Select Committee on Trade and Industry Written Evidence


Memorandum by UK Trade and Investment (UKTI)


  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.


  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.


  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.


  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.


  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).


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:

    —    JETCO.

    —    Asia Task Force.

    —    Indo-British Partnership Network.


  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.

    —    E3.5  Bioscience.

    —    E3.6  Automotive.

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.


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.

    —    Global leadership.

    —    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:

    —    IT;

    —    weather forecasting/climate change;

    —    manufacturing sciences;

    —    nuclear sciences; and

    —    commercialisation.

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.


  UKTI welcomes this enquiry into trade and investment opportunities with India and looks forward to receiving the recommendations of the Committee.

Annex AAsia Task Force Background Note.
Annex A1Asia Task Force members.
Annex BBarriers To Investment.
Annex COutstanding UK Company Issues.
Annex DUKT&I India Business Awards, Draft White paper, January 2006.
Annex EUKT&I India Business Awards 2006.
Annex FPublic Diplomacy Initiative.
Annex IIssues of Concern to the Indian Government.
Annex KUKT&I Contributions from Key Stakeholders.
Annex PUKT&I Work with Parent and Other Government Departments in relation to India.
Annex RUKT&I Regional International Teams and Devolved Administrations.
Annex SUKT&I Sector Priorities.
Annex TFacts and Figures.
Annex UUKT&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 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.


  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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