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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 881-v House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE TRADE AND INDUSTRY COMMITTEE
TRADE AND INVESTMENT OPPORTUNITIES WITH INDIA
Tuesday 21 March 2006 IAN PEARSON MP, MR ASIF AHMAD, MR PAUL MADDEN and MR TONY COLLINGRIDGE Evidence heard in Public Questions 360 - 441
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Trade and Industry Committee on Tuesday 21 March 2006 Members present Peter Luff, in the Chair Roger Berry Mr Peter Bone Mr Michael Clapham Mr Lindsay Hoyle Judy Mallaber Rob Marris Anne Moffat Mr Anthony Wright ________________ Memorandum submitted by UK Trade & Investment
Examination of Witnesses Witnesses: Ian Pearson, a Member of the House, Minister for Trade, Department of Trade and Industry (joint with FCO), Mr Asif Ahmad, Director of Asia Pacific, Mr Paul Madden, Head of International Sectors Group and E-transformation Group, and Mr Tony Collingridge, Head of Asia Pacific & Africa section for Inward Investment, UK Trade & Investment, gave evidence. Q360 Chairman: Minister, welcome to this evidence session of our Committee's inquiry into Trade and Investment Opportunities with India. We have seen one of your colleagues at an earlier session, but not the other three. Perhaps you could introduce yourself and your team. Ian Pearson: I would be delighted to. I welcome the opportunity to talk to you today about trade and investment opportunities with India. I have a team with me. On my left is Paul Madden, who is the Group Director of International Sectors for UKTI. Asif Ahmad, who I think you have met previously, is the Director of Asia Pacific for UKTI. On my far left, Tony Collingridge, who is the Head of Asia Pacific & Africa for the Inward Investment Group. Q361 Chairman: I think I should begin by putting on the record this Committee's appreciation of the very real efforts that were made by our posts during our recent visit to India. We had a very, very informative, successful and well-organised visit. We are full of praise and gratitude for what was done for us while we were there. Can I begin by asking you to do some context setting. Britain, after all, has perhaps the closest relationship with India of any country in the world by virtue of our history, but despite that we are behind the Netherlands on foreign direct investment, for example, and behind Belgium on exports. Why are we not top of the European league and why are we not challenging other countries, like the United States of America, more strongly than we are? Ian Pearson: I think overall our investment performance with India and our exporting performance, and it is important to make a distinction between the two, is good but certainly could be a lot better. We are strongly performing on the export side. Exports for January to November of last year were up by 27.4 per cent on the previous 11 months. That is a pretty good performance in anybody's book. When it comes to investment figures, I think some of these tend to be a little bit unreliable. Certainly when you look at major investments that UK companies have made in India a lot of the major UK players are there when it comes to BP, Shell, BG, Standard Chartered, HSBC and Cairn Energy. Companies like this have all made investments in India. We very much want to encourage two-way trade and investment between the UK and India. In our view we are the leading European partner when it comes to trade and investment with India and we want to maintain that position and do even better in the future. Q362 Chairman: One of my colleagues will be looking at the investment questions in more detail later but, according to the figures we have got, we are below Belgium in terms of exports to India. Ian Pearson: I think that is due to the specific case of diamonds, is it not? When you take that out ---- Q363 Chairman: Let us look at diamonds. You have talked about the trade figures, the export figures to India, and I do not share your optimism about them. There are huge increases in two particular sectors in the period to which you have referred: non-ferrous metals and metalliferous ores and metal scrap. This is hardly the stuff of high tech exports from a dynamic, cutting edge leading economy, is it? That is what we are exporting to India, the big increases. 160.4 per cent in non-ferrous metals. Ian Pearson: I do not have that detailed information to hand. Q364 Chairman: Perhaps more worrying is ---- Ian Pearson: I am not sure what SITC level you are talking about or which companies would be involved in this. Q365 Chairman: I am talking about levels 68 and 28, those are the two figures I am talking about there. Ian Pearson: I do not want to write off metal manufacturing and metal exports. Rob Marris: Certainly not. Q366 Chairman: It appears not to be manufactured products but raw materials and scrap, not manufactured added-value stuff at all. The biggest single line in our exports to India from the figures to which you have referred - my figures run to October so there is one month's difference - is at line 66 of the Standard Trade Classification division: non-metallic mineral manufactures. That accounts for £960 million of our £2.3 billion exports. If you add the metals and the scrap and non-metallic mineral manufactures together you get £1.4 billion out of £2.3 billion leaving £900 million for the rest. This morning I looked in detail at what line 66 could be in our exports and it is a bewildering array of things: refractory bricks, glass paper, emery cloth, asbestos manufacturers - I am not saying there are too many asbestos manufacturers - laminated safety glass, that could be quite good news, and when you get towards the end of 66 you see a clue as to what it actually is. 667 begins with pearls and precious stones, pearls not strung, mounted or set, and it goes on with diamonds not set, diamonds rough and unsorted. semiprecious stones and synthetic jewels. I strongly suspect that we could see an awful lot of that £900 million, which has had good growth of 18 per cent, is precisely the diamonds you are talking about from Belgium. Ian Pearson: I do not have any information on that. I will see if we have got a more detailed breakdown of what the potential division is and the activities involved in that and try and make that available to the Committee. Q367 Chairman: That would be very helpful. If the exports to India are as I think they are then there is even more cause for concern than I imagined there was because the growth is occurring probably in stuff we are importing and re-exporting with little or no added-value. It could be a much more serious trade deficit than I imagined. If we could have as much information as you have, that would be helpful. Ian Pearson: You say "trade deficit"? Q368 Chairman: Yes. Ian Pearson: If you look at the balance of imports and exports they are pretty roughly equal at the moment. Q369 Chairman: If 900 million is re-exports then in real terms it is a deficit. If we can have as much detail as possible on 66, 68 and 28 in the SITC classification I would be really grateful. Ian Pearson: I will see what further information we can provide on that. Q370 Chairman: I have one or two other questions of scene setting before I bring in my colleagues. Do you think that British business sees India as a market or as a location for its own activities? Ian Pearson: I think both. Increasingly, UK business sees India as an attractive marketplace. We are doing our best through UKTI and through the Doing Business in India road shows that have been organised across the regions in the United Kingdom to make more companies aware of the business opportunities that there are in India. I do believe that they are many, substantial and varied. As India grows its middle class there will be major new opportunities for UK retailers and a range of other UK companies as well. Certainly it is an important emerging growth market for UK companies but it is also a strategically important location. This is a country with a huge population and, quite rightly, a number of UK companies are going to want to look at the market closely and make decisions to invest there rather than export there. It is a sensible business strategy when you have got a country of the vast nature of India that UK companies are going to want to manufacture there, they are going to want to set up offices there and have a range of other activities as well. Q371 Chairman: I think the Committee was very impressed by what it saw in India, by the dynamism and modern economy that is evolving in that country. I strongly suspect that most British businesses do not understand what is happening there, and probably in China too. Do you share the concern that we have had expressed to us by witnesses, businesses who have given us evidence, who say they think Britain does not really understand what is happening and is in danger of missing the 'last train' with regard to benefiting from the order of magnitude of new opportunities that exist in that country compared with a few years ago? Ian Pearson: Certainly I agree that there are tremendous opportunities in the Indian marketplace today. We have an economy that is growing strongly and has been growing for a number of years and on most projections from reputable economists it is going to continue its strong growth path into the future. I do want to see more UK companies being aware of the opportunities that are there at the moment and will be in there in the future in the Indian marketplace. I think it is very easy to criticise UK companies and say, "You are off the pace, you are in danger of missing the last train" but many UK companies are there at the moment and anything we can do to encourage more UK companies to look at the opportunities that are there will be beneficial. At the end of the day it will be up to companies to make hard-headed business decisions about whether the Indian marketplace is right for them. Q372 Chairman: What can you do as the Government to help that process? Ian Pearson: We are doing a number of things really. Firstly, I have already mentioned the Doing Business in India road shows which are practical sessions outlining business opportunities that exist in the Indian marketplace, but at a more strategic level as well through the work of the Joint Economic Trade Committee, which is a Government led business-to-business dialogue, we can increase understanding and tackle some of the issues where we can co-operate more between the UK and India. The last meeting, the second JETCO meeting, on 31 January this year looked at what more can be done in areas such as infrastructure, health, agri-business, high tech clusters and venture capital for SMEs. Then there is the work of the Asian Task Force as well, which I sit on, which is co-chaired by Alan Johnson and Bryan Sanderson from Standard Chartered. That is looking at a whole range of issues in terms of barriers to trade. The more that we can do at a government-to-government level to reduce some of the difficulties of entering the Indian marketplace and doing business in India, the more we can do practically on the ground to promote India as a marketplace. I think that is what you should expect Government to be doing to provide that level of support. Chairman: Let us take that up in more detail with Judy Mallaber. Q373 Judy Mallaber: One of the concerns expressed to us when we were in India did relate to how we use the rather limited resources that are available to UKTI's operations in India. It was suggested to us that the Wilson Review had not been implemented very well. They were not necessarily critical of what was in the Wilson Review but they felt it had not necessarily been interpreted correctly and it is reflected in the fact that we have moved to putting the emphasis on to the sectoral operations and from the UKTI evidence we have had there are now 16 International Sector Groups in India. It was asked of us how on earth we can service that number of groups with the limited resources that are there and that is taking away from the generalist expertise. The criticism that followed from that was that we were too dependent on what industry here already thinks it knows rather than what they already know within their sector rather than having people who are dedicated to look at what other opportunities might be available and have a more generalist expertise within a particular regional area in India. Ian Pearson: The fact that there are 16 particular sectors where UKTI is very interested in encouraging more business actually reflects the importance of India as a marketplace. I do not think there are too many sectors. These ideas of priority sectors have come directly from business advisory groups that UKTI works with on a regular basis. One of the strengths of that system is the sector focus that we have got because, frankly, when it comes down to it some sort of generalised business advice does not really do the business and you do need sector specialisms. One of the things that I think are important is that we do have advisory groups of business people who have got strong sector experience and understand what opportunities are available in particular marketplaces, whether it be India, China or other countries. Q374 Judy Mallaber: What that means is there are very limited overall resources available within any particular area or region within the country and they are very limited in resources. Is it not the case that there has been a cut in resources to Asia generally? Ian Pearson: We have got 76 full-time equivalent people in India employed by UKTI in nine locations across India. There are more people in India than in any other country outside the United States. If the Select Committee wants to come and say that UKTI ought to have its budget doubled because it needs to employ far more people, I am sure the Chancellor would be very interested to hear if that is the conclusion you reach. We are an organisation that has a budget of £270 million a year and we employ about 2,400 people. Across the world we have something like 1,300-1,400 people in our various posts and embassies. Inevitably we are going to be relatively thinly spread because that is the nature of the organisation, you would expect us to be lean and efficient. We do work with partners. We work with partners here in the UK in the regions, we work with chambers of commerce and we work with others in terms of promoting India as a destination. We have people in Kingsgate House in London who have sector specialist skills and we have a range of highly skilled and often locally engaged staff across our posts. I would be interested to hear the Committee's views about whether we ought to have more people in India. We have slightly more people in India than we have in China at the moment, more than anybody anywhere outside the United States. Q375 Judy Mallaber: In view of the importance of the Indian market, and the Chinese market has similar issues, are there any plans at the moment to increase the resources given to UKTI and, indeed, to the British Council in India, which I am sure we will come on to question you about? Are there any plans at present to increase those resources? Ian Pearson: Spending plans are set through the Spending Review processes, as you will be very well aware. Currently we are at a fairly early stage of discussions on the next spending round so it is not possible to speculate what the final outcome of the next Spending Review will be. Certainly, however, I am very keen that the new Chief Executive of UKTI, Andrew Cahn, looks at the overall balance of resources within UKTI and looks at the opportunities that exist in emerging markets as well. I cannot predict what he will want to recommend but I think it is right that when you appoint a new Chief Executive you let him have a long, hard look at the organisation and see whether it is fit for purpose for the future. Q376 Judy Mallaber: As the Chancellor has been making speeches and talking about the global marketplace, can we assume that your Secretary of State will be having discussions with the Chancellor on the level of resources to exploit these huge new marketplaces in Asia and specifically in India? Ian Pearson: I have two Secretaries of State; I have the Foreign Secretary as well as the Secretary of State for Trade and Industry. Both take an active interest in the work of UK Trade & Investment. In addition to the Chancellor, both are very well apprised of the trends in globalisation and what we need to do to make sure that the UK is competitive. Q377 Chairman: Can I just ask two factual questions before I bring in Tony Wright. First, can you confirm that UKTI is set to lose a third of its staff under the Gershon process? Is that right? Ian Pearson: I do not recognise the figure of a third as such. Certainly there have been plans as part of the Gershon to try to have more resources at the front line that will reduce some of our ---- Q378 Chairman: Perhaps you could let us have a note on the balance of staff. Ian Pearson: I can certainly let you have a note on it. Q379 Chairman: On another factual element: you talked about the 76 people who are working in India, how many of them are locally engaged and how many of them are Brits, ex-pats? Ian Pearson: I do not have the numbers to hand. There will be a high proportion of locally engaged staff. Q380 Chairman: It is fair to say we were very impressed by the locally engaged staff we saw, they served us very well, so I do not want anything I say to be taken as a criticism of them. There was some concern expressed by some of the people we talked to about the ability to manage so many locally engaged staff with so few Brits there to manage them. Ian Pearson: If I can just say something on that. Firstly, some words of praise for locally engaged staff. Some of the locally engaged staff that we have right across our posts are absolutely superb in the way that they do their work. Very often they have detailed sector knowledge and certainly very deep market knowledge as well and they add real value to the UK companies that use their services. Q381 Chairman: That is not in dispute, it is the management of that very valuable resource. Ian Pearson: On the issue of management, we have got quite a lot of experience now in getting the balance right between locally engaged staff and British national staff who are posted to various places around the world. That balance will vary from country to country and market to market according to a range of different circumstances. In some markets, when it comes to high level political lobbying to reduce barriers to entry, that is something where it would not be appropriate to use locally engaged staff to do that sort of work and it is better for this to be done at Head of Mission, Deputy Head of Mission level. What is important when we look at these is to make sure that we get that balance right in terms of who is the appropriate person. Q382 Chairman: You are happy that the balance is right in India at present? Ian Pearson: I am happy that the balance is broadly right. I am not going to say that it is absolutely right in all our posts in all the markets in which UKTI operates but it is an area where there has been a lot of management attention in recent years. Q383 Mr Wright: You mentioned the co-operation between UKTI and chambers of commerce and the CBI but one of the things that has been brought to our attention is the lack of chambers having a base in India itself whereas India's chambers have got a base in the UK. Do you not see that as a hindrance to us, that there is not this set-up in India for the chambers of commerce and, indeed, for the CBI? Ian Pearson: I do not see it as a particular hindrance. Certainly when UK companies visit India they will very quickly meet either the CII or FICI . When Indian companies come to the UK they can meet and talk to the CBI or the British chambers of commerce. The way our structures are set up are very different. The Indian Government naturally tends to contract with CII and FICI to do a great deal of its work that we tend to do through UK Trade & Investment and our networks. We should not forget here the Indo-British Partnership Network which is an organisation that has been set up. This is business-led and is led extremely ably by Karan Bilimoria from Cobra. The dialogue that it is having with its counterparts in India is very valuable. Q384 Mr Wright: That may well be the case but when we visited one of the issues that came across to us quite strongly in the interpretation we took from it was that through UKTI they are more reactive than proactive. I can see the benefit of having local chambers of commerce and perhaps a CBI base over there assisting in trying to be more proactive. They have worked extremely hard through UKTI but quite clearly there is so much growth out in India because of the pressures that are being placed on them I see them as being reactive rather than proactive, whereas we see more proactivity from other countries such as Japan and the United States. Perhaps if the local chambers of commerce were given the encouragement to set up in India, and the CBI, they could be of more assistance to UKTI. Do you not agree that that would be helpful? Ian Pearson: Obviously it is a matter for the CBI or the British chambers of commerce whether they want to set up particular offices. I know that the CBI have recently opened an office in Beijing and undoubtedly they are looking at India as a potential for setting up an office. The City of London, the Lord Mayor, is setting up an office in New Delhi as well, I understand. I asked the question when I was in India in January as to whether we ought to have a very strong UK-India chamber of commerce and the feeling I got from a lot of Indian companies and a lot of UK companies doing business in India was, "Well, we know each other so well we have never really felt a strong need to push this". I get the sense that the JETCO arrangements and the links between the Indo-British Partnership Network and CII in particular, but FICI as well, are working well. We will continue to keep these matters under review. Q385 Mr Wright: Have you spoken to the chambers of commerce about opportunities for going out to India? Ian Pearson: Certainly we have involved the chambers of commerce through the Doing Business in India road shows and representatives of chambers of commerce have been involved in these. In that sense I think they are pretty plugged into what we have been doing to try to encourage more of their members to look at India as an opportunity. Q386 Mr Hoyle: Minister, could I go back to the investment question. In your introduction you referred to a number of energy companies. I wonder if the DTI is doing anything in India similar to the project in China, for example, where we are encouraging the Chinese to use supercritical boilers. I was reading an interesting statistic yesterday that suggested that 80 per cent of supercritical boilers are being implemented in China. I do not know what the 80 per cent is a proportion of; it may be just four boilers out of five somewhere in the world. I wondered if we are doing anything similar with India because it is a way of collaborating on the one hand, which is going to be good for British kit, and, on the other hand, it is going to be a way of tackling the environmental problems that we need to tackle. Ian Pearson: I can only answer this in broad terms and it might be that I need to get more information to the Committee. Just as we have been very keen to engage with China on a dialogue about promoting energy efficiency, similarly we have been very interested to engage in a dialogue with India about energy efficiency as well. In many instances there are lessons that we can learn from India in terms of how they tackle this issue. If you look at their bus systems in parts of the country, they are far more environmentally friendly than some of the bus systems that you can see in the United Kingdom. There is a dialogue through the JETCO arrangements on energy and I can certainly provide some more detail to the Committee in writing if that would be helpful. Mr Hoyle: It would be helpful, thank you. Q387 Rob Marris: I just wanted to come back to the numbers that Judy Mallaber was talking about. I understood you to say we have got 76 staff in India and 1,300-1,400 field staff around the world. That suggests to me that five and a half per cent of your field staff are in India, which has a population of about 18 per cent of the population of the world. It strikes me as a bit of an imbalance. Secondly, perhaps not today, could you give us some comparative figures as to what your staffing budget is and the numbers of staff you have got in Italy, for example, which has a similar sized economy to India so that we can get an idea of the balance of resources within the DTI on staffing. Is that possible? Ian Pearson: Let me read out the top ten at the moment, as I understand it. Q388 Rob Marris: Top ten in terms of staffing numbers? Ian Pearson: Yes. The top ten would go: one, USA 129; two, India 76; three, China 74; four, Germany 63; five, Japan 62; six, France 50; seven, Brazil 39; eight, Spain 33; nine, Australia 32; ten, Canada 30. That just gives some indication. Q389 Rob Marris: That is very helpful. Ian Pearson: As I have already explained, one of the things I am keen the new Chief Executive looks at is the overall balance of our staffing right across UKTI as an organisation and whether it is taking sufficient advantage of the opportunities that are there with emerging economies like China and India. If I could just say something on this in general. I think there is a danger that we can focus too much on China and India. These are important economies that could well transform our world over the next ten to 20 years but it is important to recognise as well that there are a lot of market opportunities in other countries in South East Asia and it is important we bear in mind the research that has been done on Bric economies as well, so that is Brazil and Russia, and we should not forget the vast budgets that are in the Middle East at the moment. I attended a road show in Manchester recently where the Saudi Arabian Government were taking the time and effort to come and persuade UK companies that they have £624 billion to spend between now and 2020 and they want to make sure that we have a fair share of that. Likewise, other parts of the Middle East as well and major investment infrastructure programmes. I very much welcome the focus on emerging markets, China and India, but let us not forget that there are strong opportunities for our businesses in other parts of the globe as well. Q390 Rob Marris: We have 76 in India and, for example, 62 in Germany. Are you sure the balance is right? If companies need that much assistance to export to Germany, part of the Common Market for the last 34 years, should they be in business? Are you sure we have the balance right? Ian Pearson: That is something that we will be reviewing. If you look at trade volumes, Germany at the moment is a far bigger market than India but if you look at potential growth then I agree with you that India offers some enormous opportunities. We need to look at the balance. Q391 Mr Hoyle: The media are quite critical in the way they say British companies are averse, shy, conservative, whichever way you want to look at it, in going out to emerging markets such as India, China, Brazil or whatever and those leading companies, compared to European counterparts or the Americans, will be there first, flag waving, setting up business and open for business and we are somewhere behind, coming in. I recognise you mentioned major company names at the beginning but in fairness they have a long history in India. They did not turn up yesterday. Those companies have been there for God knows how many years. One must question are the media right; are there fear factors amongst British companies about doing business with India, not setting up in India and offshoring? Ian Pearson: There was a recent report by KPMG that was reported in The Financial Times which suggested that UK companies might not be taking as much advantage of the opportunities of India as other countries. When it comes down to it, UK companies are operating in some very risky markets right across the globe. I do have some sympathy with what the report said. I think more UK companies need to get out more and I get a sense that there is a lot more that we can do as far as the UK is concerned. One of the strong messages that I am trying to put over as Trade Minister is: look at where the growth is. Look at China, India and south east Asia. Look at the opportunities in the Middle East. Look at the opportunities in Brazil and Russia which I mentioned I visited just a couple of months ago. There are tremendous opportunities out there and in the context of globalisation, which means a growing interdependence between countries and companies and economies, securing Britain's future depends on our ability to develop business internationally and I think it is vital that we seize some of the opportunities that exist in India and other parts of the world, to make sure that our companies have a growing share of that growing market. That is what I want to see and I would be very interested in the Committee's observations as to whether they think that companies need to be a bit more forward looking and what we need to do to encourage them to do just that. Q392 Mr Hoyle: One might say if it takes 18 years to get a Hawk contract that is a major investment. At the end of it they won the contract but 18 years is a long time to wait. Allowing for that, what can your department or you yourself working with the two departments do to try and persuade people it is not as risky and, if there is a risk, there is government support? Ian Pearson: You can lead a horse to water, can you not? That is what we are trying to do at the moment. The Doing Business in India roadshows are trying to make more UK companies aware of the opportunities that exist in India at the moment. Maybe there has been a perception problem that India has been a difficult market place but if UK companies just hang around on the sidelines waiting for everything to become perfect they are going to miss out. I am keen to make sure that they do not. I am always very clear that it is up to individual companies to make a rational business decision on what is right for them in their particular circumstances. If you just look at this at an aggregate level and you see this hugely growing economy that is India today and say that our share of that world trade is just a small fraction, as the Committee very well knows, we ought to be doing better than that. The more that we can, through the roadshow programme and other events, through the media and the work of the Committee as well publicise the fact that there are tremendous opportunities here, that is a good thing to do. Q393 Mr Hoyle: Just this week, as an example, Lloyds TSB announced job closures in the UK to set up their call centres in India. It would have been better if we could have had Lloyds TSB chasing part of the market share within India. Instead, all it was doing was moving jobs overseas. At the same time, we are seeing that in the UK which does nothing for jobs here. Once again, when we were in India, we heard about opportunities such as new airports where not one British company had taken an interest in either operating or building. We also saw the construction industry, new motorways being put in and Singaporean and Malaysian companies with the contracts. We are the UK; we are meant to be a world leader in construction. Have we got the wrong message? Are you getting the right message across? It seems to me the message is: save money; move to India. The message ought to be: move to India; there is a big market and what you have to do is get a share of that market. We are not seeing that. Would you agree? Ian Pearson: I do not think as a government we are putting out the wrong message. Can I say something on offshoring and two way business relationships? Specifically on offshoring, when I was in Chennai in January I had a look at Standard Chartered's back office operation. They are employing 3,000 people in Chennai. The average starting salary of an IT graduate is $100 a month. They are not offshoring the call centre function but they are offshoring the accounts and the back office transaction processing, what is called BPO in the trade. This produces enormous cost savings for Standard Chartered. I think that if you are a company in a competitive world you need to look at this. In the UK we are not going to compete with $100 a month wage rates; nor should we try to. Let me give you a couple of different examples as well. If you look at Logica CMG or Xansa who are UK controlled IT services companies, both Logica CMG and Xansa have expanded in the UK and in India over the last five to ten years. They have done so because they have developed a successful business model, in my view, that blends employing Indian IT consultants and UK IT consultants. I gather with Xansa it is something like 50/50 employment in the UK and in India and both have been able to grow successfully because they have this competitive business model. I think that two way business relationship is very important. It is where our future lies. If I can give one more example that is very close to home, I have a castings company just outside my constituency called Shakespeares which I am hoping to visit soon. It was taken over last year and I met the Indian owners when I was in India quite fortuitously. They have taken a loss making castings company in the West Midlands and made it profitable. Yes, they have transferred some of the work to India, the runners and repeaters, the regular business, but when I sat down with them and said, "Are not all the jobs going to go?" they said, "No, Ian, they are not and let me tell you why. Firstly, because you have some good skills in the United Kingdom. They might be getting a bit old and there is an issue there but you have some good skills in the United Kingdom that we value. Secondly, you have access to markets and, with just in time production as well. If things go wrong we need to be able to supply at short notice." In terms of prototyping work, in terms of special, one-off projects and products there is a viable business there that would not be viable if it was trying to do all the work in the United Kingdom. That is a lesson for the future. We employ 20 million people in the UK at the moment. India has 28 million people coming on to the labour market every year for the next 15, 20 or more years. Getting the balance right between what we do in the UK and what we do in India and other countries is vital for our future. There are some examples of businesses that are getting it right now that I have mentioned, so you have a long term sustainable business model. In a globalising world, it is important that we recognise these realities, that we do not try and do everything in the UK and that we develop these relationships with companies in some cases in other countries where it makes sense to do so. Q394 Mr Hoyle: That is a very good example of an Indian company reading the situation and taking an unprofitable British company and turning it into profit. That is wonderful but it does not answer the question which I am posing to you. India is open for business. How do we persuade UK business to take those opportunities, not about India coming to the UK but reversing that, with us seizing opportunities where it seems to us that UK companies have not recognised them. There are contracts to be won but we are not even bidding. Ian Pearson: I agree. One of the messages I also put out to businesses in addition to my headline "Get out more" which is important is, "Buy them before they buy you." If I can explain that fairly brutal terminology, it is the case that there are strong investment opportunities in India as well as the export trade. I want to see more UK companies directly investing because we are certainly seeing it the other way. We are seeing some UK investments into India as well but more of that, I believe, needs to happen. The entrepreneurial spirit that we have always had in the UK and the fact that we have always done business internationally should stand us in very good stead. Globalisation could have been tailor made for the UK. We are the one country in the world that instinctively gets this. We are in a situation now where, if we can persuade more of our UK businesses to get out more, to look at investments as well as just trading, that is the best way in which we can secure our long term future prosperity as a nation. I am getting a bit preachy here. Chairman: I am agreeing with you, which does help. I am being more sympathetic than I would otherwise be. Mr Bone: I want to break this consensus of agreement because I think this is tremendous complacency by the government. You are saying, "It is not me, guv; it is those rotten British businesses who do not have any entrepreneurial skills." Hang on a minute. Anne Moffat: I have not heard him saying that. Q395 Mr Bone: That was my take on it. Surely that is what our great strength has been over the years. It is no good the government at the head of it saying that it is the companies that are failing all of a sudden. It is the responsibility of the government and if other countries are doing it why are we not doing it? Ian Pearson: Firstly, I am not seeking to blame companies at all in this or to deny that there is no role for government but, when it comes down to it, it is about companies identifying opportunities, seizing opportunities and making profits. That is the way of the world. I reject entirely the claim of complacency; I have said I am not satisfied. I have said I think our trade performance with the EU ought to be better. I have said that ultimately this is down to our companies and they ought to get out more and invest more. I have also said that we will continue to look at what we do as a government to provide support to companies. We employ a significant number of people throughout India as well as people doing roadshows in the UK to promote opportunities. We can always look at the balance and whether we ought to be doing more in India and China and less in Germany and Italy. We can look at the overall budget for UK trade and investment as well. Those are all sensible things that we can have a conversation about. Q396 Mr Bone: It has come up in evidence sessions on a number of occasions that one of the main barriers - in some cases, people regard it as the top barrier - to cooperation in trade between India and the UK is that this is now done at EU level. Could that explain the reason why British companies with their historic links with India are being dampened down by the EU deal, as it were? Ian Pearson: I do not think we are being dampened down by the EU deal. I remember Kamal Nath saying to me, "Ian, if it is just between you and me, we can sort out a trade deal." Q397 Chairman: He said much the same thing to us. Ian Pearson: "It is more difficult if we are talking about negotiating a deal with 25 EU Member States." Of course it is. That is the challenge of the current WTO round. We want to persuade India to reduce some of its tariff barriers which are very high by international standards. Q398 Mr Bone: The Minister in India was saying, "We would love to do this but look at the rotten way the EU is treating India." He has a fair point, does he not? Ian Pearson: India has certain offensive interests in these negotiations in particular with regard to services. As you know, there is some strong institutional resistance within Europe to opening up the services market. We have a compromise text that has passed the first reading of the European Parliament on services. We have made offers on services as part of the plurilateral negotiations under the WTO. I fully respect that these are not going anywhere near as far as India in particular would want to go. In the UK, we are very open. We have companies like Tartar, Infosys, Wigpro, that are doing tremendous amounts of work for most of our blue chip companies and a range of government departments as well. There are forces of economic protectionism within Europe. Q399 Mr Bone: I know the government is at the heart of Europe and indeed the government says this on many occasions. Therefore, you must have discussions with EU colleagues on issues such as trade with India to try and move things forward. What percentage of time is spent on those sorts of discussions? Ian Pearson: I have not an exact percentage of my time or Alan Johnson's time or our trade team's time that is spent on this. Q400 Mr Bone: Roughly? Ian Pearson: A major feature of my work in the time I have been Trade Minister has been involvement in negotiations and discussions about negotiations, because it is the Trade Commissioner, Peter Mandelson, who negotiates on behalf of the 25 Member States. Nobody is in any doubt about the UK's view and position when it comes to the Doha development agenda. Q401 Mr Bone: Do you think we are winning that argument? Ian Pearson: We need to remain focused on achieving an ambitious outcome to the Doha round. We are fighting our corner within the European Union. It is no great secret - I think I said this to the Committee on another occasion - that the UK wants to move further forward on agricultural reform and on agricultural market access than a number of other EU Member States. This is all part of what will be a tied deal if we can get it finally agreed. It involves Europe moving further on market access but also on non-agricultural market access and on services. Other countries, including India, Brazil and a range of others, are doing more and we will continue to try our utmost to get an ambitious, pro-development deal but we will have to see what happens at the end of the day. There is no guarantee of success here. Q402 Roger Berry: You advise UK companies to get out more. Would you give the same advice to the English RDAs because our experience in India was that a number of companies, British or Indian, had encountered the trade investment agencies of the devolved administrations of Northern Ireland, Scotland and Wales but they were not talking a lot about the great work that English RDAs were doing. Should they be doing more? Ian Pearson: We need to make a distinction here between trade promotion and encouraging inward investment. RDAs' inward investment activities are funded through the single pot. There are quite strong coordination mechanisms to ensure that RDAs do add value and we do work closely together with RDAs. There is a committee on overseas promotion which brings together the main bodies involved in inward investment promotion. That was set up over 25 years ago to coordinate the promotion of inward investment into the United Kingdom. RDAs have to seek Prime Ministerial approval for any proposal to extend or create new overseas offices involved in inward investment promotion activities. As part of this, they have to consider co-locating with UKTI inward investment offices overseas. There are some strong mechanisms in place here to ensure that we are not having some damaging competition between RDAs and we are trying to attract companies to their particular region as opposed to another. RDAs are increasingly using the strap line, the UK trade and investment partner. There is a "UK at" brand on exhibitions as well. I am not saying there is not more that could be done here because there very probably is but there are some mechanisms in place here to avoid duplication and waste of resources. Q403 Roger Berry: That was going to be my second question. My first question is about lack of visibility. That was my perception. People did talk about Invest Northern Ireland and the WDA and so on but certainly the people that I met were not mentioning RDAs at all. Are most of our RDAs active in India? Are all of them active in India? Are any of them active in India? Ian Pearson: It is only the British Midlands which is the East and West Midlands combined. Some Members of the Committee met with some representatives from there and we encourage you to talk to them. They will tell you where they think they add value. Mr Bone: They did not. Q404 Judy Mallaber: We did meet and were slightly puzzled by the British Midlands representative who was part of Deloittes. We were very unclear as to what she had added because she was unable to give us examples and yet I have papers here for the Committee which tell us of a number of inward investment opportunities that have come through British Midlands. Either you as the Minister can tell us or officials can come back to us on this. It would be helpful to know exactly how it operates and whether you think it does add value. Secondly, what is the value of having somebody only looking at inward investment and not looking at potential export opportunities for our local companies in the Midlands? Mr Collingridge: Speaking at the national level and with experience of Asia generally, I think they can add value in terms of the way that we can work with individual companies in terms of the product that we are able to offer. They can provide in many cases much more direct assistance, if you like, to companies that we may be talking to in terms of locating, in this case in the Midlands, if they happen to be there or working with the Scots, the Welsh or the Northern Irish in that sense. They do add value to the national effort. The issue of whether they have visibility in a particular country - India in this case - is a question of how much resource the particular RDAs are prepared to put into that office. Q405 Rob Marris: My understanding is that the British Midlands representative who is employed by Deloittes costs £150,000 a year. As a taxpayer as well as an MP, it strikes me as ridiculous that we have the Department of Trade and Industry and also RDAs, whether from the devolved administrations or from the regions, doing this stuff. I think it should all go through the DTI. There will always be a problem with resources for any given region even when they double up as the Midlands have. You put your finger precisely on the point. That is why I think it should go all through the DTI and we should ban all RDAs from doing that stuff. Ian Pearson: That is certainly a particular point of view. What I have tried to do is explain the mechanisms that are in place before an RDA would be able to open an inward investment office. They are quite robust. I am only aware of one application to open an office that I have had in the ten months that I have been Minister, which was for London to open an office in China. That seemed to make a lot of sense. Q406 Judy Mallaber: There was one other question which I did ask which you have not come back on. You say they have to come for permission to open in relation to inward investment. One thing that puzzled me was that if you had a regional representative out there who presumably could be briefed about who our major companies in the Midlands are, they would potentially be in a good position to be able to look out for export opportunities and feed them back into companies in the UK. Are you saying that that is something that they are either not allowed or not meant to do or it is not regarded as being valuable for them to do? Are they only meant to focus on inward investment, not export opportunities? Ian Pearson: They are there to focus on inward investment opportunities. We have other partner agencies as well that we work with. If you look at the European Union they understand the concept of regions. It would not be unusual to promote a particular region when you are looking at Germany, for instance, or France or Italy. When you go outside the European Union the UK looks like a pretty small place. It is the UK that is people's perception. Whether you are UKTI staff working in India or a British Midlands representative working in India, you have to sell the UK first. What UKTI has always tried to do is present a cheeseboard, if you like. You can have this particular south western cheese, this particular north western cheese or this particular Midlands cheese. A lot of the promotion of the UK is based on some of our key, generic selling points about why the UK is a good place to invest in the first place. Q407 Roger Berry: The whole thing about the UK being at the forefront of people's minds is central. Mr Collingridge referred to the advantage of RDA staff perhaps being linked to individual companies. When we were in Chennai, we met a trade mission of a small group of companies who were into engineering and design vehicles, Ashok Leyland, et cetera. That was set up by UKTI. I could not see any input. There were companies from the Midlands but it was not a Midlands organised thing at all. It was a UKTI organised thing for individual companies with specific expertise that, for example, Ashok Leyland was very interested in and no doubt other Indian companies were in Chennai. It does raise this fundamental question about economies of scale. If you are really going to put effort into selling the UK in India, does it make any sense at all to encourage RDAs to do little bits and bobs with the odd person from the Midlands, the odd person from Yorkshire? Is this really a sensible way of spending quite a lot of money? Ian Pearson: I do not think it is the case that we are encouraging RDAs to do this. Roger Berry: Are you discouraging them? Rob Marris: Or not allowing it? Roger Berry: As Mr Marris says, should you be more robust on this and say that the money would be far better spent if it was allocated to UKTIs? Q408 Chairman: London First is setting up an office in Mumbai. The Corporation is setting up an office in Mumbai and the Mayor of London wants to do something in Mumbai. In Mumbai there will be three different faces for London. What kind of cohesion does that offer for a very important market? Ian Pearson: If you look at China as well you have different organisations that will operate out of Beijing. The important thing is that there is coordination between these different groups. Q409 Chairman: Would not the best coordination be if the UKTI had all these representatives under its direct control, working from the same offices, presenting a much more united front, rather than the very disparate effort that is now being made? Ian Pearson: It is perhaps unusual, if you do not mind my saying so, that you seem to want a monopolistic approach to this. Q410 Rob Marris: Certainly; rationalisation! Ian Pearson: The individual organisations concerned would have their own views as to the merits of what they are doing. Q411 Roger Berry: If you say, "This is what RDAs are for and devolution brings about results like this. Sorry, Committee, there is not a lot I can do apart from perhaps promote coordination", if that is the answer, I understand that is the answer; but in terms of spending public money surely it is far better, particularly in a market like India, to put the money into UKTI that has the expertise, is doing the business? There is not much added value from having separate offices out there for London, the Midlands or wherever and, in London's case, having three separate offices which seems quite bizarre. Is the answer, "Sorry, that is life. That is devolution. You guys voted for it" or is the answer, "We can do something about this and we will have a word with them"? Ian Pearson: When it comes to Scotland, Wales and Northern Ireland, budgets have been devolved for a considerable period of time. The last spending review took the decision to devolve inward investment resources into the single pot and in effect to decentralise it for the English regions. Some of the English regions have taken the money allocated and added to it because they wanted to do more internationally in certain markets. It is a decentralised decision that they have taken because they think it is in the best interests of their region. What I have tried to explain however is the coordination mechanisms through the COP process and requiring ministerial approval if you are going to set up an office. That I think ensures that there are the best prospects of effective coordination here. This is obviously something that the Committee might want to come to a view on. You either have a devolved or decentralised system or you do not. You have to make a choice as to which is best. We have made that choice so far. I recognise and I think the RDAs would recognise that, first and foremost, they sell the UK. As long as we work together at this, as long as there is the close coordination, I think that is the best guarantee that we are not wasting resources. Q412 Chairman: We did hear some information when the RDAs rubbished other regions and said, "We are better than them. Have you seen what is wrong with that region?" We heard that put to us by businesses. Ian Pearson: I would be very disappointed if I were to hear that because I do not think that is the way to go at all. Q413 Chairman: I am sure we would all agree on that. You talk about coordination but surely you cannot compartmentalise our country's economic relationship with India in the way you are trying to do. Outward investment, inward investment, trade, joint ventures are all part of a mix of business strategies any one business might want to engage in. To put one into a pot - inward investment from within the UK - and the rest under UKTI does not make sense. It is not the way businesses work in the real world. Ian Pearson: I think there has been a blurring of the distinction between trade promotion and inward investment activity. We have, in my view, a sterile debate about the balance of resources that ought to be devoted to trade support and inward investment. I think the modern reality is you need to be able to do both. Also, the sort of people that you are talking to when you are trying to get a major inward investment into the United Kingdom are not necessarily the same people that you would talk to if you were looking to persuade them to purchase particular goods and services. In many cases, you are either talking about completely different companies or different people within the same company that you need to approach for those activities. In reality, there are often distinct roles. I think that distinction has become more blurred. The point that I am trying to make about globilisation and how the world is changing is that it is about two way trade and investment and we should not get too hung up about the boundaries and the barriers. Q414 Mr Bone: If you follow the logic of your argument about devolving to the RDAs and the Welsh Development Agency et cetera, you should not have the UKTI present. That is what you are really arguing, is it not? Ian Pearson: No, it is not what I am arguing at all. I am arguing that we need an organisation like UKTI to help ensure that we have competitive businesses in the UK doing business internationally and that we have an organisation that is helping to attract inward investment into the United Kingdom. I genuinely believe that with globalisation UKTI is more important than it has ever been. We have that body that can market the UK and assist our companies to succeed internationally and can attract high quality foreign investment into the United Kingdom as well. We need to do that at a national level. That is not to say that in some regions they do not have their own particular interests in wanting to persuade companies to locate in their particular areas. Q415 Rob Marris: Focusing on the Indian market both in terms of UK investment there and in terms of selling goods and services there, you mentioned the tremendous opportunities in the Indian market place and encouraging UK companies to look at the opportunities but you also said that there is a perception problem and India is a difficult market place. Could you sketch in a little more about what the DTI is doing to form UK companies who wish to be in India, whether to invest or to sell there, about the local quirks that any country has? You did mention roadshows, for example. Ian Pearson: I mentioned the Doing Business in India roadshows which are practical and on the ground, going round the different regions. They have been very well attended by companies so that shows that there is a level of interest in the Indian market place. I also mentioned the work of the Indo-British Partnership Network and the Joint Economic Trade Committee which is business to business, getting together to discuss areas where there were particular barriers to them entering the market place and also in some cases doing business with each other. I also mentioned the staff in our various posts and the fact that we have 74 people in nine locations who will be doing work from OMIS reports and, in some cases, some hand holding with companies as they are attending meetings and looking to identify business opportunities. There is a whole range of support that is available at the moment. Q416 Rob Marris: What if somebody on the Pensnet Trading Estate in your constituency comes to you as a local MP, not realising you are the very knowledgeable Minister, and says, "We have heard that India is a bit big these days and getting bigger. We want to be there"? Where do they go for information? Is it too diffuse or is it focused enough? Talking to some metal basher on the Pensnet Trading Estate about JETCO is not probably going to help them, is it? Ian Pearson: No, but I would put them in touch with their local international trade adviser who would probably go round and talk to them, make an assessment of their business and their potential for exporting to India. They would probably advise them to maybe go on a roadshow and talk to them, depending on the size of the company, about our passport to export programme. I have just been reminded to mention UKTI's website which has lots of information and links in terms of doing business with India. Q417 Rob Marris: I have particular concerns about the situation of scheduled castes and tribes in India. Caste-ism used to be called "untouchability". I met an English businessman in Chennai, for example, who said that he would only employ Brahmins. That is probably illegal, by the way, under the Constitution of India. What does the DTI do to inform UK companies wishing to go to India about caste-ism? Ian Pearson: There is a variety of information available about doing business with India generally. I am not sure what level of detail that goes into and whether it would mention issues of caste-ism as you describe. Certainly they will explain the legal and employment position with regard to the employment situation there. Q418 Rob Marris: Could you look into it and let us have a note on that specific issue? Ian Pearson: Yes. Q419 Chairman: Rob Marris was talking about quite small businesses on a trading estate in your constituency. Is it right that we should be putting as much effort into small businesses as we are in relation to the Indian market with other challenging, developing markets? Is it not really the big and medium sized businesses that we should be focusing on? Ian Pearson: I would like to reassure you that we have some medium sized businesses on the Pensnet Trading Estate. Q420 Chairman: 300 or 400 people? That sort of size? Ian Pearson: Very few would employ 300 or 400 people. There are some particularly small businesses. There is some strong evidence to point to the fact that helping existing exporters break into new markets rather than helping companies break into their first international market can also add a great deal of value. Q421 Chairman: Would you advise a small business that has done much exporting to start with India? Ian Pearson: I would not want to be in a position where I made the decision on that at all. Q422 Chairman: Your PSA target has made the decision for you on that. That is the point. The Chancellor has told you that you have to do that. Ian Pearson: We have targets in terms of new to export companies but not to particular individual market places. The Indian market is more difficult than certain other markets in our home market of the European Union. There is some strong evidence that says that existing exporters, mid-corporate companies, are areas where these companies could export and invest more than they are doing at the moment and we ought to be encouraging them to do so. That might be a focus for our future activity. Q423 Mr Clapham: Can I kick us off down the education route because it is a very important area? You used the figure of 28 million people entering the labour market annually and amongst that number is a very impressive number of science and technology graduates. We know from a recent report produced by McKinsey's that they took the view that many of the multinationals who employ some of these graduates were rather put off by the quality of the graduates. Last week we had a group of Indian businessmen before us and they were of the view that there were great opportunities here for the British universities. I wonder what we are doing to encourage institutional collaboration between universities in the UK and universities in India, particularly in this area of science and engineering. I am aware of the UK India Education and Research Initiative but I wonder if it is robust enough to really stimulate the UK universities to make the effort to make the connection with Indian universities. Is there anything else that we might be able to do? Ian Pearson: That is a very important question. I see education as one of the UK's great strengths. I have been to 22 countries as Trade Minister in the last ten months and in every one of them the importance of the UK's education system, the work that we do through the British Council and others in terms of providing English language training, is extremely important. In many cases it is the front door for doing future business with the United Kingdom because it does give people good experiences of the UK and a range of contacts and links that very often develop into business in the future. You mentioned specifically the UK India Education and Research Initiative. It is a particularly good time to mention it because this week the British Council, the Department for Education and Science, the FCO and the Office of Science and Technology are launching a major, £10 million initiative, strongly supported by both the UK and Indian Prime Ministers, to facilitate the development of research and collaborative partnerships between UK and Indian institutions. It is a five year programme starting next month and it aims to bring about a step change in the relationships between the UK and India when it comes to research and education in exactly the areas that you are talking about. It very much builds on the Prime Minister's original initiative in this regard. There is a lot more that we can do and we expect that this initiative will help us deliver a lot of that. Q424 Mr Clapham: When I think of my own area I think in terms of Sheffield University with a good engineering department. Is there anything more we can do to encourage them to get out there, to get over to India, to promote the department? I know that some of this work has been going on in other areas but it just seems that in engineering, where we really ought to be taking a lead, some of our universities are perhaps just sitting back. Ian Pearson: I do not know the specifics in terms of Sheffield University but I get the strong impression that if you talk to most university vice-chancellors and say, "What are your international links?" they will reel off a list of names of universities in different countries across the world where they have research projects. I think it was Chekhov who said that there is no such thing as national science; it is just that there is no national multiplication table. Our UK academic community has been very good at developing stronger links with a clear, commercial outlet to them. It is something that we have done quite a lot of work on in the UK, as you know, over the last ten years. Making that international is important and that is why I think this initiative is very important. We have the London School of Economics offering courses in India at the moment. I am sure that other UK universities are looking at running courses as well. We have seen in places like China Nottingham University has set up a campus which the Committee are familiar with. There is an increasing trend to see that happening. Universities need to continually be aware of the dangers of brand dilution and that is why some of our universities have not wanted to set up international campuses. I gather the LSE regularly benchmarks its activities to ensure the right sort of quality standards. Q425 Mr Clapham: In tandem with that UK Education and Research Institution are we encouraging British research institutions to become involved with that education initiative as well so that we get the connection between companies that are looking at commercial opportunities in the market? Ian Pearson: My understanding is that is exactly covered by this new initiative that is going to be kicking off next month, so yes. Q426 Mr Hoyle: I am interested in what you say because you do mention China and UK universities setting up a campus in China. I asked the question why have we not got our universities setting up a campus in India, only to be told that it is against the law of India. You cannot do that. I thought it rather strange because about half an hour later I passed a brand new campus that said, "Western University." Western Australia have set up a campus. We asked the Minister and the Minister said, "The rules changed two or three years ago." Why on earth are we not up to speed on what the rules are? How long do we have to wait before we take it seriously? We seem to be getting this message that we are not in the business of being proactive. We always seem to be reactive to everybody else. We have to start flag waving and delivering. It is rather embarrassing. With the strong historical links, all the reasons should be there and our universities should be winning the number of graduates. We are not. America leads; Australia is second and we are trailing in third place. What can we do to get to the top of the pipe and ensure that we know what the rules are in India? Ian Pearson: In terms of students coming into the UK and how we fare internationally, yes, the United States is first. The UK is second and Australia is third. The most recent statistics I have seen say that there are 250 per cent more Indian students applying to study in the UK academic year 2005/6 than there were in 2000/1 which is a huge figure. In terms of our market share, we are closing the gap with the United States. Student visa figures for the USA for 2005/6 are only 15 per cent higher than the UK figure, as compared to 74 per cent higher in 2000/1, so we are making progress in this area. Q427 Mr Hoyle: The Australians will overtake us if we are not careful. Quite rightly, we have a campus in China but would you not agree with me that we should be establishing campuses in India? Ian Pearson: As a government, we would be very happy to see this happen but it is up to our university sector. Mr Hoyle: It is also up to the UK Council to know what the rules are. It is no use saying to universities, "You cannot come in because it is illegal." The rules changed three years ago. Do we really know what the rules are in India? Q428 Chairman: I understand from talking to the CII that British businesses come here, are told they cannot do something and go away again. Meanwhile, other countries keep a much closer eye on what is going on and they are doing it. The Brits come back two years later and miss the opportunity. We heard that quite a lot in India. We take no for an answer. Ian Pearson: We all hear a lot of anecdotal stories. It is sometimes difficult to get behind those and see what the true picture is. The true picture is that we have a good level of understanding certainly within government and UK trade and investment about the investment opportunities that exist and the barriers where there are barriers. Chairman: The impression from Kamal Nath was that he feels sometimes our competitors are better at it than we are. Roger Berry: Minister, you referred to Indian students coming to the UK to study. Obviously there are things in relation to trying to increase the number that are matters for universities. There are also things that the government can do. An issue that came up time and time again when we were in India related to visas for students. Australia and the United States are more attractive because the visa arrangements enable students to stay on for a year or two after graduation in their country of study and the complaint was made that Indian students do not have that opportunity in the UK. I know there is going to be a debate on the new visa regime this afternoon in the House. Rob Marris: They do in Scotland. Q429 Roger Berry: Do you recognise this as a real issue, that the visa regime should provide opportunities for students from India to spend time in the UK after they have graduated? If it does not do that, that provides a disincentive to come into the UK. If you accept the argument, what is the government doing about it? Ian Pearson: We have recognised this as an issue. As you will be aware under the Fresh Talent Initiative in Scotland Indian and other students will have a right to work for two years after graduation. In the pre-Budget report the Chancellor announced that in selective disciplines - I think that includes science and engineering and others - foreign students would have a right to work for up to one year in the United Kingdom. It is also the case that, when you look at our UK visa regime, students over the age of 16 can work for up to 20 hours a week during term time and they can work during vacations while they are here. That is not necessarily the case in other countries. Our assessment is that this is particularly attractive compared with the United States, for example, which has more restrictions on how much you can work when you are studying. Q430 Roger Berry: Is it not very confusing when Scotland appears to have a policy and the rest of the UK seems to have a different policy? I did not realise international affairs were a devolved matter. Ian Pearson: Scotland has devolved functions when it comes to its higher education system. Chairman: Immigration policy is not devolved. Q431 Roger Berry: I am not talking about a visa to study; I am talking about the ability to stay on and work afterwards for a year or two, which is what makes the United States much more attractive than the UK. That facility is there. For a limited period, people can stay on. Does the UK not look silly in the rest of the world when Scotland has a policy which is saying one thing and in the rest of the UK it is totally different? Ian Pearson: My understanding is that this is being closely looked at by government and that the conclusion reflected in the announcement was, certainly as far as England was concerned, we would want to change the system so that you could work for one year after graduation. Roger Berry: On the visa thing, are we not being incredibly unhelpful? In business, we met senior people in international companies in India with good reasons to come to the UK to do work for a few days, a few weeks or whatever to do business and the complaint was they had problems getting a visa to come here and do the business. These are companies that are entirely trustworthy with a good track record. Are we not just being terribly unhelpful to, in this case, Indian entrepreneurs and skilled personnel who want to come to the UK as part of their normal business when they get hassle and it takes them ages to get all the paperwork? Q432 Chairman: I have a letter in my hand sent to me by Xansa. It was couriered across yesterday and it is specifically on this point. IT is a very fast moving industry now and requiring six months of work before you can establish you are a legitimate employee in a company and can have a visa to come to help implement a project is quite difficult. There is a lot of churn in India now. People are moving around companies very quickly and skills are being sought. Are you sure this visa regime is really in UK plc's best interests? Ian Pearson: We have fast track visa arrangements for India as we have for a number of other countries. Q433 Chairman: That was praised. Ian Pearson: That should make it easier for known businesses to be able to get people working here in a speedy fashion. If there are specific examples where we think that is not working as well as it should, I am more than happy to take those on board and consider them. If Xansa want to get in touch with me about the situation I am happy to meet them for a discussion. Q434 Chairman: It might be easier than you imagine, Minister. Ian Pearson: Specifically on the one year work permit, I personally think there is quite a strong case for looking at two years as Scotland has done, but at the moment the decision has been for one year and there are good reasons why that decision has been taken. Again, this is something we will need to look at as a government. Roger Berry: Without pre-empting what we might decide, I would be shocked if we did not have something to say about this. Mr Hoyle: We still cannot get round why Scotland can give an extension and England cannot. This baffles us and it must baffle you as well. If Scotland can, England can or nobody can. It is quite a serious point. Here we have Scotland out there saying, "Come to our universities. You can stay on longer and work" not just in Scotland but in England via a Scottish university. It is absolutely absurd and yet an English university cannot offer the same. We want to know why. Perhaps you could give us a note. Q435 Chairman: When we go to two, will Scotland go to three in some kind of nuclear race? Ian Pearson: This is an issue that cuts across a number of government departments and I am happy to write to the Committee and provide a note. Chairman: You can anticipate a robust recommendation from the Committee on this point. Q436 Rob Marris: I think that would be very helpful because a major university which serves your constituency and mine is the University of Wolverhampton and they are losing out on students to Scottish universities. This is not a level playing field for English universities trading in India, if I can put it that way, and they lose students to Scotland who can then come down and work in Wolverhampton when they finish their courses. In terms of skills, one of the things that surprised me and some of my colleagues when we visited India a couple of weeks ago is that, in spite of 27 or 28 million people coming on the labour market and millions of science graduates and so on, in certain parts of India they appear to be experiencing skills shortages and even looking to the UK to fill those skills gaps. I am not just talking about where we have a longer history; I am talking about sheer numbers. What is the Department doing to try and forecast where those skill shortages in India are and are likely to be in the next two or three years so that UK plc can pick up the slack and do our society some good as well as theirs? Ian Pearson: It is a matter for the government of India to collect its own statistics on skills levels and pressures of demand in the market place in the way that we do skills surveys. We would expect that the government of India would do something similar. We hear anecdotal evidence about skills shortages. Recently, NASCOM published the NASCOM McKinsey report that mentions skills shortages in the IT sector. My understanding is that when it comes to IT and certain parts of engineering the anecdotal evidence tends to suggest that the skills shortages are in the management area. Q437 Rob Marris: Health care management is another we hear about. Ian Pearson: This is an area India will want to address for itself and it is only right that it should do so but again there are potential opportunities for UK businesses here. I have mentioned Logica CMG and Xansa as models which have a blend. As these companies have grown, they have trained IT managers who will work in the UK and in India and, depending on contracts, they may well work globally as well. You are seeing UK companies forming business relationships, establishing centres in India, that are training graduates and giving them management skills. I think that is beneficial for the Indian economy. It is also good for the UK companies. Q438 Rob Marris: Does the DTI part of your brief keep an eye on those sectors? For example, had you been the equivalent department in Poland in the mid-1990s you might have thought setting up a dental school would be a pretty good idea because we are probably joining the EU and we can export a load of dentists to the UK because they have all these shortages. That might have been the way to go. Are we engaged in a similar kind of exercise through the DTI in spotting those sectoral gaps in India? Ian Pearson: Through our sectoral teams, we tend to monitor situations quite closely. Through JETCO arrangements these will be discussed at a business to business level as well. There is a reasonable range of information that is available there. A lot of it tends to be anecdotal rather than hard, statistical. Q439 Mr Wright: Regarding taxation, one of the companies that we met in Bangalore was very concerned about locally based employees when they travelled abroad. Their expenses - for example, hotel costs and other expenses - were regarded as salaries and this is a particular burden. Were you aware of this situation and, if so, have you had discussions with your Department and the Treasury? Ian Pearson: We are certainly aware that India has a fringe benefit tax regime. Even in the UK various fringe benefits are taxable. My understanding of the Indian regime is that fringe benefit tax has to be paid by employers for expenses incurred by employees. It was introduced in the Government of India's budget 2005. It is not for us to interfere in the taxation decisions of a sovereign government. My understanding is that the Government of India looked at this. They made this decision in their budget. It is clearly quite controversial within India but it is ultimately a matter for the Indian Finance Minister and the Indian Government. Q440 Mr Wright: You are obviously aware of the situation. This is holding back some of the UK companies in terms of employing them when they treat expenses as part of the salary. Ian Pearson: I see it as a gripe. I do not see it as getting in the way of doing business. It is a taxation policy that the government have introduced that applies to anybody working in India. Q441 Chairman: You have only said one thing today that I probably disagree with quite strongly. You probably did not mean to imply that the whole reason for doing business in India was a cost advantage with graduates on $100 a month working for Standard Chartered Bank. We did hear quite strong evidence. We are told time and again that the future of India was not cost arbitrage but knowledge arbitrage and in fact salaries were being chased up. Starting salaries could be low but people with experience are in really short supply and costs are going up and there are real issues about their skill shortages, which is all part of the picture we began with of developing an Indian middle class and the huge opportunities there. I think I heard you say earlier something I did applaud very heartily. I will have to check the transcript. You seemed to imply that UKTI should be doing more to encourage investment by British businesses in the Indian market place. If that is the case, I welcome it. That is not at all one of its mainstream functions. It can provide paid for advice on promoting that but surely if the Indian and other economies like it develop as we expect it is important that UK plc has helped to invest there as well as just trade there, is it not? Ian Pearson: I do not want to disagree with you on anything today. There are cost advantages in doing business from India at the moment but I do not see that that is necessarily going to maintain for the long term. I believe it is important that UK businesses get the right mindset when it comes to doing business with India. This is and should be a partnership of equals. We have some incredibly bright, talented Indian business people running hugely successful Indian companies, trading internationally, doing a lot of business in the United Kingdom. I am keen to make sure that we have a good two way trading relationship. It is not just a two way trading relationship; it is a two way trade and investment relationship. The point I was making about investment and wanting to encourage companies to invest more in the Indian economy is a valid one. You are right to say that it is not necessarily seen as a core function of UK trade and investment in the sense that traditionally we have concentrated on either trade promotion or encouraging inward investment into the United Kingdom. The message that I have been trying to get across is that, in the context of globalisation, for companies to succeed particularly in vast countries like India, you have to go there; you have to stay there; you have to have a base there and you use that base to do business from. The idea that we can make widgets on the Pensnet Trading Estate and export them to the whole of India was never exactly true. We will still export goods and services to India in significant volume but this is such a hugely growing market that there are surely opportunities within that market to be based there, to manufacture there, to employ people there. Just as Indian companies are finding that it is good to be based in the UK and to manufacture here and have businesses here, we have found it has been good for some of our UK companies, which you rightly say have been in India in some cases for over 100 years, to have established manufacturing plants there. That is the way of the world. This is a huge economy and it is right that UK companies should be investing as well as other companies from other countries are investing in the Indian market place. Chairman: On that positive, consensual note it is probably wise to end. We look forward to hearing what the Chancellor has to say in his Budget tomorrow which could well be focused on globalisation. That intrigues us considerably. Perhaps you will be doubling the staff at UKTI. Minister, thank you very much indeed. |