Financial Daily from THE HINDU group of publications
Tuesday, Jan 13, 2004
Industry & Economy - Foreign Trade
'Indo-British trade ties at their best'
The United Kingdom is the third largest investor in India. The important factor is that British companies are major players in India's service sector, for example in banking, insurance and education. On the other side, India is a growing economy. There is a mood of optimism and self-confidence in India with its excellent showing on the forex exchange reserves, good harvests, over 8 per cent GDP growth and the stock market at a new high.
With the traditional links on various fronts and the growing synergy of views between the two nations, the UK would like to be a prominent partner in India's onward march towards becoming a global economic power, says Mr Mike O'Brien, the Minister of State for International Trade and Investments.
Mr O'Brien, who also holds the key portfolio of Foreign and Commonwealth Affairs, was in Hyderabad to address a special plenary session at the CII-AP Government-Partnership Summit. Mr O'Brien took time off to talk to Business Line on a range of issues:
Excerpts from the interview:
UK-India bilateral trade has been growing in the past decade. More so since the formation of the Indo-British Partnership (IBP). How has the trend been in 2003 and what is the near-term outlook?
Trade relations between the UK and India have never been as good as in the last couple of years. In the first nine months of the year, bilateral trade grew by a fifth, while exports of British goods to India jumped 27 per cent. But these figures do not tell the full story of the economic relationships.
About a quarter of the trade between the UK and India is no longer in goods, but in services. British companies are major players in India's service sector. For example, in banking, insurance and education.
The impressive economic growth registered by India and its potential have, in a way made, the UK identify it as one of the three key countries (along with the US and China) with whom it needs to work closely in the coming years. It is in our national interest to do this. Consequently, you will see six Cabinet Ministers coming to India to negotiate a range of issues in the next few months.
During 2002-03, India saw 30 trade missions and 10 ministerial visits from the UK. What has been the tangible outcome of these efforts?
I can say with confidence that trade, political, business community links are enormously positive today. There is an increasingly shared view that protectionism does not work. India is changing from this view. The UK is positioning itself as a friend to get the best investments and trade relations.
The ongoing interactions at various levels will continue further to build strong trade and political relationships and address issues of mutual concern.
Since 1991, India has been moving towards an open market economy. The last three years, in particular, have seen a big push and India's emergence in the global marketplace. As this transformation takes place and the next generation of Indian political and business leaders lay the foundation for India's economic growth, the UK wants to be part of the journey.
How does the UK view India as a destination for outsourced jobs? Do you see the decision of British companies such as Barclays to oursource as a desirable trend? How do British companies view it?
The British Government's view on offshoring is clear. Companies have the freedom to decide where to locate their operations. The Government shares the concerns of those immediately affected, and takes the local employment effects seriously. But the fact is Britain, as a whole, benefits from globalisation and free trade.
More than one million people were employed in the UK financial services sector, and about 5,000 jobs were created by inward investors. At present, the unemployment rate is very low.
For example, on call centres, there will not be any protectionism back home in the UK. We believe that you cannot preach free and fair world trade and practise protectionism at home.
Instead we shall encourage firms to invest in new technology and workforce skills, and move into advanced, high-value activities. Indian business-people intending to invest in call centres in the UK are also welcome.
Interestingly, India has emerged as one of the leading investors in the UK. What do you think are the reasons, and which sectors are the investments going into?
India is fast becoming one of the most important sources of inward investment and more Indian companies are registering in UK. Of the 441 Indian companies investing, nearly three quarters are in the knowledge-based economy.
The reasons are rather clear; the UK has the lowest inflation rate for 30 years, low interest rates, lowest corporation tax in Europe and low barriers for entry.
Several Indian companies are doing exceedingly well and some have started listing on the London Stock Exchange. In fact, India exported Karan Billimoria to the UK and Karan is now exporting Cobra beer back to India. Incidentally, Karan Billimoria is President of the IBP.
The UK, in turn, is seeking greater access to its famous Scotch whisky. We look for significant reductions of punitive tariffs on premium goods such as Scotch whisky an issue we discussed with Mr Arun Jaitley in New Delhi. Also, in the UK, the Government has initiated a complex licensing liberalisation for the sale of alcohol.
The UK has been trying to position itself as a gateway to Europe. Several Indian companies have located their operations in London to reach the European markets. How does this help Britain and Indian companies?
With European countries coming out of recession and the recovery of the US economy, there are enormous opportunities opening up in the EU and the West. India and China have great scope for grabbing market space. The UK wants to create trade partnerships with India. Economic stability is the key thing that the Labour Government has successfully created, though there is controversy about the decision on Iraq. Investments in the UK are highly competitive and, with good port and air links and a large skilled workforce, the country is well-positioned to attract big companies and investments.
What new areas of cooperation are the two countries contemplating?
The new economy and the knowledge-based industries will be the building blocks for new cooperation in the coming years. Both the countries are working out the necessary details. At present, however, trade-related issues, terrorism and law and order are important areas that need to be addressed in greater detail.
How do you think the recent developments at the SAARC Summit in Islamabad, especially the amity developing between India and Pakistan, will impact trade, especially in the region? And how does the UK see it?
Exciting. Both Prime Minister Vajpayee and President Musharraf have shown a high level of statesmanship. There is a long way to go still. We need space and time for quiet diplomacy. Don't expect dramatic developments. Discussions should begin quietly. More confidence-building measures are necessary.
I had talked to President Musharraf three weeks ago and he was hoping that the meeting would go well. It was also courageous of Prime Minister Vajpayee to take the steps, especially in the year of Parliamentary elections.
The signing of the SAFTA agreement is also sure to result in greater trade ties between India and Pakistan, perhaps like Germany and France after World War II. We could see the creation of free trade regions, protectionism will slowly go and a competitive environment will be created.
These developments definitely augur well for the UK as well, as more companies can look at the coming opportunities.
Will there be co-operation between India and the UK in areas such as nuclear power, space and Defence, especially in the background of discussions between India and the US gathering momentum?
On the civilian applications and research side there is cooperation, especially in space technologies.
However, the UK is a signatory to the Nuclear Non-Proliferation Treaty (NPT) and our position has not changed. Similarly, India has its own stand. We both understand our positions on the nuclear issue.
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