APPENDIX 29
Memorandum by UK Trade and Investment
(UKTI)
PREFACE
In 2005 "India continued its inexorable
rise, and the world took notice." [20]During
the EU/India Summit in September 2005, the UK's Prime Minister
Tony Blair set out a vast agenda of cooperation for the next few
years. In the context of that Summit, India's Prime Minister Manmohan
Singh described the UK/India relationship as a "special relationship"
and the UK should continue to work hard to maximise this special
relationship.
2005 also saw India's economic indices soar.
Indian stock markets have recorded 100% growth in 18 months and
Indian FOREX Reserves reached an all time high ($145 billion—about
three times the reserves of the Bank of England). 2005-06 growth
will be above 7% illustrating the steady rise of this emerging
giant economy.
But India's enormous burden of poverty continues
(300 million people on less than $1 a day; 350 million illiterate;
more than 40% of all children undernourished). The quality of
life is improving in rural India, helped last year by a good monsoon.
The government remains committed to poverty reduction however,
especially improved education and health services.
In addition to tax reform, progress has been
made on civil aviation, telecoms, and some of the transport infrastructure.
Fiscal deficits are coming down. But a lot of the reform that
the UK is keen to see—financial sector liberalisation, FDI
in retail, implementation of the power sector reforms—is
unfortunately slowed by India's political system. Ironically it
is this democratic process that constrains the nature and pace
of change in India. The post 1991 liberalisation approach has
gone some way to meet the challenge of globalisation but market
access and reform remain at the top of the UK's trade and investment
interest in India.
UK interests have advanced well and India is
now unquestionably a Strategic Partner. UK economic interests
continue to prosper. India remains 8th in our league table for
inward investment and more and more top British companies are
finding business partnerships with India.
Looking forward to 2006, the context for our
bilateral work is very favourable. The economic potential for
the UK and India remains huge. One key focus for the UK will be
on the knowledge economy, S&T cooperation and education links.
India's future is its young people (54% under 25) and the British
High Commission has just launched a major public diplomacy campaign
to target India's future leaders with messages about modern Britain.
Team India is HMG's biggest, and probably most
diverse, overseas operation. The agenda is growing all the time.
Both UK and locally engaged (LE) staff are working to capacity,
but there is an excitement about working in the right place at
the right time, and actually seeing some results.
A. INTRODUCTION
HMG places extremely high importance on our
relationship with India, with trade and investment being driven
at the most senior levels. India is the world's second fastest-growing
major economy and an emerging global economic force. In the next
10 years it is expected to overtake China as the fastest growing
major economy on a sustained basis. Within 40 years it could be
the world's third largest economy.
UKTI is committed to making UK plc part of this
success. India is already the UK's fourth largest export market
in Asia Pacific, and the eighth largest investor in the UK. But
as India's economy continues to develop, the potential for greater
economic interchange between the two countries is immense.
B. THE TRADE
FIGURES
The Trade Figures between India and the UK show
promising and continuing signs of growth with this year's export
figures showing a 27.2% increase over the same period last year
(see attached excel spreadsheets). However, only 1% of the UK's
total trade is with India and UKTI is working to increase this.
The UK government is committed to achieving
a significant increase in UK exports to and investment in India.
To this end, India is an important market for the Asia Task Force
(see Annex A). The UK-India Joint Economic Trade Committee (JETCO)
is similarly committed to improving the environment for, and supporting
development of, UK-India two-way trade and investment (See Annex
J).
The most dramatic new trend in the UK-India
business relationship is the growth of India as in investor into
the UK. A very significant level of new investments are UKTI assisted.
UKTI's Inward Investment Group (IIG) efforts in India aim to improve
the competitiveness and economic prosperity of the UK by identifying,
actively encouraging and facilitating high quality Indian inward
investment into the UK, focusing particularly on "knowledge
driven" industry sectors including: ICT (Software services,
IT enabled services, telecom software); Biotech, Pharmaceuticals
and Healthcare; Automotive/Advanced Engineering; Creative Industries;
Food and Drink Processing.
C. UK TRADE AND
INVESTMENT ACTIVITY
IN RELATION
TO INDIA
Although there is a strong and extensive public
sector in India, India is essentially a free market economy underpinned
by the common law system. English is the language used by the
courts, and by big business. Most areas of the Indian economy
are open to foreign direct investment, albeit with certain restrictions
in some cases. The two main non-defence sectors still closed to
FDI are legal services and retail. There is some prospect of the
retail sector being opened, possibly within the next year and
we are working in support of liberalisation of the legal services
market as well.
There are many established links between Indian
and British business and considerable respect for UK capability
in different areas of business and education. In this respect,
British business comes to India with a head start on other countries.
At the same time, geographical distance from
the UK, extensive bureaucracy and continuing problems with corruption
make India a challenging market, especially for relatively inexperienced
exporters. UKTI has a crucial role to play in assisting UK companies
to achieve business success in this market.
D. BARRIERS TO
TRADE AND
INVESTMENT IN
INDIA
There are a number of issues affecting UK companies
seeking to do business in India that have required extensive lobbying
from UKTI's Team India. They are real and current illustrations
of the barriers to trade and investment faced by UK Companies
when seeking to do business in India. These barriers include caps
on foreign ownership (eg 26% in insurance sector), double taxation,
heavy import duties eg on Scotch Whisky, protracted legal cases,
petty and grand corruption, bureaucracy and non-payment. TISC
requested details of current outstanding UK company issues and
these can be found in Annex C. However the TISC is asked to note
that this information is both commercially sensitive and confidential
and should not be circulated. UKTI is currently conducting a consultation
exercise with UK business in order to fully understand the barriers
to trade with India, the results of which will be used in our
discussions with the Indian Government. (See Annex B for consultation
document and initial findings).
E. UKTI ACTIVITY
IN INDIA
AND THE
UK
E1. UKTI in India
With representation in nine cities, India is
UKTI's second largest overseas network. [21]During
the three year Spending Review period 2005-08, the UKTI India
network will work to enhance the competitiveness of UK companies
by helping them to export or invest in India, and by increasing
the number of Indian companies investing in the UK.
The UKTI India Business Plan commits the India
network to work directly with companies, and with stakeholders
inside and outside the UKTI system to:
— Increase the number of new UK
exporters to and investors in India.
— Increase the number of Indian
investors in the UK.
— Raise awareness among UK companies
of the detailed issues of doing business with India.
— Improve the environment for
doing business in India.
— Identify new/emerging areas
of commercial opportunity.
E2. UKTI International Trade Development
Group (ITDG)
Key Mechanisms:
— Indo-British Partnership Network.
E2.1 JETCO
JETCO was established in 2005 as part of the
UK-India Prime Ministers' Initiative to strengthen bilateral relations.
This ministerially-led committee meets annually in order to discuss
specific issues arising out of our economic co-operation and to
identify opportunities to enhance bilateral trade and investment
in traditional and non-traditional areas. UKTI acts as the Secretariat
to the JETCO on the UK side, and is responsible for acting on
the Committee's agreed recommendations. Ministerial and official
relationships are excellent and JETCO, along with the Asia Task
Force, is a constructive and powerful means of delivering for
UK Business. UKTI's officials are working hard to ensure it fulfils
its potential.
The second full JETCO meeting will take place
in London on 31 January 2006 and UKTI will provide the TISC with
a full update and progress report following this meeting. The
meeting will be lead by Alan Johnson and Kamal Nath and will involve
both a closed-door bilateral meeting and an open plenary, to which
UK and Indian business people, key stakeholders and the TISC members
are invited.
This will be preceded on 30 January by meetings
of some the JETCO working groups (agriculture and healthcare)
and official level meetings on hi-tech clusters and PPP/infrastructure.
E2.2 Asia Task Force
The Chancellor announced the creation of the
Asia Task Force (ATF) in his pre-budget statement in December
2004. The aim of the ATF is to increase UK trade with the Asian
economies by making use of the expertise available within industry,
academia and Government. The focus of its work is to identify
the challenges and opportunities presented by the Asian markets
and to suggest practical ways that UK companies can prepare for
and take advantage of them. The ATF is made up of nineteen members
from the private sector and from academia, co-chaired by the Secretary
of State for Trade & Industry and the Chair of Standard Chartered
Bank, Bryan Sanderson. A list of members is attached in Annex
A1. The Chancellor opened its first meeting in London on 27 October
2005.
The ATF is working to identify the current and
future challenges faced by UK businesses exporting to or operating
in Asian markets in order to suggest practical ways that these
can be overcome and anticipated. UKTI is holding seminars in five
Asian cities, including New Delhi, to seek views on the future
of UK trade with the region. We have also commissioned work to
look at the success of mid-sized UK companies in Asia and how
the services provided by Government have been of use in accessing
these markets.
The goal of this work is to raise awareness
among UK businesses of the potential opportunities in these markets
and to provide a resource to support companies wanting to take
advantage of them. UKTI hopes to take the findings of these studies
to companies in the UK, through seminars and events, to encourage
them to trade with Asia and to publicise the services that are
available from UKTI.
E2.3 Indo-British Partnership Network (IBPN)
The IBPN is a business led organisation, which
aims to encourage and support UK businesses, particularly SMEs,
to do business in India. The IBPN also aims to identify issues
that prevent or discourage UK firms from trading with India. It
is managed by a board drawn from the private sector. Membership
of the Network is open to British and Indian companies of all
sizes. There are currently approximately 200 individual members
of the IBPN.
The original Indo-British Partnership was launched
by the then British and Indian Prime Ministers, John Major and
Narasimha Rao, in 1993. In subsequent years the work of the IBP
fell away primarily because the expected benefits to British companies
following the initial liberalisation of the Indian economy were
not being realised.
In 2002 Tony Blair and Atal Bihari Vajpayee
(the then Indian Prime Minister) renewed the commitment to strengthen
the bilateral relationship through the New Delhi Declaration,
which was signed in Delhi in January 2002. Karan Bilimoria, the
CEO of Cobra Beer, was appointed the UK Co-Chair of the IBP in
2002. With the support of UKTI he recently created a new business
led organization, the Indo British Partnership Network (IBPN).
UKTI have provided start up costs, primarily to fund the board
secretariat.
The first formal meeting of the IBPN Board took
place on 16 December 2004, while the official launch took place
on 5 December 2005 with the Minister for Trade delivering the
keynote speech. In its current form the IBPN has identified a
number of ways to enhance bilateral trade and investment and deliver
the JETCO agenda, including the launch of a networking website
and a booklet on doing business in India. The IBPN will also be
organising a series of regional seminars designed to promote greater
bilateral trade between the UK and India.
E3. UKTI International Sectors Group (ISG)
The development of India's service sector, including
the business process outsourcing industry, IT solutions providers,
creative industries and software research, have attracted international
attention. However, modernisation and upgrading is taking place
across a much broader range of areas, including the automotive
sector, other areas of engineering, chemicals and heavy industry.
Although India is a priority market for all sixteen ISG sectors,
this report will focus on those sectors of primary interest to
the committee. The Committee should note that some of our sector
teams operate regionally eg automotive is based in the West Midlands.
The British High Commissions and British Trade Offices also have
sector specialists. The six most sectors that this report focuses
on are:
— E3.1 Aerospace (Civil).
— E3.2 Education and Training.
— E3.3 Financial Services.
— E3.4 Software, Computer
Services and Electronics, Telecoms.
E3.1 Aerospace
The 2005-06 activity plan is focused on the
growth in the Indian Aerospace (Civil) sector and the opportunities
for UK companies. Through a scoping mission and report, and by
maintaining key contacts, we aim to assess this growth and the
opportunities for 2005 and beyond. We aim to promote "UK
First" through targeted VIP visitors from India to the UK
and from UK to India, through inward and outward trade missions,
through positive media coverage, and through supporting UK airlines
as they start new routes/schedules. The inward mission took place
in September 2005 to the North West to "Meet the Buyer",
the outward mission to Bangalore in December 2005 to Aerodrome
India and AMEXPO. Also, we aim to maintain and develop the UKTI
India team knowledge, experience and contacts in UK industry by
undertaking a Business Development Visit and an Industry Briefing
Course. The intended outcome of these activities is to introduce
10 UK companies to the Indian market, facilitate five UK/Indo
partnerships, and for 90% of UK companies receiving our assistance
report that our help was a significant factor.
E3.2 Education and training
For the year 2005-06, the education and training
team will aim to introduce 10 UK companies into India, of which
we propose to have four companies new to market. In addition to
this, the team aims to facilitate five Indo/UK partnerships. To
achieve this target, we will arrange a government sponsored visit
programme around the BETT Show in London in January 2006. We will
sponsor two companies and also encourage leading Indian education
and training companies to visit the show. The sector leader will
undertake a business development visit to meet up with UK companies
to brief them about opportunities in the Indian market.
E3.3 Financial Services
The aim of the strategy is to achieve further
opening of the financial services sector in India to allow foreign
direct investment on more favourable terms and wider and profitable
service provision. It also aims to promote liberalisation of the
legal services market in India to allow UK firms to carry out
transactional business for international contracts and clients.
We aim to do this through a sustained programme of Ministerial,
senior official and business visits. Target areas are in banking
(retail), financial services (reducing the minimum capital requirements
from $50 million), insurance and reinsurance (removing restrictions
on broking, reinsurance and products), training (Securities Institute),
securities, accountancy, Public Private Partnerships, promotion
of UK skills and a number of other areas. We will work with London
Stock Exchange to significantly increase its profile in India
and encourage increased number of London listings.
E3.4 Software, Computer Services and Electronics
The 2005-06 activity plan is focused on inward
and outward trade missions, with the intended outcome of introducing
10 UK companies to the Indian market, facilitate five UK/Indo
partnerships, and for 90% of UK companies receiving our assistance
report that our help was a significant factor. The inward mission
was to TechWorld05, Cambridge, in May, and the outward mission
to IT.COM, Bangalore, was at the end of October. The sector team
supported a UK VIP delegation to India at the time of IT.COM and
promoted the UK industry through positive media coverage. With
the aim to capture future opportunities for UK companies, two
separate scoping missions on Entertainment software and Electronics
will be completed. Also, we aim to maintain and develop the UKTI
India team knowledge, experience and contacts in India through
visits, networking and conference attendance, and maintain and
develop knowledge of the UK Industry by undertaking a Business
Development Visit and Commercial Training Tour.
Telecommunications The communications sector
Business Plan for 2005-06 includes the following activities. An
inward mission in May took advantage of the only wireless event
in London—WiCon. An outward mission to India in Jan 2006
to coincide with GSM India where we will also be bringing a speaker
from UK to showcase UK expertise and also influence policy decisions
by GOI. There will also be visits to trade shows and publishing
a Communications sector journal. The team further aims to enhance
its sector knowledge and contacts both in UK and India through
Commercial training tours, local visits and regular networking.
The Business Development visit of the team is scheduled to be
in June to a prominent ICT event—Communic Asia where the
team will have the opportunity to network with more than 100 UK
companies. The key targets are to introduce five new to market
companies and facilitate business for five already introduced
companies, to facilitate five UK/Indo partnerships.
E3.5 Bioscience
The annual growth rate of about 40% over the
last three to four years has encouraged the Government of India
to envisage an annual turnover of $5 billion by 2010. According
to the recently published Ernst & Young Report, by 2010, India
will be the largest manufacturer of vaccines in the World. India
is categorised as the II Tier priority market by UK Trade and
Investment. Opportunities for the UK businesses exist in the areas
of joint research, technology transfer, clinical development/trials
handling services, contract manufacturing, bio-supplies, data
analysis and in consultancy services. Annex S provides more sector
specific brief.
E3.6 Automotive
The Automotive sector teams Strategy Development
and Market Approach is regarded as a mature and successful model
and is used as a benchmark when developing strategies and business
plans for other developing markets such as China. Successes since
2002 include:
— Organised six missions involving
around 75 UK companies. A further mission is scheduled for January
2006 with up to 40 companies participating.
— Business achieved as a result
of these since 2003 is estimated to be worth £6.4 million.
This figure does not include results from 2002 which were not
collated at that time and only includes 50% of the results from
a recent visit in September 2005. A mission
— In the last three years (2002-05)
the team has helped with the formation of more than 40 partnerships
between UK and Indian automotive companies.
— On the inward investment side,
two partnerships have been concluded.
— The UKTI team has undertaken
over 30 market research reports including programme arranging
and specific business advice to visiting UK companies up to September
2005.
— The Automotive team (India +
UK) have met well over 200 UK companies in India and the UK since
2002 and provided significant advice and support.
Full details of UKTI work in relation to these
sectors can be found in Annex S.
E4. UKTI Inward Investment Group
India is a priority market for UK Trade and
Investment's Inward Investment Group. There are inward investment
teams in New Delhi, Mumbai, Bangalore and Kolkata. The team in
India is supported from UKTI in London, handling issues such as
research and client delivery. UKTI's inward investment team work
in close partnership with the UK Development Agencies under the
guidelines laid down by the Committee for Overseas Promotion,
which is the forum under which the UK inward investment effort
is managed. The development agencies which have offices in India
are Scottish Development International (New Delhi), Welsh Development
Agency (Bangalore) and British Midlands (a collaborative operation
between Advantage West Midlands and the East Midlands Development
Agency in Mumbai),
India is an important source of inward investment
into the UK which currently receives approximately 60% of all
Indian investment coming into Europe. India is now the third largest
source of foreign direct investment (FDI) into the UK from Asia
by project numbers (after Japan and China) and globally was the
8th largest source of investment in 2004-05. Indian investment
is spread across the UK although a large proportion goes to London
(37% of all new projects over the last five years).
Investment from India is increasing. 2003-04
saw 30 new investment projects from India (an increase of 26%
on 2002-03). 2004-05 saw 36 new investments (an increase of 20%).
Up to the end of the second quarter of the current financial year
(30 September 2005) UKTI had assisted 20 Indian companies invest
in the UK (up 54% on the first half of last year).
There are over 430 Indian companies with a base
in the UK of which approximately two thirds are in the ICT/software
sector. 20 Indian companies are listed on the London Stock Exchange
with a total market capitalisation of US$3.46 billion (£1.98
billion). More Indian companies are listed on the London Stock
Exchange than on the New York and NASDAQ exchanges combined. These
include State Bank of India, Tata Tea (owners of the Tetley brand)
and Ashok Leyland.
UKTI primarily concentrates on attracting knowledge
driven companies from India and this is reflected in a focus on
the ICT, life sciences, automotive/advanced engineering, food
processing, creative industries, and financial/business service
sectors.
E5. UKTI Regional International Trade Teams
UKTI delivers to its international trade customers
in the English regions through a network of nearly 40 International
Trade Teams, provided typically by Chambers or Business Link operators,
employing between them around 380 International Trade Advisers.
In each region UKTI has an International Trade Director who, with
their regional core team, are co-located with the RDA, and who
are responsible for UKTI's strategy, delivery and stakeholder
relationships in the region.
On international trade (but not inward investment)
UKTI has management responsibility for its own staff and programmes
in the English regions and operates as the RDAs' international
trade arm. This relationship reflects the importance of UKTI giving
coherence to regional and national demands on the overseas network.
We work in partnership with the RDAs on strategy and priorities
through a nationally-agreed Dual Key Framework (attached at Annex
R8), and jointly signed-off delivery plans at regional level.
All Regional Teams have appointed an "India
Champion" and hold regular "doing Business in India"
events. These are also regional champions located in the British
High Commission/British Trade Offices in India. India Champions
meet quarterly with other UKTI colleagues to ensure a more joined-up
approach to in-market work eg the NW and EM are undertaking a
joint market visit in March 2006.
Some regional teams have established offices
in market or in the UK, which focus specifically on India or on
South Asia eg the East Midlands, have opened an India Trade Bureau.
Like other regions this has grown out of historical links between
India and the diaspora and the accompanying pattern of travel
and trading. Good links exist between regional teams and the NRI
business community. Other regional teams eg the West Midlands,
are utilising EU funding and RDA Cluster funding to finance more
UKTI activity focused on India in consultation with UKTI London
and UKTI India.
Some regional teams offer a sector specialism
in joint ventures and alternative routes to market. Regional teams
are seeking to be more strategic in their approach to India and
have commissioned research eg mapping opportunities in the Indian
market against capabilities present in the region.
UKTI offers a range of support to business,
including "passport to export" for SMEs, which is delivered
by our regional teams. Passport to Export has produced many successful
exporters for the Indian Market. Individual regional team approaches
are explained in more detail in Annex R.
F. UKTI ACTIVITY
WITH OTHER
STAKEHOLDERS IN
GOVERNMENT
F1. Market Awareness
While our assistance to companies
[22]is primarily
in the form of the established UKTI business development process
(International Trade Advisers working in co-operation with in-market
posts), there is an increasing demand for UKTI to raise awareness
of the India market in the UK. Increasing numbers of British companies
recognise the opportunity in the India market, but want a greater
understanding of the detailed issues involved in doing business
in India. UKTI India Team is working in closer co-operation with
UKTI ITDG and the Regional International Trade Teams to address
this need, including through regional events focussed on doing
business with India. In addition to this UKTI are working more
closely with the devolved administrations, regional teams and
our parent/other government departments in order to ensure a strategic
approach to trade and investment opportunities with India. Please
see Annex P for full details of our work with our parent and other
government departments.
F2. Public Diplomacy Initiative
As part of the British Government's efforts
to project a more up-to-date and accurate image of the UK in India,
a major Public Diplomacy Initiative has been commissioned jointly
by the British High Commission and the British Council Division.
Its objective is to inspire India's rising generation of decision-makers
"to choose the UK". A key intention is to counter the
perception in some quarters of Indian business that the UK is
less "cutting-edge" than some of our competitors.
The initiative will witness a series of high
profile and high impact events and activities in the fields of
arts and culture, business, education, environment and science
and technology. Some of these events will be built into annual
properties that will go on beyond the life of the initiative.
First among these was the announcement of the
UK Trade and Investment India Business Awards in September 2005,
coinciding with the PM's visit to New Delhi. These awards will
recognise and celebrate UK—India business partnership, specifically
in terms of inward investment, collaborative business partnership,
entrepreneurship and innovation.
The first awards presentation has been scheduled
for autumn 2006 with entries opening in February 2006. A
one-off special recognition award was presented to Tata Consultancy
Services (TCS) by the Prime Minister when he launched the awards
in September. This recognised TCS's leading role among Indian
investors in the UK.
As a build up to the awards the broadcast partner
(CNBC TV 18) will telecast a series of vignettes profiling Indian
businesses and businessmen who have excelled in the UK. Also being
negotiated with CNBC is a program profiling UK as a profitable
investment destination.
Other elements of the Public Diplomacy Initiative
include a cross cutting advertising campaign that will highlight
British innovation & creativity across the five pillars of
the initiative and also establish its relevance to the Indian
viewer. For further information on the PDI see Annexes D, E and
F.
F3. Science and technology
Team India consists of Science and Technology
specialists, with interest driven by the High Commissioner and
the Director if Trade and Investment. HMG is keen to expand UK-India
links between Universities, R&D establishments and their Commercial
operations in order to increase trade and investment, as well
as science and innovation. Lord Sainsbury[23]
will visit India during February 2006 in order to take this forward.
Other Office of Science and Technology (OST) initiatives in relation
to India include.
F3.1 UK-India Science and Innovation Council
(for background see DTI/OST at Annex P)
In London in early May 2006 (co-chaired by Sir
David King and his Indian counterpart Professor Rao). UK stakeholders—through
the Global Science and Innovation Forum[24]—are
working hard to design the agenda and content of this meeting.
Likely to be based around the four priority areas under the Global
Science and Innovation Forum:
— Excellence in research.
— Excellence in innovation.
— International development.
The UK would like to use this meeting to:
— raise the profile of the S&T
bilateral across a broad range of policy agendas—engaging
other government players on both sides;
— endorse new innovative initiative(s)
for promoting S&T between India and UK;
— bridge the S&T-commercialisation
link and provide a vehicle for entrepreneurship.
The Indians have indicated that they would like
to discuss increased collaboration in:
— weather forecasting/climate
change;
— manufacturing sciences;
F3.2 Good progress on the UK-India Education
and Research Initiative (background at Annex P)
A UK funded £10 million initiative to be
launched in January 2006. S&T well-integrated into the higher
education (and to a lesser extent vocational education) strands.
G. CONCLUSION
UKTI welcomes this enquiry into trade and investment
opportunities with India and looks forward to receiving the recommendations
of the Committee.
H. LIST OF
ANNEXES AND
ATTACHMENTS (NOT
PRINTED EXCEPT
"B")
| Annex A | Asia Task Force Background Note.
|
| Annex A1 | Asia Task Force members.
|
| Annex B | Barriers To Investment.
|
| Annex C | Outstanding UK Company Issues.
|
| Annex D | UKT&I India Business Awards, Draft White paper, January 2006.
|
| Annex E | UKT&I India Business Awards 2006.
|
| Annex F | Public Diplomacy Initiative.
|
| Annex I | Issues of Concern to the Indian Government.
|
| Annex K | UKT&I Contributions from Key Stakeholders.
|
| Annex P | UKT&I Work with Parent and Other Government Departments in relation to India.
|
| Annex R | UKT&I Regional International Teams and Devolved Administrations.
|
| Annex S | UKT&I Sector Priorities.
|
| Annex T | Facts and Figures.
|
| Annex U | UKT&I Services to Business.
|
| Other: | Aerospace, Biotech and IT Sector Strategies attached.
|
| Excel: | Spreadsheets showing Global Trade Figures to Sept 2005 and Contracts Issues by DfID to UK Suppliers are also attached.
|
Annex B
INDIA: BARRIERS TO INVESTMENT
BARRIERS TO
INVESTMENT IN
INDIA—CONSULTATION
PAPER
Introduction
India has immense potential as a trade and investment partner
for. the United Kingdom. However, our trade and Investment links
do not appear to fulfil present potential. Only 1% of the UK's
total exports are to India, and India ranks seventeenth in the
league table of UK export markets, compared to its status as tenth
largest economy. It is also clear that total FDI into India is
well below that into China. According to UNCTAD's "World
Investment Report 2005", the total FDI into India last year
amounted to $5 billion as against $61 billion into China.
The UK Government has established a Joint Economic and Trade
Committee with the Indian Government to identify areas of potential
for co-operation, and to remove the impediments to this.
We need to examine why British companies appear to under-perform
particularly in terms of investment in India. The following covers
the perceived range of issues involved but it is important that
we invite views from UK industry to validate these prior to raising
this during the next round of JETCO discussions.
Why do British companies under-perform in India?
1. The greatest impediment to greater trade and investment
with India are the practical obstacles to doing business there.
India is a market economy, but it is also highly regulated. Despite
the economic reform process launched in 1991, it still has many
of the characteristics of the closed, self-reliant economy, which
the Congress Party aimed to create after Independence. Obstacles
include not only legal and regulatory barriers, but also issues
related to bureaucracy, inadequate infrastructure etc.
2. For investors, a number of sectors remain completely
closed to FDI, including retail and legal services. Some other
key areas have been opened, but on restrictive terms. For example,
insurance companies can only have a 26% share in joint venture.
In the telecoms field the limit on FDI has been raised from 49%
to 76%, but under restrictive conditions, such as the Directors
being Indian residents. Foreign banks may take a 75% equity share
in Indian banks, but only in non-profitable ones.
3. Even where companies are permitted to export or invest,
a variety of factors conspire to make doing business difficult.
These include:
— Excessive red tape and bureaucracy, particularly
in business transactions involving the public sector. Although
some state governments have tried to emulate the "single
window" or "onestop-shop" approach to investment
approvals that are common in China, generally speaking foreign
investors have to go through extremely complicated bureaucratic
processes to complete their business here.
— Closely linked to this is a culture of tips
and payoffs, not only in the public but also in the private sectors.
— Similarly, there is a lack of transparency
in public sector business, particularly major procurement deals.
It is a common experience that tenders are often revisited, or
specifications changed at short notice without explanation. Even
after deals have been completed, they are often reopened, as has
been the case with the major fleet purchase deals by the two state-owned
airlines.
— The playing field for private and public
business is in many cases not level. In certain areas of the economy,
there is a deliberate preference to state-owned companies, including
through a deliberate policy of "price preference" or
subsidy. A notable example is in the LPG market.
— Inadequate protection for Intellectual Property
Rights is a major problem. Although the Patent Law has now been
brought into compliance with TRIPS, enforcement of the law remains
patchy. Counterfeiting and piracy is a significant problem, and
not only in publishing and software. For example, engineering
products are often illegally copied.
— While India uses the common law system, and
English is the language of the courts, administration of justice
is slow and cumbersome. Without the right personal or political
connections, a foreign investor might need ten years to complete
a civil action. A huge backlog of cases means that actions may
take a long time to be heard, after which there are multiple avenues
of appeal through the different layers of state and then central
judiciary. The lower courts are sometimes not so effective.
— Cumbersome labour laws are a major obstacle
or deterrent to investment in manufacturing. Closely related is
trade union militancy. It must be said, however, that trade union
activism tends to be focussed on particular areas of the country.
Many major manufacturers, for example, in the automotive sector,
have been able successfully to invest in India and to develop
good relations with trade unions and within the limitations of
the labour laws.
4. Whilst the Government of India holds the key to resolving
the issues above, UK underperformance in India should not be entirely
attributed to difficulties on the Indian side. Other factors must
also be involved, including a lack of awareness of the market.
It seems unlikely that general ignorance of India is an impediment.
India's economic success is well publicised in the UK, not least
as a result of popular interest in Indian call centres. A company
that simply does not know about India is unlikely to be sufficiently
international in its outlook to succeed in tackling the market
here. The "information deficit" may take more specific
forms:
— General awareness of India, but inadequate
detailed knowledge of market opportunities. There may be a sectoral
dimension to this. UK ICT and software companies for example would
appear generally to be well aware of India, while companies in
the automotive supply chain are increasingly aware too. What is
less clear is whether in certain sectors, such as agribusiness
or biotechnology, which are less well trodden by UK companies,
lack of awareness is the problem, or scepticism about the level
of opportunity.
— Outdated perceptions. At the crudest end,
that India is a market only for cheap, low quality goods. There
is also an historical overhang. In the power sector, for example,
UK companies tend to be nervous of the sector following bad experiences
in the 1990s. This is despite considerable progress with power
sector reform since that time.
— Awareness of India, and a wish to explore,
but uncertainty about how to proceed. This appears to be a growing
segment, largely of SMEs.
— Lack of resources and adequate skills/training
to succeed in India.
— Lack of appreciation of the way business
is done in India, and in particular some of the cultural aspects.
These include the importance of high-level managerial engagement,
face-to-face contact, well developed relationships with business
partners, a different approach to time (which often places price
above urgency in closing a negotiation) etc.
BARRIERS TO
INVESTMENT IN
INDIA CONSULTATION—A
FEW INITIAL
CONCLUSIONS
The consultation exercise is not yet complete, but the following
represent a few initial conclusions:
— UK SME's are deterred by the time, resources
and uncertainty Indian market entry requires. Easier pickings
elsewhere.
— UK's investment in India may well be understated
since it appears to measure FDI only. Many UK companies with a
long presence in the Indian market have increased their investment
through retained earnings rather than FDI.
— AT Kearney, the American business consultants,
recently published their 2005 survey of FDI confidence. This annual
survey tracks the confidence and preference of executives of the
World's leading companies for FDI. For the third year running
China remains at the top of the league of investor confidence,
however, India achieved second place in 2005, up from sixth place
in 2003, and third place in 2004 and knocking the USA from second
to third place. This would suggest that the Indian reform programme
is beginning to be recognised on a wider scale. India still lags
behind China in World FDI, but is gaining on it. But why does
India attract so little in the way of British exports and FDI?
Perhaps it is the mismatch in the economies. The UK is no longer
a manufacturing nation and yet this is one area where India is
considered highly attractive by foreign investors.
20
Sir Michael Arthur, British High Commissioner to India, Annual
Review 2005. Back
21
72 staff in 9 British High Commissions and Trade Offices. It is
important for the TISC to note that UKTI resources include the
British High Commissioner and his Deputies across India, as well
as our dedicated commercial teams. Back
22
22 Please see Annex U for full details of UKTI Services to business. Back
23
23 Lord Sainsbury of Turville, Parliamentary Under Secretary of
State for Science and Innovation, Responsible for Promoting World
Class Science and Innovation. Back
24
24 Chaired by Sir David King, Office of Science and Technology,
Global Science and Innovation Forum is a Cross-Government committee
to establish a strategic approach towards International Science. Back
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