Britain Forging Links With India

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Global Trade, Macroeconomics

After sixty years since the British left India as a ruling power, they are aiming to return as equal partners according to an article in the Telegraph newspaper. The new Conservative-Liberal Democrat coalition produced a Coalition Document in May of this year which outlined the new Government’s policies for the current term. In that document they specifically pledged to “establish a new ‘special relationship’ with India” according to the article. Last week, a delegation of Indian chief executives was given the red carpet treatment as they visited London. Meanwhile, William Hague, the Foreign Secretary, gave a barnstorming speech on Thursday in which he called for “intensified engagement” between the UK and countries such as India. It is in these countries where the “real economic action” is at, he is quoted as saying.

Later this summer, David Cameron, the new Prime Minister, will lead a large delegation of ministers, FTSE 100 chief executives and education bosses to India in a further attempt to boost links. Despite the controversy surrounding the partial closure of Corus Teeside steel plant at Redcar earlier this year, a decision by Indian parent Tata that resulted in some 1,500 jobs losses, the track record of Indian companies in the UK has been positive. Many have become household names buying into well established British firms but largely supporting their continued growth. One attraction for the larger firms is access to the London financial markets by way of share placements and other forms of fund raising but many smaller firms, most recently in IT have moved into the UK as well. And therein lies one of the thorny issues the current initiative will have to address, namely reciprocal access. Vast swathes of Indian insurance, law, retail, accountancy and so on are either closed to foreigners or foreigners can only invest as minority partners. Even defense where India is hungry for high technology partners, foreigners are only allowed 25% ownership of manufacturing operations in India. What western defense contractor is going to share their high technology intellectual property in a venture in which they are the minority shareholder; it’s just not going to happen.

However there is much to aim for on both sides. India needs to maintain 6-8% growth just to meet employment due to population growth and providing the state continues to be rolled back, growth should come. The Indian economy grew by 7.4% in 2009, whereas the UK’s contracted by 4.9%. The article explains the key to India’s continued growth will be its vastly expanding urban middle-class with a growing appetite for Western goods and money to spare. Between 2005 and 2025, average household disposable incomes are set to treble to £4,500 (US$ 6,400), a compound annual growth rate of 5.3%. Its population of 1.2bn is around twenty times the size of the UK’s. Bilateral trade between the UK and India was worth £12bn (US$ 17bn) in 2008 and this is likely to increase to almost £30bn (US$43bn) by 2015.  The Indian economy is projected to grow at around 8-9% this year, one-third of that is agriculture, which is growing at 2%. This means the remaining parts of the economy are growing far quicker, at between 30 and 40%. The country will have to embrace energy efficiency whether it does it in the name of the environment or economics. The US uses 25 barrels of oil per person per year. India uses half a barrel per person per year. At some point, India’s one billion people will want faster cars, more travel and more entertainment. That can’t be provided by a structure that relies on 25 barrels of oil per person per year. There is simply not enough oil so technology is the key, which explains both India’s thirst for technology investments and it’s focus on education, a field where Britain’s best are still ranked on the world stage. British universities are being encouraged to forge links with and even open campuses on Indian institutions.

Will all this effort result in a transformational change in British- Indian business? Probably not but it will help encourage development in the right direction. More interestingly it illustrates the realization in the UK that where it was once a global power bestowing favors on its dominions now has to work hard to forge special relationships with those same countries as they develop to become the global powers of the future.

–Stuart Burns

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