Memorandum submitted by the CBI
OVERVIEW
1. The Confederation of British Industry
(CBI) is the premier voice of UK business, speaking for around
240,000 companies and 150 trade associations. Our membership stretches
across the UK, with businesses from all sectors and of all sizes.
Through their worldwide trading activities, UK businesses contribute
25% of UK GDP. They are the world's second largest source of foreign
direct investment (FDI) and the UK is the second largest recipient
of global FDI
2. CBI is actively engaged in promoting
UK trade and investment interests in key global markets, including
India. We welcome the opportunity to comment on progress following
the Trade and Industry Committee's inquiry into Trade and Investment
Opportunities with India, although we believe that the twelve
month period since the last report is too short a time for significant
impact on actual trade and investment flows to be seen. Nevertheless,
there is evidence that UKTI and business have responded to the
challenges and opportunities that India presents. There have been
some positive developments in the last six to 12 months, in particular
some major investment decisions. These give cause for encouragement
but not complacency.
3. We believe that most significant developments
include:
— UK-India Investment Summit, October
2006, which included the two Prime Ministers, senior Ministers
and business leaders
— high-level visit to India in January
2007
— UK-India Joint Economic Trade Committee
(JETCO)
— Financial Services Partnerships
— UKTI additional resources resulting
from its new strategy
— restructuring of the Indo-British
Partnership Network (IBPN)
— progress on trade policy issues &
agreement to launch negotiations aimed at concluding an EU Free
Trade Agreement with India.
Impressions of developing trends in India
4. The enhanced activity on and with India
is taking place against a backdrop of rapidly changing dynamics.
Indian business is reaching and competing on a global scale at
an astonishing speed. The process started in the service sector
with information technology and software, but now includes communications
and manufacturing. For example, the mobile phone market is growing
at a rate of six million units a month, and India is increasingly
moving into value added manufacturing in sectors such as steel,
aero space components, household goods, and food processing. Pharmaceutical
companies are now doing their own research and development and
branching into the international market on the back of their success
in generic products. This growth has led to increases in business
confidence and the UK is benefiting from this in the shape of
foreign direct investment by Indian companies into our economy.
5. These trends mean that international
trade is becoming an increasingly important part of the Indian
economy. India's share of world trade has more than doubled since
the 1990s. This growth is accelerating and now represents nearly
two-fifths of GDP, although it is well behind the proportion seen
in the other big economies of East Asia. India is, however, catching
up fast and we believe there is scope for more rapid expansion
in the years ahead. This will particularly be the case if India
continues to liberalise its markets and fully implement international
trade commitments.
6. India looks set to become one of the
prime beneficiaries of the high level of growth in trade in services.
The Indian economy is slowly opening to international investment
and, as the confidence of its own companies grows, the country
will have to become increasingly willing to allow much greater
levels of foreign participation. Deregulation and liberalisation
have transformed large sectors of India's economy over the past
15 years and pushed many of its companies onto the global stage.
Liberalisation could bring similar benefits to the financial markets,
accountancy, insurance and legal and retail, as well as in education.
All these are areas where the UK has much expertise to offer.
7. Whilst significant progress is being
made, it is clear that India has a long way to go to achieve full
market liberalisation. Governments and business have an important
part to play to ensure that India not only continues but accelerates
its liberalisation process. These were the key messages which
provided the backdrop for the UK-India Investment Summit in October
2006.
UK-INDIA INVESTMENT
SUMMIT OCTOBER
2006
8. This Summit was an early recommendation
of the UK-India Joint Economic Trade Committee (JETCO)
which was, established in 2005. It was attended by the British
and Indian Prime Ministers. CBI Director-General, Richard Lambert,
addressed the Summit and played an active role in driving forward
the discussions at a high-level round table at 10 Downing Street,
in the presence of both leaders. CBI worked with UKTI on this
initiative and helped put together the UK business team. It provided
an important opportunity for UK business representatives to lobby
the Indian Prime Minister and to make a strong case for the need
to resolve barriers to trade & investment, including reductions
of restrictions on foreign direct investment (FDI) in India, not
least in areas of UK interest mentioned in paragraph six. CBI
welcomes the decision that the Summit will be repeated this autumn
in India and we look forward to continuing progress in addressing
these issues.
HIGH-LEVEL
VISIT TO
INDIA IN
JANUARY 2007
9. Chancellor of the Exchequer, Gordon Brown,
and the Secretary of State for Trade & Industry, Alistair
Darling, travelled to India in January 2007 accompanied by CBI
Director-General, Richard Lambert, and the largest ever UK business
delegation to visit India. The CBI delegation went to Delhi, Bangalore,
and Mumbai and attended the third annual JETCO meeting. This visit
provided an invaluable framework within which to lobby on key
business issues on behalf of CBI members. It illustrated the benefits
of government and business working together to achieve our joint
objectives. There was also constructive engagement with our counterpart
organisations—the Confederation of Indian Industries and
the Federation of Indian Chambers of Commerce and Industry.
10. UK Government can do much to influence
and open doors for UK business. CBI members believe that Ministerial
visits of this kind can greatly help in making the case for removing
barriers to trade and investment and can be used to deliver and
reinforce a strong business message.
MAJOR INVESTMENT
DECISIONS
11. India is now the second largest investor
in the UK in terms of projects (according to Ernst and Young's
European Investment Monitor). Indian investment in the UK rose
by 110% in 2006. Indian companies created over 1,449 jobs and
account for an estimated 30% of all foreign investment in London.
For the first time ever the amount of money invested into the
UK by Indian companies overtook the amount invested in India by
British companies. In addition, major research projects are underway
by Indian firms operating in the UK, particularly in information
technology and pharmaceuticals.
12. More Indian companies are listed on
the London Stock Exchange (LSE) than on the NASDAQ and the NYSE
combined. Twenty four Indian companies are listed on London's
main market or professional securities market. A further eleven
are listed elsewhere, but trade on London's international order
book. Seventeen Indian companies have been admitted to and trade
on AIM.
13. There have also been some very well
publicised major announcements in both inward and outward investment
this year. In January, Tata Steel acquired Corus in a $12.2 billion
deal. Vodafone has recently completed the final stages of its
$11.1 billion acquisition of Hutchison Essar. Most recently, Indian
drinks magnate Vijay Mallya completed the acquisition of Scottish
distiller Whyte & Mackay. These are all very positive signs
of two way investment flows and of the increasing emergence of
Indian businesses as major global players which we welcome.
THE UK-INDIA
JOINT ECONOMIC
TRADE COMMITTEE
(JETCO) PROCESS
14. CBI has been a key player in the UK-India
JETCO since it was set up to remove barriers to trade & investment.
We provide high-level business input from our members. The JETCO
process is beginning to gather pace and deliver results in some
of the main sectors on which it focuses. But this progress is
not comprehensive and members have voiced concern over the lack
of clear objectives, deliverables and time lines for some parts
of the process. We welcome the increased allocation of staff in
UKTI and posts in India with specific responsibility for the JETCO,
as this should help tighten up and focus the working of the JETCO.
However, given that the barriers highlighted in our previous submission
to the Committee continue to affect CBI members, there is much
for both sides still to do.
15. CBI members have highlighted the following
issues relating to the JETCO working groups to which we would
like to draw the Committee's attention:
— Agribusiness: areas in which
the working group have sought to make progress include process
refridgeration, supply logistics and food certification. The WG
will seek to raise sectoral awareness of the potential that UK
and India possess and ways in which this might be developed. The
need for capacity building in India is also an area in which UK
companies could provide assistance with training and education
in food certification, quality control, food regulation issues.
— Healthcare: although discussions
in the group have been progressing rapidly, CBI has been made
aware by members that in some areas there was difficulty in agreeing
an agenda that met the objectives of both sides and that would
fully maximise the potential for UK-Indian collaboration. CBI
therefore welcomes recent moves such as the diabetes project announced
at the JETCO meeting in January and discussions of further widening
the scope of the group to cover areas such as research collaboration,
development activities, procurement, health insurance, and e-
health and medical education.
— Legal: the JETCO working group
has struggled to make progress and particularly to engage the
Bar Council of India (BCI). However, the recent visit by the Rt
Hon The Baroness Ashton of Upholland is widely acknowledged to
have made significant progress in ensuring the BCI do come to
the table under the JETCO. It also further stressed the point
that British lawyers have no intention of competing with domestic
lawyers on litigation or property work and that they are seeking
a phased programme of liberalisation.
— Intellectual Property Rights (IPR)
Working Group: the structure of the group is being formalised
and activities agreed within the ambit of the Statement of Intent
on Future Cooperation. IPR is a crucial issue and we look forward
to progress in this area.
— Hi-tech: The WG is focusing
on the development of mutual business opportunities, particularly
in the telecoms, nanotechnology and information technology/telecoms
sectors. There is a feeling amongst members involved in the WG,
particularly those from the ICT sector, that whilst there appears
to be significant progress being made with respect to the other
working parties, progress in ICT was limited. This may be explained
by the current industry dynamics where Indian firms are advanced
in their business objectives around UK and Europe, whereas UK
firms are not as well developed in their approach to the Indian
market. UK firms have a chance to capitalise on the growth of
India and UKTI has introduced initiatives to address the UK objectives
in the WG. The CBI supports this development. The IT and Telecom
Groups have flagged up regulatory issues that are making a number
of UK companies hold back on huge investments in these sectors.
These include lack of clarity on the regulations pertaining to
the new Special Economic Zones and the new guidelines for increased
FDI limits in the telecom sector, with restrictions on remote
access for maintaining networks for global long distance service
providers. This latter development means UK companies will not
only be required to set up network operation centres at high cost
but also constrain their ability to provide high quality services.
— Infrastructure: the large
number of PPP projects being undertaken in India present an opportunity
for UK technology and investment. The WG needs to evolve a sharper
focus on specific areas such as power and utilities. It should
also aim to work on actionable projects with the Indian Government
assisting with high priority approved schemes.
— Accountancy: there is a growing gap
between the demand for audit and advisory services and the numbers
of suitably qualified accountants, as well as frustration with
current restrictions among global Indian businesses and those
seeking to globalise. Other developments include India's easing
of restrictions on students; a new Limited Liability Partnership
Bill that may also allow global networks to register by their
international brand names; and a generally more relaxed view by
the Institute of Chartered Accountants of India (ICAI) towards
the larger global firms. In the UK, both the Professional Oversight
Board (POB) and two of the four supervisory bodies have offered
to assess the Institute of Chartered Accountants of India (ICAI)
qualifications as a first step towards membership reciprocity
to be followed by mutual recognition. In January 2007, it was
also agreed to establish the qualification working group with
a clear timetable and to examine further the market access issues
— The establishment of the Financial
Services Working Group is a notable development since the
last JETCO. The WG met for the first time in January and decided
to focus on insurance, banking, securities, exchanges and infrastructure
finance. Members welcome the proposed changes in legislation affecting
foreign participation in the Indian insurance sector, allowing
the maximum foreign ownership of insurance business to rise from
26% to 49%, and hope to see positive progress. In the UK, there
is also parallel work in developing a UKTI Framework Strategy
for India for the financial services sector and this will provide
valuable input to the JETCO process.
— A proposal for a Working Group on
trade facilitation is under discussion.
16. Plans are in hand to set up a JETCO
Working Groups website to monitor developments. This would
be a welcome step in making the process more transparent. There
is, however, still much work to be done and CBI calls on both
governments to continue to make progress in the JETCO.
17. One related development outside the
JETCO is the establishment of an Indo-UK Corporate Affairs
Group. It is due to meet on 6 July 2007 and this new group
involves both business and government representatives with a focus
on governance and company law.
FINANCIAL SERVICES
PARTNERSHIPS
18. The many high-level visits over the
last year, including the Chancellor of the Exchequer, the Lord
Mayor of London, and the Duke of York, have all delivered a strong
message regarding the potential for partnerships; the benefits
of financial services reform including liberalisation in India;
and the promotion of London as a global financial centre. This
latter point encompasses both London as a place in which Indian
companies can invest and also the strength and quality of work
that UK services firms can offer India. In addition, there has
been progress with the setting up of offices by a number of institutions
including the Corporation and Think London, as well as by the
Mayor of London.
19. A partnership between The City and Mumbai
is also being championed. The recent report on Mumbai as a
Financial Centre provided a realistic assessment of both the
opportunity for Mumbai but also the major challenges it faces
in its aspirations to become a global financial hub. In commenting
on the report in an article in the Financial Times in April
2007, Richard Lambert acknowledged that Mumbai has the capacity
to become one of the world's great financial centres. He pointed
out that it has many competitive advantages including the widespread
use of English, great expertise in information technology and
quantitative analysis, well established systems for trading securities
and a solidly grounded legal system. It is already the financial
centre for the large and rapidly growing Indian economy.
20. Yet Mumbai is nowhere near its potential.
Its markets are protected and undercapitalised. Trading in bonds,
currencies and derivatives is curbed by regulations. The banking
system is not competitive by global standards. Financial regulation
is fragmented and based on rule books, not general principles.
The City of London faced many of these same challenges 30 years
ago and there is much that India can learn from the UK experience
over the intervening period to enable it to reach its stated objective
of achieving premier league status as a global financial sector
leader.
UKTI ADDITIONAL RESOURCES
RESULTING FROM
ITS NEW
STRATEGY
21. CBI is supportive of the UK Government's
focus on India. We are represented on the Asia Task Force and
actively support the Joint Economic and Trade Committee for India
(see section on JETCO progress). We are also represented on the
Board of the Indo-British Business Partnership Network.
22. As we have illustrated above, since
the last Committee's report in January 2006, CBI has been involved
with a large number of high level joint initiatives with Her Majesty's
Government, UK Trade & Investment and the Indo British Partnership
Network. CBI believes it is right for the Government to provide
the 20% increase in resource for India activity promised in UKTI's
new five year strategy. Steps have been taken over the last twelve
months to restructure and improve quality and levels of staffing
in posts and on the country desks at Kingsgate House. CBI members
hope that this will lead to an enhanced service and a greater
uniformity across the UKTI network. In general, they speak highly
of the levels of help already available from our High Commission
on the ground in India.
Restructuring of the Indo-British Partnership
Network (IBPN)
23. As part of UKTI's strategy, the UK Government
has boosted support for Indo-British trade relations, and we welcome
the increase to IBPN funding from £75,000 to £1 million
per annum. CBI is actively engaged in advising on the restructuring
process and in supporting its activities. We have recommended
a new model drawing as appropriate on the experience of the China
Britain Business Council. The new structure will include: the
formation of a Senior Advisory Board; the recruitment of a new
Chief Executive and the necessary support staff; and the development
of a range of products and services to support the further development
of UK's trade and investment footprint in India. This is a major
boost to the overall trade and investment promotion effort and
one we greatly welcome.
Progress on CBI trade policy issues and the EU's
Free Trade Agreement with India
24. CBI remains fully committed to the World
Trade Organisation (WTO) as the sole regulator of global trade.
We urge a comprehensive and ambitious conclusion to the ongoing
Doha Development Agenda (DDA) negotiations to be achieved by the
end of 2007. As members of the G4 group of leading WTO members,
both the EU and India have a special responsibility to ensure
progress is made. For the EU, this will require accepting greater
tariff cuts on agricultural imports.
25. For India, this will mean restricting
the scope of its range of special products to a reasonable amount.
Special products are a range of agricultural goods that developing
countries will be able to shield from the full effects of the
tariff cutting formula due to their key role in rural development
and farm income security. However, the selection of such products
should be made according to objective criteria and not distract
from substantial liberalisation. India will also need to accept
lower industrial tariffs and improve access to its services markets
for foreign companies. This will help to boost India's productivity
and increase direct investment into India.
26. India should be granted improved access
for its skilled workers (mode 4) and greater opportunities to
provide outsourced services (mode 1). The Doha round will also
provide India with more opportunities to export its manufactured
goods. Cutting farm subsidies in developed countries will lower
distortions in global agricultural trade, benefiting India in
the long term by granting greater market access for its food exports.
27. We remain concerned that Indian negotiators
are not demonstrating sufficient flexibility to allow an agreement
to be reached. Ambassador Crawford Falconer of New Zealand, the
Chair of the agriculture negotiations, recently released a paper
detailing the state of play in the talks and highlighting potential
areas of convergence. We are somewhat disappointed with the Indian
government's reaction to this paper. We believe that Ambassador
Falconer has pointed to the "centre of gravity" in the
negotiations and that, if a deal is to be achieved, the key numbers
will need to fall somewhere within the margins described. India
must, of course, have sufficient flexibility to ensure the security
of its subsistence farmers, but CBI remains convinced that India
could do more. Recently there have been frequent meetings of the
G4 (the EU, US, Brazil and India) where there are signs of increased
Indian engagement. We urge the Indian Government to demonstrate
the necessary flexibility to allow an agreement to be reached.
28. While the DDA remains our top trade
policy priority, CBI supports a robust and comprehensive Free
Trade Agreement (FTA) with India, but not at the expense of negotiating
resources being shifted away from the Doha round. UK business
sees real opportunities to improve bilateral trade and investment
relations through this Agreement. The FTA should include areas
not currently within the WTO mandate, such as regulatory convergence.
CBI has produced a detailed position paper on the EU-India FTA,
which is annexed for information (not printed here).
29. In order to achieve an economically
robust outcome that provides commercially meaningful export opportunities,
CBI believes that political issues should not be incorporated
into the FTA provisions. We note that disagreements over issues
such as human rights between EU member states threatened the launch
of negotiations, which provoked irritation from India. It will
be important for the EU-India FTA to remain focused on trade and
investment issues (further detail of CBI's position on this issue
is given in our position paper on FTAs, which is also annexed
(not printed here)). We therefore welcome the recent agreement
of the EU member states on the mandates for the EU Commission
to begin negotiations with India. However, the key factor will
be whether concrete results can be achieved within a realistic
timeframe.
CONCLUSION
28. It is too early to judge fully how Government
support, and specifically the new UKTI strategy, have affected
the business landscape. In many cases, the increase in resources
promised in the UKTI's new five year strategy are only just being
allocated and will require time to see results. However, CBI is
very supportive of the improved Government focus on India over
the last year. There have been many successful initiatives and
the various stakeholders are now working together better, to help
change perceptions and to alert British business to the opportunities
for further trade and investment. We are very pleased to see that
the UK-India JETCO is showing some degree of progress, although
its full potential has yet to be realised. CBI members have voiced
concerns in some cases over the lack of clear objectives, deliverables
and time lines for the progress. We believe that there is cause
to feel encouraged by the progress of the last year, but we must
guard against complacency. Many of the issues of concern to UK
business still need to be addressed and resolved. CBI will continue
to retain pressure on both governments to deliver key business
objectives in a timely and tangible fashion.
6 June 2007
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