Select Committee on Business and Enterprise Written Evidence

Annex A

FCO e-Gram 40995/07
Created10/5/07 8:36:00 AM
SummaryCorrected Version, original eGram Number: 40992/07 1. High profile visit to four cities with wide press coverage. Good prospects for new inward investment, though costs/skills an issue. Regulatory reform politically difficult—regular high level dialogue our best hope of achieving step by step progress. Marketing the UK's success is essential to maintaining our credibility in this competitive market. The UKTI business conference/awards and launch of UKIBC hit this target.


  2.  Digby Jones visited Delhi, Chandigarh, Pune and Mumbai from 24-27 September (programme attached) (not printed here). This visit achieved its three key objectives of raising the UK's business profile, pushing for liberalisation of the economy (particularly in financial and legal services) and highlighting the attraction of the UK as a place to invest.


  3.  The depth of the UK's business links is often under-appreciated in India, as all the OECD markets jostle for position here. UK success is often hidden behind foreign brands (eg German machine tools made in UK) or embedded as consultancy/engineering (eg Mott's master plan for the New Delhi airport). The Minister made a powerful pitch for our open markets and UK manufacturing and technology strengths. He highlighted the UK's position near the top of India's current business partners: trade at £BP4bn in both directions, the UK is India's no 3 investor, and we achieve 60% of Indian investment into Europe. These investment links are supporting a range of strategic business models in both directions.

  The visit generated extensive TV coverage, including two 30-minute interviews on the main business news channels—CNBC and NDTV Profit. There was wide coverage in all the Indian business papers and national and regional dailies (Hindi, Marathi, Gujarati and Urdu). The Minister's media interactions generated very positive stories. The relevant articles have been sent to London. These included: FT, Guardian and Times, and a Radio West Midlands interview.

  Wide coverage of the Business conference in Mumbai and the Awards ceremony including Ratan Tata's comments at the UKTI Conference about the UK being "the most open country in the world for business" hit home a message that money can't buy.

4.   UK/India Business Conference & UK/India Business Awards

  The UKTI Conference "Partners in Globalisation" and Awards generated an audience of over 500 decision-makers (programme and list of winners attached). Three delegations joined the event (from Manchester, Yorkshire and CBC), and local RDAs were tied in. This networking has already generated discussions between Manchester Airport and Kingfisher Airlines and a potential opportunity for consultants Benoy to design F1 track/complex in India.

  5.  The Minister used his platform at the Conference to launch the UK India Business Council (UKIBC) in India. This will be the lead business networking/events organisation for the UK and India, closely aligned with UKTI. UKIBC will set up offices at the High Commission in Delhi and Mumbai, and hopes to use existing British Business Groups in India as a membership vehicle here.


  6.  The Minister met senior players, including the Tata Group, Bharat Forge, UB Group, Ranbaxy, Dabur, HCL, ICICI. Detailed notes on key points will go to Business Group. Some highlights:

  Bharat Forge are looking for a site for their European HQ (concerns about UK tax on dividend transfers), a new forgings plant, and possible Aerospace links. We are following up on all points, and will organise a tour of the "aerospace corridor" for MD, Baba Kalyani, in the autumn.

  Tata Group Chairman Ratan Tata echoed the call for better skills in India, and for economic liberalisation. He explained the role of the Investment Commission which he chairs, and regretted that the key recommendations in its report five years ago still await implementation. He admitted that his own views of the UK had changed dramatically over the past year, opening his eyes to our strength in innovation, and high end technology, engineering and manufacturing. This, together with the open stance, had encouraged Tata to create their Pearl Assurance/Peterborough campus and xxxxxxxx (not yet publicly announced).

  Tech Mahindra plan to expand their JV with BT which has operations in Belfast, Milton Keynes and Pune. Mahindra welcomed the "good work ethic" in their Northern Ireland workforce. They made familiar points about the need for India to create better infrastructure and to open up the education sector in order to produce more skilled employees—this chimes with our plans to make Education and Infrastructure themes of the forthcoming PM Summit.

7.   Energy

  Lord Jones met UK energy companies, and heard about frustrations faced by Premier and Cairn on their large exploration and pipeline projects. The Minister will write to Petroleum Minister Deora (who was out of town), making the case for a timebound and transparent decision making process, which will be essential to bring in sufficient FDI to power India's growing infrastructure needs. We will also aim to use Deora's proposed visit to UK in the autumn to showcase UK capability, including in clean energy technologies.

8.   Pushing for liberalisation

  Lord Jones raised financial services liberalisation with the Finance Secretary (PUS) Subbarao and with Governor Reddy at the Reserve Bank of India (RBI). On Insurance, Subbarao confirmed that parliamentary arithmetic would determine when the Insurance bill could be passed, but he did not expect it to happen before the year end. On Banking, Reddy did not give any ground on the expansion of bank branches, or a clear response on the need for foreign banks to obtain a banking license for their admin offices. Lord Jones said he hoped the plans for new FDI caps on non-banking financial companies would not adversely affect Experian's credit information business. We are following up with a detailed letter on all these issues. There is a danger that the 200? Roadmap for Banking Reform will slip. To reduce this risk, we need to work with EU, US and others to tie the Government down to its commitments. As part of this strategy, we plan to hold a major seminar on the Roadmap next year.

  9.  In Lord Jones' meeting with the Law Minister, Bharadwaj reiterated his strong support for liberalisation, and his (over?) optimistic expectation of passing laws to enable foreign lawyers to practise by early 2008. Bharadwaj visits the UK next month, and the Bar Council are expected to visit in November. We will continue to track progress closely with the Law Society. As a follow up to this meeting, the Minister will write to Bharadwaj with detailed questions about how the new legislation and accompanying regulations will work in practice.

10.   The Economy

  The Minister saw at first hand the high levels of corporate growth and confidence here. Companies are eager to expand, both organically (eg pharma companies moving up the value chain) and through M&A. There was strong interest in listing in London (LSE and AIM).. The subprime mortgage maelstrom had had little effect on the real economy, though Governor Reddy was concerned about increased liquidity resulting from capital inflows from the US and Europe. He thought growth was on track for at least 8.5% this year, and that inflation would remain under 5% (Comment: It is now down to 3.3%).

  11.  Subbarao was not complacent about India's 8.5% growth over the past five years. This was still not sufficiently inclusive. For the first time in India's history, job creation was now outpacing population growth (though for demographic reasons not labour force growth). The 60% of the population who depended on agriculture—just 18% of GDP—represented the country's biggest challenge. The Government needed to generate 4% growth in this sector, including large numbers of manufacturing sector jobs. India could not rely on services alone, which generally required higher skills. Indeed, growing concerns about whether India could supply the skilled workforce needed to sustain economic success was the dominant theme of a lunch with leading economists.

12.   Immigration

  Several companies complained about UK work permits, which require an employee to have completed 6 months work in a company. In today's fast moving marketplaces (especially India with high staff turnover rates), this puts us at a disadvantage against some other countries. The Minister agreed to follow up with the Home Office. UK companies are also facing problems getting visas for their expat staff and families. We will collate further information through the British business groups in India and raise again with the MEA.

13.   West Midlands and People issues

  The Minister visited St John's School in Chandigarh, where he presented a football to local children as a symbol of the recently launched partnership between the Punjab and Wolverhampton.

14.   Comment

  This visit set out strong commitment to being one of India's top business partners—now and in the future. We must sustain this pitch to government and business leaders—the Summit will be the next milestone in the dialogue. The Summit business delegation and conference will focus on six top sectors: financial services, infrastructure, energy, advanced engineering, pharmaceuticals and ICT/telecoms. Our bid for new business here will be more credible if we can get visibility for "unseen" UK success (eg 25% of Boeing aircraft, embedded systems in every mobile phones) and for foreign brands produced in the UK (eg auto components, machine tools). It would be useful to have some material from UKTI's Marketing team to help us hit this message home.

  The Government is likely to bow to domestic political pressures to go slow on big ticket regulatory reform in the medium term—we are most likely to get deliverables which don't involve legislation or political risk (though the Limited Liability bill, if it gets passed in the autumn, will be a step in the right direction for accountants and lawyers). Our objective is to keep the Government's feet to the fire on insurance and banking, though this could be a long game. We must also stress the win-win nature of joint work on financial services, PPP, education and clean energy, and the impact these sectors will have on India's 900 million people living on under $2 per day.

24 January 2008

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