust technological infrastructure, supporting advanced operations.
- Time Zone Advantage: India’s time zone allows MNCs from Western countries (e.g., USA) to maintain 24-hour operations, leveraging the time difference for continuous work cycles.
About Free Trade Agreements (FTAs)
- A Free Trade Agreement (FTA) is a pact between two countries to facilitate trade by reducing or eliminating barriers, which can be either tariff barriers (taxes on imports/exports) or non-tariff barriers (e.g., quotas, quality restrictions).
- An FTA makes it easier for businesses to operate and invest across borders.
- The proposed India-UK FTA exemplifies how such agreements can significantly boost the growth of Global Capability Centres.
- Post-Brexit, the UK is keen to sign FTAs to foster global innovation by accessing diverse talent pools, which India possesses in abundance.
- The FTA is not merely a bureaucratic document but a framework that facilitates a “knowledge-based corridor” between nations.
Ways In Which FTA supports GCC growth
- Easier Movement of Professionals: An FTA simplifies the movement of professionals between signatory countries.
- This means UK professionals can easily come to India to set up and manage GCCs, and Indian professionals can readily move to parent companies in the UK, streamlining operations.
- Alignment of Data Sharing and Transfer Rules: If an FTA leads to the alignment of data sharing and transfer regulations between countries, it significantly eases the operations of GCCs.
- MNCs can then transfer sensitive data to their GCCs without fear, as both nations would adhere to similar data standards.
- Addressing Double Taxation: FTAs often include provisions to address double taxation, where a company’s income is taxed twice (once in the host country and once in the home country).
- By mitigating this, an FTA makes it more attractive for companies from the partner nation (e.g., UK companies) to invest and establish more GCCs in India.
- Intellectual Property (IP) Protection: Innovation is paramount for companies, and they require strong intellectual property protection for their new creations.
- An FTA typically includes provisions to secure and protect IP rights.
- This assurance encourages MNCs to invest more in R&D and innovation within GCCs in the host country, knowing their intellectual property is safeguarded.
Government Initiatives and Future Outlook
- The Indian government actively supports the growth of GCCs.
- The Ministry of Electronics and Information Technology has established an industry-led panel involving organisations like NASSCOM and KPMG to design a National GCC Framework.
- This framework, outlined in Budget 2025, aims to provide guidance to states on attracting GCCs and address potential hurdles.
- States like Uttar Pradesh are already organising GCC conclaves to attract investments, indicating a healthy competition among states.
- Beyond attracting GCCs, the government also recognises the critical need for skilling and upskilling India’s talent pool.
- As market needs evolve rapidly (e.g., demand for AI engineers), continuous upskilling is essential to ensure India’s workforce remains relevant and competitive.
Conclusion
The promise of Global Capability Centres lies at the heart of Free Trade Agreements. The India-UK FTA is set to forge a powerful knowledge-based corridor, benefiting both nations by leveraging India’s talent and the UK’s investment.
- This template can serve as a model for India to pursue similar FTAs with other Western economies, further solidifying its position as a global hub for capability centre.
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