British employers have called on the European Union and India to forge a new free trade pact to boost the trade and investment between the two economic superpowers.
Richard Lambert, director-general of the Confederation of British Industry met UK Prime Ministers Tony Blair and his Indian counterpart Manmohan Singh at an India-UK Investment Summit in London.
Lambert said that, despite strong historical ties, the full potential of economic links between the UK and India was being held back.
He called for a comprehensive and business-focused free trade agreement between the EU and India that complied with World Trade Organisation rules, and acted as a complement to the multilateral system, not an alternative.
"The UK provides more direct investment into India than France, Germany or Japan; and well over half of India's outward investment into Europe comes to the UK.
"There have been some real achievements to date, such as the air services agreement, which stand to bring real benefits to both sides," he added.
"But the country still accounts for only one per cent of the UK's external trade. Regulatory barriers and other restrictions make it very difficult for UK businesses to invest in India, particularly in areas where we have much to offer, such as the retail, financial and legal services sectors," he continued.
At the same time, the CBI has said high levels of corporation tax are forcing an increasing number of multi-national firms out of the UK.
The UK was now less competitive because other European states that had lower business tax, said Lambert.
The 30 per cent corporation tax in the UK compared unfavourably with the 12.5 per cent rate in the Republic of Ireland.
"Either companies will generate more revenue outside the UK or corporation tax has to come down," Lambert said.
"A trickle of companies are relocating and our anxiety is that it does not turn into a flood."