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It is a pleasure to be in Mumbai this evening, a city that provides concrete proof of India’s dynamism and diversity. This is my second visit to India as Business Secretary and my first to Mumbai, though I made the first of many family and professional visits to this great city almost three and a half decades ago. I still have vivid memories of a perilous journey with my young children in a small boat close to capsizing, across the harbour to the jetty in Uran where my brother-in-law managed the brewery, and running the gauntlet of a picket line of Maoist militants trying to impose a gherao. At that time India seemed to be going nowhere, with a crisis hit, stagnating, economy, serious unrest and democracy usurped by emergency rule. The economic and wider social transformation since then is truly remarkable: a great success story, albeit with many problems and vast poverty still to be overcome. On a personal level, I never fail to be impressed by the welcome, warmth and energy of India and its people and it is a genuine pleasure to have an excuse to return.
I’m pleased also that, almost from day one in the Coalition government, we have welcomed a succession of Indian ministers and businesses to the UK - one of the first was the visit by Minister Sharma, supported by the Confederation of Indian Industry (CII) in June last year. It is a fitting symmetry that the CII is hosting this evening’s event and I would like to thank them.
Roughly 50 UK companies have come out to India with me, this is follow up on the Prime Minister’s visit and part of an ongoing process. For me, these trips are not just about big contracts announcements - they are part of a longer term strategy to develop our bilateral relationship. The British Government’s ongoing focus on India underlines the importance it places on our bilateral relationship across a wide range of policy areas. From security, anti terrorist, and defence issues to business and trade, development, education, science and research - not to mention our deep social, cultural and historical ties.
But I don’t just want to rely on sentiment and history. A generation has grown up in India and Britain for whom these things are of only passing interest; who now look first to the United States as a cultural and economic reference point, and, increasingly to the rest of Asia. That is understandable. There has to be demonstrable mutual interest. This can come in the first instance from a strong bilateral trade and investment relationship.
Our business relationship is already strong, but it could be stronger. Bilateral trade is worth around £11.5bn, with 17% of India’s exports to the EU going to the UK. There are around 700 Indian companies with investments in the UK, and the UK receives more than 50% of India’s investment into Europe. Companies such as the Tata Group, JCB, BAE, Standard Chartered, Wipro, Reliance and Infosys already operate in both the UK and India and I want to see more of that. I am also passionate about encouraging more British companies, including SMEs, to look to India as a place of real business opportunity, and I’d like to see more small Indian companies look to the UK as their European destination of choice.
It is now becoming a platitude to note that India is one of the fastest expanding economies in the world, with a rapidly growing consumer base. . Ratings firm Crisil predicted earlier this month that India’s economy would grow at 8.4% annually during the next five years. This on the back of 9% growth for three years before global recession, an event which apparently, and I quote, “plunged” the Indian economic growth rate to 6.7 per cent in 2008-09. From a European perspective, that is a wonderful problem to have.
It is worth recalling how recent this assumption of growth actually is. I wrote a major report for the Economic Intelligence Unit thirty years ago, predicting that India could be expected to accelerate from what used to be called, pejoratively, the Hindu Rate of Growth of 3.5% to around 6%. My argument was that the spread of improved agricultural technology combined with a growing, albeit inefficient and over protected manufacturing sector, would lift India. I was regarded as hopelessly optimistic. And even in the mid 1990s when I was trying to persuade my colleagues in Shell to take a big strategic interest in India in the wake of Manmohan Singh’s reforms there was wide spread scepticism. No longer.
Now it is recognised that India’s growth rate could reach 10% annually, overtaking China if it overcame certain constraints. I don’t want or need to lecture you on these issues. These are obvious, well publicised, challenges in terms of infrastructure, education and corporate governance. It will be an enormous test to spread the wealth of the dynamic cities like Mumbai, Pune and Bangalore to what Arvind Adiga calls The Darkness. Of course, a fast-growing country as large and diverse as India will encounter growth pains, sometimes severe, but the issues are, while difficult, not insurmountable.
Tonight I would like to touch on three main areas: the global macro economic backdrop; look at some of the business and trade opportunities that exist for British and Indian companies in India; and finally, I will discuss the possibilities that exist for Indian companies in the UK.
The global economic crash had a profound impact on most western economies, not least Britain. A decade of trouble free, non inflationary, growth generated hubris and complacency in the western world. Gordon Brown boasted of the most successful period of economic expansion since the Hanoverians 300 years ago. But a disaster was in the making, which I described at some length in my book, The Storm. In the UK, but also elsewhere, a bubble economy was being created: superficial growth based on an asset boom in inflated property markets, financed by dangerous levels of personal debt and a banking sector which became seriously overweight, reckless, and badly regulated. Asia, especially Japan, lived through this experience a decade ago but the crash in 2009 was genuinely global and the most damaging since the 1930s. The worst of the crisis is past and growth has resumed but we are still dealing with the legacies.
The key task for the new Coalition Government in the UK has been to deal with one of those legacies: a massive public sector deficit. We made some difficult decisions to restore market confidence- and have been rewarded by favourable ratings and low long term interest rates therefore the cost of capital. We are now seeking to rebalance the economy, away from its overdependence on banking back towards high tech manufacturing and other sectors where British firms excel, and to place greater emphasis on private sector investment. A key aspect of that is expanding overseas trade and investment into the UK. My presence here today is evidence of that policy in action.
One of the most striking consequences of this crisis is that it has dramatically shifted the centre of gravity of the world economy towards what we call the emerging markets: China and India but also Brazil, Russia, Indonesia and elsewhere. Developed countries, even in a recovery phase, grew by under 3% per annum in 2010, with the emerging markets, as a whole, by 7%. It is, on one level, not surprising that developing countries are catching up from a lower base; and it is entirely welcome that hundreds of millions of Indians, Chinese and others are being lifted out of poverty and providing an internal market for supporting growth. No one should however just assume that these trends will continue automatically. There are destabilising capital and commodity price movements and, potential inflationary ‘bubbles’.
What the new distribution of purchasing power in the world economy means is that traditional trading relationships have to be rebalanced. Britain was in the bizarre position of exporting more to Ireland than to China, India and Japan combined. These relationships - with EU neighbours, and the US - must and will remain strong. However, we are clear that we must build far deeper ties with new centres of global growth, and rebalance and improve the low trade volumes with India - and this means supporting and encouraging a range of companies - large and small - to do business with and in India in the future.
The interest is mutual which is why it is important to remove the substantial barriers which exist to trade and investment. The negotiations in the Doha Round and on the EU-India Free Trade Agreement are crucial to this liberalisation and heading off the strong pressures of protectionism.
And this leads me to the second part of my address: the opportunities that exist in India for British companies, and for Indian companies to partner with their British counterparts.
The UK remains one of the largest global economies. It is still the world’s sixth largest manufacturer and we excel in sectors such as advanced manufacturing, in low carbon technology, in education, infrastructure, financial services, creative industries and much more.
In terms of infrastructure, for example, with India investing heavily in its roads, rail and ports, British companies can provide expertise in project management, design, structural engineering, power distribution, the supply of certain equipment and more. Some British infrastructure firms already operate here. British firm Integrated Project Management, for example, won an engineering contract for the Chennai Airport expansion project. Mott MacDonald and HOK International have worked on the modernisation of Delhi International Airport. Mott MacDonald has also been adviser to Mumbai International Airport. But I want to see more collaborations, and more partnerships.
Minimising the environmental impact of India’s ongoing development will be a major challenge, but again I see real potential for partnerships with British companies that are already excelling in this sector. In stark economic terms, the global low carbon environmental goods and services sector had sales of £3.2 trillion in 2008/09, with the global market expected to grow to over £4.3 trillion by 2015. The UK is dedicating itself to becoming a market leader in a range of low carbon sectors, including offshore wind, wave and tidal power, the civil-nuclear supply chain, automotive and aerospace.
A number of offshore wind power firms have recently signalled their intention to invest in the UK, including Mitsubishi, GE and Siemens, with combined planned investments worth around £300m. The UK has also won a string of new international investments in low and ultra-low carbon vehicle projects in recent months. Ford has been granted a guarantee to support a £450m loan from the European Investment Bank, Nissan is manufacturing its electric car for the European market at its Sunderland plant and, of course, Tata Motors is assembling its Vista electric vehicle in Coventry. These investments are welcome signs of confidence in the UK.
You may also be interested, or amused, to know that Tata Chemicals has also recently purchased the UK’s largest road-gritting business, called British Salt. This means the increasingly challenging responsibility of ensuring the British road network remains free of snow now falls to a company that ultimately has its headquarters here in Mumbai, a city with an average annual temperature of 81°F. I wish them luck.
Innovation is another area where I see further opportunities for greater collaboration. Prime Minister Singh declared 2010 to 2020 India’s Decade of Innovation and we want to see innovation build jobs, drive trade and promote global partnerships. Both agree with me that innovation is the key to growth, prosperity and finding solutions to global challenges such as public health and climate change. As part of this effort, a new Chevening Science and Innovation Leadership programme was launched last year, co-sponsored by Rolls Royce and hosted by Oxford University. It is a unique programme for mid-career Indian professionals working in the fields of science, innovation, and related public administration.
Education remains a vital component for the future success of both countries. And in July, our two Prime Ministers agreed to the extension of the successful UK India Education and Research Initiative. It has already created almost 600 new partnerships between UK and Indian institutions at all levels of the education system. There is certainly more potential here.
There will be a particular focus on India’s new innovation universities. But beyond these, ministers are also discussing opportunities offered by genetically modified crops. There is ongoing work regarding the UK-India relationship in space, with the UK and India agreeing to explore the opportunities for greater academic linkages and student exchange between Indian space institutes and leading UK universities. Collaboration over civil nuclear power is also in the mix, and I am seeing Dr Bannerjee, chairman of the Indian Atomic Energy Commission, tomorrow.
But I don’t want to just stress the opportunities that exist in India. The UK offers Indian companies many opportunities as a destination in itself, and as a launch pad for further European expansion.
Following major acquisitions in the UK, especially from Tata through Corus and Jaguar Land Rover, India is now a major investor in the UK. Of the 1,200 Indian companies based in Europe, 700 are based in the UK - the likes of HCL, TCS, Wipro, and Infosys. About 400 of these are in the IT/software sector.
Many of India’s leading engineering and life sciences companies have invested in the UK, too, such as Tata Motors and Tata Steel, Bharat Forge, Mahindra & Mahindra and Biocon. There is also an increase in investment in sectors such as financial services, creative, retail and renewable energy - and I would reiterate here today Britain’s openness to investment.
I recognise there have been concerns expressed in some quarters in India that changes to British rules on migration might be detrimental to Indian firms, but I would like to state for the record that the Government has exempted Intra-Company Transfers from the annual limit which comes into effect in April. We welcome the role which Indian workers play to the UK economy and, of course, the massive contributions made by the Indian Diaspora in the UK.
The British Government is committed to India and we are working hard to get that message to British companies. Yes there are issues, yes there are problems. But if the British Government can help you fulfil your companies’ aspirations to do business in the UK, we will be happy to support you in every way we can.