An Overview of Indo-UK Economic Cooperation

Global consultancy and research major Ernst & Young says that India has become the second most important source after the US for inward investment into the UK with nearly three-fold jump in the number of projects announced by Indian companies there in the first half of 2006.

While the US firms announced 145 investment projects in the UK in first half of FY’06, up from 102 a year ago, projects announced by Indian companies nearly trebled to 21 from eight in the year-ago period. UK has consolidated its position as the most attractive destination for foreign investment in Europe, with a jump of over 30 per cent in the number of projects announced in the first six months of 2006 to 315 from 236 in 2005.

Recent Advances in Indo-UK Bilateral Relations

  • Britain strongly supports India’s candidature for a permanent seat in the UN Security Council and has committed itself to continuing to work with New Delhi to achieve this.

  • Their relations are also marked by the presence of over one million people of Indian-origin in Britain, where their growing economic prosperity has come to be encompassed in the expression, ‘the strength of the brown pound’.

  • The year 2007 also witnessed the election of India’s High Commissioner to the UK, Mr. Kamalesh Sharma, as the next Secretary General of the Commonwealth. 66-year-old Sharma, who is scheduled to step down in a couple of months before taking over as Commonwealth Secretary General on April 1, 2008, is of the view that the Indo-UK relationship has never been as excellent as now.

  • The relationship was increasingly marked by a new resonance - of Indian companies taking over British businesses and creating jobs in Britain, and British companies outsourcing low and high-end work to India to exploit India’s strengths in intellectual property and low-cost economy.

  • The Tata Group, headed by Ratan Tata, pulled off India’s biggest-ever takeover of an overseas company in January last year by winning a pitched battle to buy Anglo-Dutch steel-maker Corus Group for about 12 billion dollars, a deal that made Tatas the world’s fifth largest producer of the commodity.

  • In May, Indian liquor baron Vijay Mallya bought Scotch maker Whyte & Mackay for more than half a billion dollars.

  • Global outsourcing major Hinduja TMT forayed into the legal process outsourcing (LPO) segment by entering into a joint venture with the United Kingdom’s business consultancy firm Centric and one of India’s leading law firms, Fox Mandal Little.

"India success story is very much here to stay. India will over the next five years create one in every four of all new jobs in the world and by 2020 an extra 200 million jobs - more than America, Europe and China combined."

 

Sir Michael Arthur

British High Commissioner to India

at a Seminar in June 2007

India’s Main Items of Export to UK

  • Mineral fuels, mineral oils and products of their distillation

  • Articles of apparel and clothing accessories, not knitted or crocheted

  • Articles of apparel and clothing accessories, knitted or crocheted

  • Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof

  • Natural or cultured pearls, precious or semiprecious stones, precious metals, clad with precious metal and articles thereof; imitation jewellery; coin

  • Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts

  • Footwear, gaiters and the like; parts of such articles

  • Articles of iron or steel

  • Other made up textile articles; sets; worn clothing and worn textile articles; rags

  • Organic chemicals

  • Articles of leather, saddlery and harness; travel goods, handbags and similar cont. articles of animal gut (other than silk-wrm) gut

  • Vehicles other than railway or tramway rolling stock, and parts and accessories thereof

  • Pharmaceutical products

  • Iron and steel

  • Plastic and articles thereof

‘Developed economies need to be more sensitive’

Our farmers, our exporters, our service providers and our businesses, especially the small and medium sized enterprises, can compete with their Western counterparts, but they cannot compete with their treasuries, said Mr. Kamal Nath, Minister of Commerce and Industry, at the breakfast business session with visiting British Prime Minister, Gordon Brown on 21st January at Hotel Taj Mahal in Delhi. Excerpts from his address:

"We have just entered the year 2008. A look at the numbers for global GDP growth shows that during the last four years the world economy has performed in a remarkable manner. The four-year period from 2004 to 2007 saw the global economy grow at an average annual growth rate of a little over 5%. I believe this is amongst the fastest growth periods that we have seen in recent times.

However, as we look ahead, what is the picture that emerges? We all are aware that beginning August 2007, several US financial institutions and a few European financial institutions have suffered setbacks as the sub-prime mortgage problems unravelled. The Euro zone and Japan could also be affected given their strong economic linkages with the US economy.

So that leaves us with the emerging market economies. The emerging market economies, particularly India and China, have been growing at rates that are well above those of the developed West. The slower growth in the developed countries is likely to impact the emerging economies by reducing demand for their exports and thus affecting their level of economic activity. However, the extent of this slowdown is likely to be moderate. And the reason is that there is a large domestic component of demand in the major emerging markets that can balance the possible contraction in their exports.

The emerging market economies such as India and China will continue to grow at a fast pace, as they have over the last so many years. But, the question is whether they will be able to lead the world and be the demand drivers for growth?

Friends, the potential of the emerging market economies is there for all to see. We all know about the BRIC report brought out by Goldman Sachs. The projections made in that report show that the BRIC countries would be amongst the largest economies of the world by the middle of this century. The global economic landscape would take a totally different shape as we move ahead in time with the center of economic activity gradually shifting towards the Asian region.

While I fully subscribe to the view that countries like India and China would play an increasingly important role in the global economy, I am quiet concerned about the new wave of ‘economic nationalism’ that is sweeping the West. Be it the outcry against outsourcing, the hostile posturing to acquisition bids by companies from emerging markets or the tightening of immigration norms for individuals belonging to the emerging economies - these are all measures that would in the final analysis hurt the very countries that initiate such measures.

It is important to face the economic realities of the 21st century. The world economy is changing and it is changing fast. We have seen the years of industrialization, of fast growth and of rising per capita incomes in the West. The cycle is now just repeating itself in the East. And the way to deal with this emerging situation is not by erecting barriers to greater economic engagement but rather facilitating integration of emerging market economies with the rest of the world.

I would here like to draw the attention of this august audience towards negotiations taking place at the World Trade Organization (WTO). There is a present deadlock at the Doha development round. The developing economies are demanding a free and fair world trading system. However, some people interpret our demands and the stand we have taken as an indicator of lack of commitment on our part to take the negotiations forward.

Our demands for better market access for our industrial goods in the developed world, for deep cuts in agricultural subsidies provided by the West to its farming community and for freer movement of natural persons across international boundaries have a sound economic logic. We realize that while our farmers, our exporters, our service providers and our businesses, especially the small and medium sized enterprises can compete with their Western counterparts, but they cannot compete with their treasuries.

Whether we are negotiating the rules of engagement for trade, for investment or for addressing the issue of climate change, it is imperative for the developed economies to take a stand that reflects greater sensitization to the concerns of the developing world." 

India’s Main Imports from UK

  • Natural or cultured pearls, precious or semiprecious stones, precious metals, clad with precious metal and articles thereof; imitation jewellery; coin

  • Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof.

  • Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts

  • Iron and steel

  • Optical, photographic cinematographic measuring, checking precision, medical or surgical inst. And apparatus parts and accessories thereof

  • Organic chemicals

  • Copper and articles thereof

  • Aluminium and articles thereof

  • Aircraft, spacecraft, and parts thereof

  • Plastic and articles thereof

  • Printed books, newspapers, pictures and other products of the printing industry; manuscripts, typescripts and plans

  • Paper and paperboard; articles of paper pulp, of paper or of paperboard

  • Mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes

  • Ships, boats and floating structures

  • Miscellaneous chemical products

BILATERAL TRADE ARRANGEMENTS

Various bilateral mechanisms have been established in recent years to facilitate economic cooperation between India and the UK including a Joint Economic and Trade Committee, Economic and Financial Dialogue, a Joint Working Group on Power and an Indo-British Coal Forum. Moreover, under the Indo-British Partnership established in 1993, UK has launched an Indo-British Partnership Network in the country in December 2005.

The Fourth India-UK Joint Economic and Trade Committee meeting was held at Somerset House in London on 13th December 2007. The issues which were taken up by the Indian side were:

Indian Finance Minister, Mr. P. Chidambaram and British PM Mr. Gordon Brown addressing a Joint Press Conference at the launch of Indo-British Economic & Financial Dialogue, in New Delhi on January 18, 2007.

  • New work permit regulations for professionals in IT sector;

  • UK’s highly skilled migrant programme;

  • regulatory mechanism for registration of practitioners of Ayurveda medicine;

  • improved market access for Indian companies in the area of Government procurement;

  • mutual recognition/accreditation of laboratories for food testing;

  • social security agreement for IT professionals;

  • need for improved port facilities in the UK to facilitate India’s exports; and

  • denial of export licences by the UK for dual use technology.

UK took up the issues of protection of Intellectual Property Rights (IPRs) and problems of UK energy companies in India.

Online filing of VAT return in West Bengal

Directorate of Commercial Taxes, West Bengal has set up the facility of online filing of VAT return and payment of VAT from January 2008 for the dealers in the state. Initially, this facility will be available to only select dealers which will be later extended to all the dealers in the state. The list of select dealers is available at www.wbcomtax.gov.in. The website also lays down the procedures for filing VAT return online. Arrangements are being made with the State Bank of India for VAT deposit. Other banks are expected to join later.

Sector Specific Opportunities in UK

The UK is Europe’s leading business location for international firms. Businesses are continually attracted to the UK because the environment encourages business growth. The sectors which offer opportunities are:

Automotive

The UK leads Europe as the most diverse and productive vehicle manufacturing location and as a global centre of excellence for engine development and production. The industry is supported by a dynamic supply chain including many of the world’s major component manufacturers, technology providers, design and engineering consultancies.

Life Sciences

The UK is home to Europe’s largest concentration of science parks, including clusters around Cambridge and Oxford which provide high-profile locations for investors in close proximity to universities, research institutes, skilled labour and competitors.

Healthcare & Medical Devices

The European market for medical device technology is the world’s second largest and within Europe, the UK has one of the largest medical device markets. The UK Government has committed substantial growth of the National Health Service (NHS) - total investment has risen year on year to over £90.2 billion in 2007/08. With over 20 per cent of all university graduates gaining a degree in medical or natural sciences, medical systems and healthcare companies gain from easy access to a wealth of world class talent.

Electronics & IT Hardware

World-renowned for its innovation in the fields of engineering, electronics, semiconductor design and optoelectronics, the UK is a centre of technological excellence. In 2006 UK consumers spent more than any other Europeans on electronic goods. Companies like Sony, Hitachi, Philips and Motorola are just some of the leading international organisations that have set up research and development bases in the country.

Software & IT Services

The UK is the largest, most open and competitive market for software & IT services in Europe. According to the Ernst &Young Investment Monitor, it is the leading recipient of software FDI in Europe.

India seeks investment from UK in infrastructure sector

India is seeking investments from UK in the areas like highway projects, bridges, expressways, ports, power generation, water plants, water management techniques etc. This was conveyed by Mr. Kamal Nath, Union Minister of Commerce and Industry, during the India-UK CEOs Round Table on 21st January at New Delhi. Mr. Nath added that so far investments from UK were mainly in the sectors such as telecom, chemicals, fuels and services.

The Round Table was attended by Lord Digby Jones, UK Minister of State for Trade and Investment and Dr. Ashwani Kumar, Indian Minister of State for Industry, besides senior officials from both the countries.

Drawing the attention of CEOs, Mr. Nath said: "We consider UK as one of the most important sources of FDI for India not only amongst the EU countries but also other countries in the world with a share of 37% in EU’s total outflow of FDI in non-EU countries. I think UK is a very natural and important partner for a country like India that requires massive investment for its infrastructural needs."

India is now the 3rd largest foreign investor in the UK in terms of projects, second only to the US and Japan. In the first half of 2006, according to Ernst & Young’s European Investment Monitor 2006 Report, Indian investment into the UK overtook Japan, making India the 2nd largest investor in the UK. UK is the 3rd largest investor in India with a cumulative inflow of US $4.06 billion, (6.48%) since 1991. FDI inflows from UK in 2005, 2006 and 2007 (up to October) have been US $ 219.3 million, US $ 1749.8 million and US $ 398.5 million, respectively.

On the trade front, UK is the 4th largest trading partner of India with bilateral trade of US $9.8 billion in 2006-07, which is about 3% of India’s total trade. Percentages of bilateral trade compared to total trading basket of UK (US $ 1 trillion in 2006) are negligible. This again indicates an immense trade potential existing between the two countries.

Telecommunications

The telecoms market in Europe accounts for 30% of the global market. The UK is ranked as the top internet gateway in the world, with the highest international bandwidth capacity and 36% of the interregional traffic. The UK is recognised as being at the leading edge of development in specialist areas such as 3G mobile communications and fibre optic systems.

Research & Development (R&D)

The UK is one of the world’s leading locations for commercial and academic R&D. With world-class universities and research institutes involved in leading-edge R&D in all business sectors, many leading companies have already made considerable investments in R&D activities across the UK. The UK has the third highest concentration of the world’s top 1,250 international companies for R&D expenditure, including companies such as Ford, Pfizer, Airbus, Eli Lilly, Nokia, Roche, Merck and Motorola.

 

Federation of Indian Export Organisations
New Delhi, INDIA.