The Opportunity That Is India
Speech

London

My message is simple – the links between Britain and India make us natural partners in the world – economic, diplomatic and cultural partners. Other countries may be growing as fast as India, or even faster, and we need to be engaged closely with them too – but there is a unique opportunity for the UK in India and for India in the UK and we must make sure, for both our sakes, that that opportunity is fully developed.

I learnt from my old boss Peter Walker, now Lord Walker of Worcester, when he was MP for Worcester, that it’s only when you are bored to the back teeth with your message that you are just beginning to get the message across to the outside world.

So it should have been no surprise, at a business conference on China I attended this week, to hear serious business people, with deep involvement in China, express doubts about whether India would ever really take off.

It takes years to challenge deep-rooted prejudice and to change old-fashioned ideas – we friends of India need to remember this very clearly.

So if some of what I am about to say seems familiar – forgive me, and remember that we need to keep on expressing with great clarity what we take fro granted – it will come as news to many.

SCALE OF EVENTS

A visit to India 10 years ago alerted me to scale of what was happening – I was surprised then that we didn’t talk about India’s potential more. It was at the beginning of the liberalisation of the economy, I know, but the potential of this country to recapture its historic share of world trade seemed very real.

And that change is happening – and not just in India.

The combined output of emerging economies has now reached half of total world GDP, measured at purchasing-power parity. The rich countries no longer dominate the global economy.

In my children’s lifetime certainly, possibly in mine, there will be three economic superpowers – the USA, China and India. The EU will have slipped to fourth place in the great game, if we are lucky; a lower place still beckons if we are not.

Yet British business was slow to wake up to what was going on in India. Our ties of history, and language, with large expatriate communities in both countries, made us natural partners, but something wasn’t working. We were slipping behind.

And the Indians were worried. The British love India – and it’s surprisingly mutual. But that mutual affection was perhaps breeding complacency.

That’s why my committee, the Trade and Industry Select Committee of the House of Commons, last year produced its report on trade and investment relations with India.

India as an emerging economy

India has the second fastest-growing economy in the world. The United Kingdom, and British business, can simply not afford to ignore it.

Indeed, India could overtake Britain and have the world's fifth largest economy within a decade according to a recent Goldman Sachs report. And, if trends continue, India's economy may then surpass the US and, by mid-century, be second only to China's.

The Indian economy has been growing steadily every year since 1979, with recent signs of sustainable acceleration in that growth rate.

One of the most telling signs of India’s economic transformation is that growth is no longer determined largely by the success of the monsoon rains, with only 20% of national GDP coming from agriculture. Industry is now at 26% and services at 54%.

As the Indian Finance minister said in London in January, explaining recent annual growth rates of 7.5%, 8.4% and for this year around 9%,

“This did not happen because some kind god smiled on us.”

It happened because India has huge natural advantages that an increasingly enlightened economic policy is at last maximising.

Economic growth has been galvanised by the steady liberalisation of India’s economy under the sound guidance of Dr. Manmohan Singh, as India’s finance minister in the 1990s and now as India’s Prime Minister.

The advantages are increasingly well understood – things like;

• low wage costs,
• low property prices
• a functioning legal system
• vast skill bases in engineering, IT, manufacturing and retail
• the emergence of an educated, skilled and bilingual middle-class,
• a population demographic where 54% are under the age of 25,

Incidentally, in India there more engineering graduates every year than the total employment in call centres.

Make no mistake Indian business is now truly confident of its own ability to take on the world and win - and that confidence will both enable and ensure that political progress on liberalisation is maintained.

This liberalisation is a one-way street as the Indian government recently announced further liberalisation of foreign ownership of steel and iron, the retail trade in “single-brand” products and most recently the financial services sector.

WHERE THE UK IS FAILING

The Indian middle class is a growing market of some 300 million people, and is predicted to expand by around 20 million a year – a population the size of the USA and growing by the equivalent of the entire population of the Netherlands every year.

And the opportunities to sell to this emerging middle class are huge.

Imagine the opportunities for experienced UK telecommunication service providers like Vodafone who invest in India. Only last week the Director of Nokia India predicted that India will overtake the US in the next three years to become the second largest market of mobile handsets after China.

Unfortunately however, despite these huge opportunities, UK companies and businesses have been falling behind their Western competitors in a number of sectors.

One such sector is in retail.

UK companies seem to be missing opportunities in India – and incidentally, the consequences for Indian farmers are serious. If the huge proportion of India’s food that rots in the fields because of the lack of a proper supply chain and the absence of good logistics could be delivered to market, what a difference that would make to rural poverty.

Encouraged by liberalisation of foreign ownership of wholesaling, Wal-Mart has been quick to snap up a deal with Bharti Enterprises, one of India’s biggest business groups, to open “several hundred” Wal-Mart stores throughout India in the next five years.

Tesco appears to have pulled out of negotiations with Bharti at the eleventh hour, preferring its chances of success in China, or at least viewing China as less of a risk. Some would challenge that assessment. And Tesco seems to be rethinking – although I could find no mention of India in either the media or investment relations pages of its website today.

If British companies don’t move fast, they could face being squeezed out before they even begin. Carrefour Chief Executive José Luis Duran visited India earlier this year suggesting that the French were prepared to throw their hat into the ring also.

We seem to me to be getting a tad risk-averse – and being risk averse wasn’t what tuned us into one of the world’s great trading nations. Here’s some evidence;

1. Foreign Direct Investment

Despite our strong historic links, Britain is in about sixth place in the international league table of inward investment into India, having fallen from fourth place a few years earlier – although the recent Vodafone deal may change this year’s figures. Only a half of one percentage point of all net overseas direct investment by British companies is in India.


2. Bilateral Trade

India is not one of the UK’s top fifteen trading partners. Instead, in the list of UK exports to and imports from other countries, India comes a lowly 16th and 22nd respectively.

Worryingly, 'metal scrap' and 'pearls, precious and semi-precious stones' make up almost two-thirds of UK exports to India, indicating a trade basket where the UK does not, to put it politely, have a competitive advantage over other nations
.
Challenges facing India

And that brings me to an important qualification.

It would be quite wrong to sit and argue that India is an economic Eden – paradise for the foreign investors. There are many hurdles to overcome. However, these hurdles are not insurmountable. For the inward investor the most obvious include:

• heavy import duties,
• foreign ownership restrictions
• a powerful state sector
• creaking infrastructure
• excessive red tape,
• and corruption.
In January, the Finance Minister told an audience in London that the government planned to spend $320bn over the next five years to develop world-class infrastructure – of that $200 billion would be raised internally and $120 billion would come from external finance.
These are huge sums – but India needs to match China’s ability to provide the infrastructure – both power and transport – crucial to sustain economic growth.
India’s progress is not a copper-bottomed certainty. She faces several challenges, often related to that creaking infrastructure. For example;

 Water & Sanitation: Can it supply enough fresh water to sustain its population, as well as enough water for use in manufacturing?

 Energy: Can energy supply, in particular electricity, keep up with the growing demand placed on it by an ever increasing population and an ever richer middle class?

 Social: How long will the country be able to accept the high levels of absolute poverty and the very large income inequalities that exist between different sections of society?

 Environment: Can India take effective steps to address arrange of concerns from the degradation of natural environments to the impact of carbon dioxide emissions from coal fired power stations?

 Transport: And crucially for you, can the country keep up with demand and provide adequate air, road, rail and shipping networks that will facilitate imports and exports of goods?

My guess is, to most of these questions, India will find an answer. Above all, India’s democracy means the things it does by definition command support - the country is, I believe, fundamentally more stable than its main competitor in the emerging economy race.

India on the Move

All the signs seem to point that India is indeed on the move. The number and size of Indian acquisitions abroad is on the up. It’s not just Tata, of course.

And here’s a shock for all whisky lovers - and Indians are certainly that.

United Breweries of India (of “Kingfisher” beer fame) was formed in 1915 by a Scotsman amalgamating four local breweries and later taken over by India’s Mallya family. Now it’s close to purchasing Whyte and Mackay distillers of Scotland for about $980m – indeed I think the due diligence may have been competed and the deal closed.

Leaving steel on one side, this is India’s largest takeover abroad to date. The acquisition leaves just one significant independent whisky group with Scottish headquarters.

According to Ernst and Young’s European Investment Monitor, India is now only 2nd after the US as investor into the UK.

Five years ago it was not even in the top five…today it has overtaken Japan and Germany.

Action to improve Indo-British Trade Relations

Much needs to be done to win for Britain and India the full advantages of our natural special relationship.

• Work on improving Higher Education links – numbers have improved recently, but the USA and Australia remain ferocious competitors
• Forging strong links with the Federation of Indian Chambers of Commerce and Industry (FICCI) and the Confederation of Indian Industry (CII),
• Developing the Indo British Partnership Network so that UK firms can make better informed decisions about whether, and how, to invest in India – the additional funding for IBPN announced last year is really welcome.
• Making sure the government deliver son its promise in its response to my committee’s report – and that they are pushed to do still more on things like visas.

Conclusions

Remember those words of Shri Chidambaram, India’s finance minister “This did not happen because some kind god smiled down on us”.

Rather, it has happened by the determination and will of Indian business and government. As she continues to liberalise her economy, she will become more attractive still – and more assertive overseas.

Her power was demonstrated earlier this year as Indian Tata’s £6.2 billion saw off a challenging bid from Brazilian CSN in a nail-biting high-stakes auction for Anglo-Dutch steel makers CORUS.

What a powerful metaphor – the legacy of our once great steel industry being fought over by two of the four emerging BRIC economies.

Indeed, the UK, with a population eighteen times smaller than that of India, will have to work hard to be taken seriously as an economic partner by her rapidly expanding Commonwealth cousin.

We can take nothing for granted as we fight to maintain our share of world trade by maximising our opportunities in India.

As a businessman once told me in Bombay – as I still generally call it – “Viewed from India, the UK is a very small place.”

We must work hard to remain loom large in India’s world vision.

ENDS


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