Examination of Witnesses (Questions 160-179)
UK TRADE & INVESTMENT
14 FEBRUARY 2006
Q160 Mark Hunter: A principle characteristic
of what defines a strategic partnership as opposed to a non-strategic
one is the agreement—the say-so—of the Prime Minister,
effectively, is it?
Mr Ahmad: That certainly is a
very important factor. The secondary factor is where we believe
that by bringing the sum of the parties together we have a bigger
impact on the subject matter.
Q161 Mark Hunter: I think that is
a yes, for my purposes. Can I go on? Later on in the same paragraph
you suggest that more and more top British companies are finding
business partnerships with India. If that is the case, and I do
not dispute it, what value does UKTI add for those businesses
who are keen to trade with and invest in India, if it is already
happening?
Mr Ahmad: There are certainly
two aspects to this. One is what I call the UK Government engaging
with Indians on the whole issue of market access and reform, in
the sense that once we have cleared the path it is actually then
possible for businesses to engage in those sectors. If you take
banking as an example, there has been progressive relaxation of
the percentage that a foreign investor can invest in India. Now,
that is a result of sustained lobbying on the part of the UK and
others. It is what I call a clearing of the pathway of creating
the right business environment. Secondly, it is very unusual for
a large investor not to touch on the Indian offices that we have,
particularly the High Commission in Delhi, to make sure that their
political lines and the advice that they are getting in terms
of tactics accords with what our experts on the ground believe.
In that sense, we are adding very direct value to a choice which
a business makes.
Mark Hunter: Thank you. I will leave
it there for the moment.
Q162 Mrs Curtis-Thomas: You did not
finish the question about the 50 schemes. If you recall, I said
you have a plethora of schemes.
Mr Ahmad: Yes.
Q163 Mrs Curtis-Thomas: It is not
helping or hindering, why have you decided to rationalise them
and who is going to lose out as a result?
Mr Ahmad: When we took stock of
the 50 or so products, if I may call them that, which were on
offer, we basically felt that it was confusing to the customer
to have so many branded services, whether it is a trade exhibition
service or a particular type of sector-based activity, and we
have rationalised all our services under three broad headings
of information, advice and practical assistance on the ground.
We are less, if you like, product/brand-led now and simply saying,
"Tell us what your issue is and we will find a solution."
Broadly, we have simplified the offering rather than reduced the
offering.
Mrs Curtis-Thomas: Thank you.
Q164 Mark Hunter: A previous witness
told us they believed there were no barriers to UK and Indian
trade. However, coming back to your own submission, it suggests
that there are still barriers to trade and investment in India,
and you have mentioned things like heavy import duties and protracted
legal cases in some instances. Which of these views is the correct
one?
Mr Ahmad: I would certainly not
say—and I think my colleagues would agree—that there
are no barriers to trade or investment in India. We have already
touched on some of the structural barriers where there are simple
limitations on the degree of FDI allowed in particular sectors.
I have talked about a number of them. If you look at the legal
and accountancy professions, for example, no FDI is permitted
in those sectors—and we are working on that at the moment—and
that is quite a large area of interest for UK businesses. The
regulatory environment, even when it is permissive, tends to be
rather complicated and bureaucratic and there are issues also
of the courts not always being speedy or transparent in the way
it deals with commercial disputes. We have also had issues regarding
intellectual property rights, whether it is publications or pharmaceuticals.
So there are whole areas, if you like, of the way in which business
is done in India which do create difficulties and these are certainly
part and parcel of the agenda that we have on JETCO to address.
Q165 Mark Hunter: Are you satisfied
that the Indian market is now fully open to trade competition
from overseas countries?
Mr Ahmad: I would not describe
it as being fully open, but it is a gradual process of market
access and openness that has been going on for the past 10 years
or so. Certainly the pace of liberalisation has increased noticeably.
Q166 Chairman: I have two specific
points before I pass on to Rob Marris. Corruption—let us
deal with that difficult issue. I am told by people who do business
in India that corruption is a problem, but, if you do not oil
the wheels with money, it just takes a bit longer. You can still
deliver the outcome, but it just takes longer. Do you think that
is fair?
Mr Ahmad: It is a difficult area
to address because it is not a subject that we deal with day-in,
day-out. From my own knowledge of the marketplace, the expression
quite often used for what you describe is `speed money'. It simply
means that something does get done that little bit faster and
at times it can be on a very petty basis. I think in some respects
people have learned to live with that but our advice to any UK
businesses is a clean-hands policy.
Q167 Chairman: The Trade Minister
told us the week before last that now they have introduced this
freedom of information provision, which means that anybody who
is experiencing unexpected delays could ask for a reason in public.
He hoped that would have a serious effect on clearing up the problem.
Do you think that is a helpful development?
Mr Ahmad: It may be, as part of
a full armoury. Generally speaking in India, the attitude that
I have seen adopted by the UK business side is not to be public
and vocal about their issues of concern. They have the mechanisms
to address them quite directly and we certainly facilitate that.
Q168 Chairman: We had witnesses in
last week, Aviva, and they were saying, "People are put off
from going to India to do business because they think it is difficult:
the regulatory environment is a tricky one, but, actually, viewed
from India, Britain looks a pretty tricky environment in which
to do business." I think he said, "Have you tried to
get planning permission for a garden shed, for example?"
He said that all you really needed was a local man, woman, person,
an agent, who understood the local market and could help you through
it. Do you think that analysis is fair?
Mr Ahmad: I think it is, to some
extent, fair, in the sense that businesses which are operating
in India—and I have engaged with the British Business Group
in both Mumbai and Delhi—will tell you that, having gone
through the difficulty of establishing their presence in India,
not only has it been positive but it has actually added new dimensions
to their profitability and the service range that they are able
to offer. Getting a good, local sign-poster is certainly important,
and we play a role in that ourselves. As to the garden shed side,
that is perhaps more Paul's territory than mine.
Mr Whiteway: On issues such as
that we regularly survey the views of our inward investors, looking
not at the barriers to inward investment—because we do not
believe there are barriers coming into this country—but
looking at the issues of concern to them. We do this on a systematic
basis. The last time we did this, between January and June last
year, we produced a list of issues of most concern. Top amongst
those was skills; that is, skills shortages. Next, interestingly,
was the issue of planning and the delays in the planning system.
After that came regulation, after that came transport, and then
a whole series of issues of the same degree of concern: business
costs, environmental regulation, exchange rates and then issues
like the euro bringing up the rear.
Q169 Chairman: In other words, their
concerns are almost identical to those of British businesses based
here in the UK.
Mr Whiteway: Yes.
Q170 Chairman: The same shopping
list of concerns.
Mr Whiteway: Yes.
Q171 Chairman: On the business about
having a local partner to help you, to what extent should UKTI
be doing that job or helping businesses find that local partner?
What is your role in that?
Mr Ahmad: It is two-fold. Where
a service is required—let us say, a local lawyer or accountant,
or any kind of expertise in any particular sector—then,
simply because of the track record that we have there—particularly
our locally engaged colleagues who have sometimes 10 to 15 years
experience in that particular sector and they simply know who
the leading players are—at the risk, if you like, of the
buyer, such introductions can be made and the website will direct
people to those. In terms of finding joint venture partners, I
think we probably do this more effectively by having the sort
of exchange that we have vis-a"-vis the CBI and the CII in
India or with FICCI and the Chambers movement, where, as businesses
interact, in fora in which we are present and support, there is
a natural way of that evolving.
Q172 Rob Marris: You were referring
earlier to sector by sector differences, such as the legal sector
being currently excluded, accountancy, and difficulties with pharmaceuticals
and international property rights and so on. I wonder if you could
do a note for us of the sector by sector barriers—and I
am talking broad-brush, here—and what the UK Government
and you are doing to try to address those areas for India where
there are barriers. Would that be possible?
Mr Ahmad: We would be happy to
do that, yes.
Q173 Rob Marris: Thank you. Secondly,
I do not think you have mentioned double taxation, which is a
concern. There is a double taxation agreement but my understanding
is that it is not quite working out and I wonder if you could
say a bit about that.
Mr Ahmad: Yes. I have to confess
that I am not an expert on matters of tax, but, as you rightly
say, India and the UK are party to the double taxation agreement.
It is not that the rules of the game are unclear, it is the way
in which they are applied. A particular complication in India
is the definition of partnerships. That has created a huge difficulty.
If there is a common theme running through the difficulty, it
is that a partnership in India, regardless of its size and its
reach, is regarded as having the attributes as though individuals
were members of a firm, and therefore there is a tendency to extend
the possible tax liability beyond the immediate partners who may
engage on India business. That is one manifestation of it.
Q174 Rob Marris: It is entirely the
same under UK partnership law, unless it is a limited liability
partnership, is it not?
Mr Ahmad: It is, but, in India,
it is rather unusual, in the sense that, because of the number
of family-type run businesses and the like, what would otherwise
be a fairly small partnership is actually quite huge in India—which
is why the interpretation by lawyers can be difficult. Another
area which is a global issue and is not just India-specific, is
that with businesses increasingly booking different profit centres
for their work, there has always been an argument as to where
the value was generated. Our belief is that sometimes, in cases
which have been brought to us, this application has been far more
enthusiastic than it should otherwise be.
Q175 Rob Marris: More enthusiastic
by the Government of India?
Mr Ahmad: Or the Indian tax collector,
if you like, in determining where the value actually lies. This
is going to become quite an increasing issue, because, as businesses
move their processes from one place to another, quite often that
is actually a passing up of a cost of an operation to a place
like India rather than a profit-making enterprise. So the problem
will not go away and it is complex. We do have an undertaking
by the Indian Finance Minister to our Secretary of State that
he will look at every individual case where we feel there is a
grievance and come to a conclusion on each and every one of them.
Q176 Rob Marris: Forgive my ignorance
of tax law in India, but does it vary from state to state or is
this all done at a national level?
Mr Ahmad: No, there are tax regimes
which are both national and state wide. If one looks at the issue
of taxation on spirits, for example, that is a very germane issue.
Q177 Rob Marris: Is the DTI and the
FCO addressing that on a state by state level, as applicable,
or simply engaging with the Government of India at a national
level?
Mr Ahmad: We are engaging primarily
with the Government at a federal level—because that is the
correct way to do so—but the issue of the way in which state
behaviour impacts is something that is on the agenda.
Q178 Mr Bone: Could I just get in
on that double taxation point, Chairman. I am sorry, I have lost
that, because if you pay your tax in India you are allowed that
against your British tax, so it does not really matter, does it?
I could not work out where that was a barrier.
Mr Ahmad: The issue primarily
is to define what is the taxable profit. That in itself is an
area of dispute, argument or resolution. If, at the starting point,
the issue is where the Indian side would argue that a greater
amount of profit is being made from the transaction than would
otherwise be apparent to the company, the tax bill, whether it
is offset in one jurisdiction or another, is immaterial because
the total tax is higher than what a company or a partnership would
contend it should be.
Q179 Mr Bone: We are not talking
about double taxation; we are talking about different tax regimes
and where it falls—which is a slightly different argument.
Mr Ahmad: Yes, but it is related.
The double taxation agreement allows the offset mechanism, as
you rightly say, but then what it is that is being offset is an
issue still in dispute.
Chairman: Before I call Roger Berry,
I should make it clear that we have not asked any questions about
Scotch whisky because we take the case of the Scotch whisky industry
absolutely for granted. We raised it privately with the Commerce
Minister the week before last at the Indian High Commission. He
says, "Why is it that British politicians always talk about
the Scotch whisky industry? We will not let go of that one, I
promise you."
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