Written evidence submitted by UK Trade
In 2005 "India continued its inexorable
rise, and the world took notice."
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 billionabout
three times the reserves of the Bank of England). 2005-06 growth
will be above 7% illustrating the steady rise of this emerging
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 seefinancial sector liberalisation, foreign
investment in retail, implementation of the power sector reformshave
not progressed at a great pace. Democratic realities, in part,
constrain 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.
India remains eighth in our league table for
inward investment and more British companies are finding business
partnerships with India.
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).
The UKTI's team in India is one of HMG's biggest
overseas operations. As part of UKTI's new strategy for emerging
markets, more resources will be allocated to India, including
an emphasis on financial markets.
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 second largest export market
in Asia Pacific, and the third largest investor in the UK in terms
of the number of projects.
B. THE TRADE
The trade figures between India and the UK show
continuing signs of growth with 2005's export of goods showing
a 25.4% increase on 2004. However, only 1% of the UK's total trade
is with India and UKTI is playing its part to increase this.
Among the UK's top six export sectors to India,
sales of non-road transport equipment has risen by 68% from £88
million in 2001 to £147 million in 2005; of general industrial
machinery by 83% from £54 million to £98 million in
the same period; and of specialised industrial machinery by 92%
from £48 million to £93 million. In all three cases
this is faster than the rate of growth of total UK exports to
India of 58% over the four years.
Some trade, such as sales of rough and un-worked
diamonds, shows the UK's strengths as a market and transport hub;
it also reflects Indian strengths, in this case in the cutting
of small gemstones. In global terms, the UK enjoys a strong position
in the diamond trading market.
As of 2005, the UK remains the second largest
European Union supplier of goods to India: after Belgium if diamonds
are included, and after Germany if they are excluded.
Analysis of our imports from India also signals
the openness of the UK economy and recognition of the benefits
of globalisation for UK consumers. UK Company success in India
can be found in almost every sector, from architecture to pharmaceuticals,
to franchised UK retail operations. Joint ventures exist in aerospace,
automotive components, energy (oil, gas and bio-diesel) and nanotechnology.
The Committee should note that the Government
is engaged in regular dialogue with the Government of India to
recognise the benefits of removing barriers to foreign participation
in important sectors. We continue to lobby the Government of India
for increased liberalisation in those sectors where the UK leads
the world, such as retail, financial, legal and business services,
both bilaterally through the annual ministerial meeting under
the Joint Economic Trade Committee process.
A 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
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 & Healthcare;
Automotive/Advanced Engineering; Creative Industries; Food and
It is important to recognise however, that the
UK has also been investing in India and that some of this investment
has taken place over a long period of time. Many UK businesses
are long established in India and their reinvestment levels are
significant. The new, and growing, UK investment in India will
increase as India liberalises further.
The Indian net Foreign Direct Investment position
in the UK was estimated to be £186 million at the end of
2004, compared with a UK net FDI position of £1,674 million
in India. This latter figure has more than tripled from £532
million at the end of 1996. Some of the figures are sourced from
the Indian Government. Unremitted profits are included in the
net foreign direct investment flows published by the Office for
C. UK TRADE AND
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 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 an important role to play in assisting UK
companies to achieve business success in this market.
D. BARRIERS TO
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 more systemic corruption, bureaucracy and non-payment.
E. UKTI ACTIVITY
E1. UKTI in India
With representation in nine cities, India is
UKTI's second largest overseas network.
As part of the new strategy, UKTI has restructured.
There is no longer a division between investment and trade. The
new "Business Directorate" is adopting an approach that
develops relationships with UK and foreign companies on a sectoral
basis. This unified approach is also being reflected in our diplomatic
posts in India where the trade and investment teams have merged.
UKTI will continue to emphasise the proactive search for inward
investment leads aimed at companies that have the potential to
add the highest value to the UK economy.
As part of UKTI's new strategic focus on emerging
markets, India is a high priority and the team will be strengthened
as resources are released from other markets. We aim to deliver
more by focussing on high value/high impact work and by outsourcing
work that can be delivered as effectively by others. The Budget
of 2006 formalised UKTI's mandate to make representations on behalf
of large UK corporates for major business propositions. This approach
will also include a project to engage with established businesses
to help them to develop a strategy for emerging markets, including
E2. UKTI International Group (INT)
Joint Economic Trade Committee.
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. Ministers and officials
maintain regular dialogue on issues of concern to business.
The second full JETCO meeting took place in
London on 31 January 2006, with the third due to take place in
Delhi on 16 January 2007.
E2.2 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. Lord Karan Bilimoria,
the CEO of Cobra Beer, was appointed the UK Co-Chair of the IBP
in 2002. With the support of UKTI he has created a new business
led organization, the Indo British Partnership Network (IBPN).
UKTI have provided start up costs, primarily to fund the board
The IBPN Board of Directors has played an increasingly
valuable role as the voice of business in relation to India and
directly in the JETCO process. The Board is developing a business
plan, which will enable the IBPN to increase their membership
and business activity. The role and scope of the IBPN will be
driven by its private sector membership.
E3. UKTI Business Group (BG)
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.
India is a priority market for all BG sectors. 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
India is a priority market for UK Trade &
Investment's inward investment activity. 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 that 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). The City of London and Think London are also considering
opening offices in India.
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 (after the USA and Japan).
Indian investment is spread across the UK although a large proportion
goes to London (37% of all new projects over the last five years).
There are over 500 Indian companies with a base
in the UK of which approximately two thirds are in the ICT/software
sector. 23 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.
UKTI is developing a £9 million programme
of intensive support for innovative and R&D-intensive companies,
in consultation with the RDAs, to:
promote to multinationals and overseas
companies the benefits of undertaking R&D in the UK;
help multinationals and overseas
companies to collaborate with UK companies and/or research organisations;
help R&D-intensive UK companies
to penetrate overseas markets and multinational supply chains;
support the sustainable internationalisation
of new R&D-intensive UK companies.
For overseas-owned companies, the programme
will include the pinpointing and showcasing of relevant R&D
excellence in UK research establishments and the wider knowledge
For UK-based businesses and organisations the
programme will include tailored support to enable them to engage
effectively with multinationals and to penetrate overseas markets
sustainably, thereby maximising the return on their R&D investment.
Key elements of the programme are:
determining priority companies both
for inward investment and as potential high-value exporters;
targeting priority overseas companies
with cross-public sector virtual teams, spearheaded by UKTI and
involving the RDAs and others; and
deploying a new cadre of up to 20
specialists with expertise in key technology sectors over the
next two years.
This work will be supported by a growing science
and innovation network team within the British High Commission
By January 2007, we will have dedicated account
managers in place for key business groups ie high-value potential
investors, major exporters, exporters including medium sized companies,
to emerging markets and R&D-intensive companies to ensure
we are best placed to help our clients internationalise. From
January 2007, we will develop relationships with these companies
to inform them about opportunities in India, and to support them
if they choose to develop business there.
E4. UKTI Regional International 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 and jointly signed-off
delivery plans at regional level.
BangladeshTrade and Investment
The UK has been investing in Bangladesh for
more than 200 years. UK companies invested $153 million in Bangladesh
in 2005, making the UK once again the largest foreign investor
The largest UK investment in Bangladesh is by
Globeleq, which acquired a major stake in the power sector in
late 2003, when it purchased two private power plants from US
power giant AES. The value of that investment is around US$450
million. After purchasing a 50% stake in another plant earlier
this year, Globeleq currently supplies 30% of power to the national
Cairn Energy acquired Shell's assets in Bangladesh
in 2004. With their joint ventures partners, including Halliburton,
Cairn's investment in gas exploration and production in Bangladesh
now exceeds $400 million. Cairn currently supplies around 12%
of Bangladesh's gas, primarily to the second and port city of
There are over 50 UK investors operating in
the market across a wide range of business sectors. Standard Chartered
and HSBC are the largest foreign banks, and BAT, Unilever, Reckitt
Benkiser and Duncan Brothers dominate many segments of the market
for consumer goods.
The total value of UK exports of goods to Bangladesh
in 2005 was £80 million. UK imports of goods from Bangladesh
in 2005 totalled £596 million. The UK's trade deficit with
Bangladesh therefore for the year was £516 million.
|UK trade balance||-416
|(All figures are in £m)
The UK's principal exports of goods to Bangladesh are:
Scrap metal (£12 million in 2005);
Petroleum products (£10 million); and
Power generation equipment (£8 million).
No statistics are currently available for the trade in services.
The domestic market in Bangladesh has been boosted by a decade
of GDP growth at an average of more than 5% per annum. An increase
of 6% was posted for Bangladeshi fiscal 2005-06.
UKTI Business Plan for Bangladesh for 2006-07 includes a
sponsored inward mission from Bangladesh to UKTI's Technology
World event in May 2006, and a likely outward mission from the
Birmingham Chamber of Commerce in March 2007.
PakistanTrade and Investment
UK Exports continues to show strong growth of 37.3% for the
period (January to April, 2006) as compared to the corresponding
period last year.
The trade balance is still in favour of Pakistan, but since
2003 UK trade deficit is showing a downward trend. In 2005 UK
trade deficit decreased significantly by 85% from £219 million
in 2004 to £32.6 million.
In Fiscal Year 2005-06, UK foreign direct investment into
Pakistan stood at US$244 million, which is an increase of 34.4%
as compared to US$181.5 million in FY 2004-05. UK share in total
FDI for FY 2005-06 was 6.9% (main sectorsPetroleum Refining,
Oil & Gas Exploration, Power, Communication (Telecom and IT),
Cement and Financial Business).
There are over 80 British companies operating in Pakistan,
and plenty of interest from others. Recent investments include
the British retailers Mothercare and Costa Coffee opening outlets
in Karachi. Bestway Cement is also making a further investment
of $140 million at their cement plant at Chakwal.
Major players include Unilever, Shell, BP, GlaxoSmithKline,
Standard Chartered Bank, International Power, British American
Tobacco and ICI.
Recently, Standard Chartered Bank completed the purchase
of the Union Bank of Pakistan for $450 million. This acquisition
makes Standard Chartered Bank of Pakistan (SCBP) the sixth largest
bank in Pakistan by market share. SCBP had 46 branches in 10 cities
and this is now extended by a further 65 branches and in an additional
12 cities. They aim to increase this to 150 branches during 2006.
In addition to UK interest in the banking sector in Pakistan,
we have been informed that the Oil and Gas Development Company
Limited (OGDC) plan to launch on the London Stock Exchange Alternative
Investment Market. The LSE are keen to build on the momentum that
this listing will generate in the market.
UK EXPORTS TO PAKISTAN
||+37.3% * |
|Major Pakistani imports from UK are specialised industrial machinery, power generation machinery, Telecom and Broadcasting Equipment, chemicals, pharmaceutical and medical products.
PAKISTAN EXPORTS TO THE UK
|Major Pakistani exports to UK are textiles (yarn, fabric, garments, towels & bedding), rice, leather and leather products, carpets and fruit.
OECD EXPORTS TO PAKISTAN
|Average UK market share of Pakistani Imports from OECD Countries (2004)
|UK is the 4th largest exporter (2004) among OECD Countries to Pakistan
||1USA (22.4%) 2Japan (15.4%) 3Germany (10.3%) 5Korea (7.3%)
SRI LANKATRADE AND INVESTMENT
MAIN ITEMS EXPORTED FROM UK TO SRI LANKA
|Paper and Paperboard||12
|Electrical Machinery and Equipment||8
|Man made staple fibres||7
|Machinery and Mechanical Appliances||5
|Articles of Iron and Steel||5
|Knitted or crocheted fabrics||3
|Copper and Copper products||3
The UK is the largest European investor in Sri
Lanka and the second largest investor overall.
The UK's net investment in Sri Lanka over the
last 20 years has averaged £50 million per annum.
Investments during the last two years have grown
from £108 million (year ending 2004) to £114 million
(year ending 2005).
The number of approved projects has also increased
from 108 in 2004 to 126 in 2006, making UK the largest investor
for the year in 2005.
Major UK investments in Sri Lanka include HSBC's
Global Service Centre, Aviva (Norwich Union) Regional Operating
HQ and P&O led South Asia Gateway Terminal (SAGT) private
container terminal in the Port of Colombo.
Sri Lanka is among the most liberal economies
in South Asia and in imported £137 million of British goods
and services in 2005, making the UK the fifth biggest exporter
to the country.
Sri Lankan exports to the UK were £390 million.
Recent governments have privatised public sector
industries, abolished foreign exchange and import controls, reduced
tariffs and adopted a development strategy to encourage foreign
investment. Coupled with a relatively affluent population, these
measures make Sri Lanka a good market for UK consumer goods both
reconditioned and new.
Sri Lanka is particularly attractive as an export
destination for small and medium sized businesses with some exporting
experience. If thinking of supplying to the rest of the India
Sub-Continent or South East Asia, Sri Lanka makes an ideal location
with it's geographical location on the main shipping routes, especially
following the Indo-Sri Lanka Free Trade Agreement in 1998.
The Sri Lankan economy has been growing at around 5% for
over two decades, due to the relatively well-developed human capital
and the continuation of market-friendly reforms since the late
1970s. However, past growth has not been sufficient to significantly
reduce poverty beyond urban areas and to achieve faster growth
and poverty reduction.
Sri Lanka has been ahead of other countries in the South
Asia region in implementing reforms such as trade liberalisation.
But the macroeconomic framework remains fragile. While the private
sector has been growing, the state still dominates key economic
and financial services (eg power, transport). The state also remains
the employer of first resort, absorbing about one half of formal
The 2005-06 Budget saw an increase in corporate taxes to
35%, with an additional 1% "corporate responsibility levy",
and a rise in "sin taxes" on gambling, tobacco and alcohol.
The additional money raised would be spent on subsidising fertiliser
for farmers, increasing the payments for the Samurdhi (social
welfare) system, providing 100,000 small grants for local improvements
and the recruitment of 10,000 new civil servants a year.
There is a real risk that instead of using borrowing to invest
in major infrastructure developments, expensively borrowed money
will be frittered away on minor projects and the inflationary
impact of that borrowing has still to be assessed.
Impact of the Tsunami
30,000 people in Sri Lanka died in the tsunami, a further
5,000 are missing. Up to one million people were initially affected
with about 500,000 displaced. Some 78,000 houses were completely
destroyed. The tsunami affected a broad range of income and ethnic
groups. Before the tsunami, poverty in the worst affected areas
was above the national average so the tsunami has further increased
the vulnerability of these areas.
However the impact on output and economic growth has been
limited (perhaps slowing down GDP growth by 1%). The sectors affected
(eg fishing) only represented a small part of national production.
The financial response from the international community was unprecedented,
including from NGOs, fully matching reconstruction costs. The
UK agreed to pay 10% of Sri Lanka's repayments to the International
Development Association for the next ten years (expected to be
worth £70 million) and the Paris Club gave Sri Lanka a one-year
moratorium on their bilateral debts.
Sri Lanka has qualified for GSP+ status and will receive
nil rates of duty for all eligible products covered by the general
arrangement (with the exception of heading 0306 13 (shrimps and
prawns) where the preferential rate of duty under the special
incentive arrangements will be 3.6%).
The Generalised System of Preferences (GSP) is one of the
main mechanisms through which the EU grants preferential access
through the reduction/elimination of tariffs for products from
developing countries. A new GSP scheme will be info force from
1 January 2006. This is separate from the GSP+ that is a sub-scheme
of the GSP and provides more generous duty reductions on imports
from qualifying countries.
Sir Michael Arthur, British High Commissioner to India, Annual
Review 2005. Back
See NAO's Business Monitor MA4 Foreign Direct Investment, tables
2.2 and 5.2 available at http://www.statistics.gov.uk/downloads/theme_economy/MA42004.pdf. Back
72 staff in nine British High Commissions and Trade Offices.
It is important for the FAC to note that UKTI resources include
the British High Commissioner and his Deputies across South Asia,
as well as our dedicated commercial teams. Back