1 Introduction
1. How the UK should react to globalisation is one
of the most important issues facing the UK Government. To know
how to react, it is necessary first to understand the real nature
of the challenge. We undertook this detailed examination of trade
and investment relations with India to learn about the specific
issues in this vital trading relationship and to inform our wider
work on the actions the UK must take to remain competitive.
2. Our decision to begin the new Parliament with
an inquiry into India was born of an often-expressed concern that
the UK is making less of its opportunities than our global competitors
in the US, Europe and the Far East. We had heard representatives
of both the Indian Government and the private sector express concern
that our unique relationship with India should be generating a
much higher level of trade and investment than was actually the
case. Currently, it was said, we were losing ground relative to
those competitors.
3. The purpose of our inquiry was to establish the
facts about the opportunities and threats from India, and to explore
what more could be done to increase commercial activity between
our two countries to our mutual advantage.
4. Awareness of the developments in the Indian economy
has grown sharply in recent months. During our inquiry, and particularly
since the Davos conference at the beginning of 2006, levels of
interest in India globally have clearly been growing. Our report
found, however, that the UK's understanding of what is happening
in India is still only partial.
5. We were told during our visit to India that the
country still faces many challenges—growing income inequalities,
serious environmental issues and poor infrastructure were the
three issues most often highlighted to us as causes for concern.
Concern about the first of these has recently led to the very
controversial decision by the Indian government to reserve a high
proportion of university places for lower castes.
6. We also saw for ourselves the huge self-confidence
of the business community, the growth of the Indian middle class
as major consumers, the underlying strength of the rule of law
and democracy and the commitment of the Indian Government to the
continued liberalisation of India's markets.
7. We were concerned that the UK's perception of
India has been seriously distorted by the media's focus on the
perceived threat to UK jobs from outsourcing, particularly from
call centres, creating a view that these centres are the dominant
feature of the Indian economy. While we were in India, we saw
that the true scale of business process outsourcing (BPO) goes
far beyond call centres and there is a sophistication and range
of services offered under this beguilingly bland generic title.
We also saw the growth of manufacturing industry of considerable
quality in both the automotive and aerospace sectors.
8. There are three themes that flow through this
Report and which should be regarded as our principal conclusions
on which our more detailed recommendations are based.
9. First, that
the UK is not as engaged with India's markets as it should be.
Despite our long history of commerce with India, UK companies
are overall falling behind their major competitors, perhaps because
too many UK companies tend to see India simply as a source of
low-cost labour, overlooking that it is an emerging market in
its own right. The UK Government, business, and indeed the higher
education sector, all need to be far more entrepreneurial in their
approach to India if they are to take advantage of the huge opportunities
this vast country has to offer our companies and institutions.
10. Second,
the Indian market is liberalising at a rate not always fully appreciated
in the UK. Constant vigilance is needed by those wanting to do
business with India, if the fullest advantage is to be secured
by them from this progressive liberalisation. However, uniform
and continuing progress cannot be assumed and UK diplomacy must
continue to urge the Indian authorities to continue on their chosen
course—and to demonstrate by example in world trade talks
our own country's recognition of the merits of liberalisation.
11. Third,
that the UK's institutional arrangements to support trade with
and investment both in and from India are characterised by enthusiasm
but also by confusion. A great deal of good work is being done,
but by too many overlapping bodies with ill-defined responsibilities,
and often inadequate resources. Viewed from India, the UK is a
small country, and we need to be far more focussed to have a real
impact.
12. India's economy is diverse in the extreme, encompassing
as it does: subsistence farming and modern agriculture (accounting
for around 21% of gross domestic product (GDP) and 60% of total
employment); rural handicrafts and a range of modern industries
(accounting for around 28% of GDP and 17% of employment); and
many services (accounting for around 51% of GDP and 23% of employment).[1]
13. Following independence in 1947, India's economy
was highly centralised and largely closed to outside trade, with
economic policies based on import substitution[2]
and state ownership of 'key' industries.[3]
India was characterised as a country of minimal import, export
and investment potential by western companies and pre-1990, real
GDP growth was averaging just over four percent per annum.[4]
From the middle of the 1990s, India's government embarked on a
series of market reforms including a relaxation of the restrictions
on foreign ownership of Indian companies in some sectors and the
privatisation of state-owned industries. The reforms gave an immediate
boost to the economy and real GDP growth averaged seven percent
between 1994 and 1999.[5]
More recently, India's economy has been growing at a trend rate
of just over six percent per annum[6]
as the present Indian Government has continued the process of
economic reforms. Real GDP growth was 8.5 percent for the financial
year ending March 2004,[7]
7.5 percent for the year ending March 2005, and 8.4 percent for
the year ending March 2006.[8]
14. As the Indian economy continues to develop, it
is 'migrating' up the value chain.[9]
The Indian middle class, on even conservative estimates, is forecast
to grow to around 200 million people in the next 15 years.[10]
This will raise consumer demand as incomes rise, steadily increasing
the market opportunities for UK companies to trade their products
and services. We were concerned that UK companies were not taking
sufficient advantage of the opportunities a fast developing India
was providing and so decided to undertake an inquiry to ascertain
why this was. The original terms of reference for our inquiry
included looking at the difficulties and opportunities faced by
UK companies, and the role of the Government in assisting UK companies
wishing to trade, or forge investment links with India, including
the responsibilities of UK Trade & Investment (UKTI).
15. During our inquiry we took formal evidence from:
Tata Consultancy Services (TCS) and Diligenta; Aviva Offshore
Services and Norwich Union; UKTI; the Indo-British Partnership
Network (IBPN) (represented by Mr Karan F Bilimoria, CBE, DL,
Chief Executive of Cobra Beer Ltd, and Chairman of the IBPN and
Dr Shailendra Vyakarnam, Director of the Centre for Entrepreneurial
Learning, University of Cambridge and Board Member of the IBPN);
The India Group (represented by Mr Sonjoy Chatterjee, Managing
Director and Chief Executive Officer of ICICI Bank (UK) Ltd and
Chairman of The India Group, Mr Anwar Hasan, Managing Director
of Tata UK, and Mr Sirjiwan Singh, Head of Wockhardt UK Limited);
and Mr Ian Pearson MP, the then Minister for Trade.
16. We had meetings with Kamal Nath, India's Minister
for Commerce and Industry and visited a call centre in Belfast,
owned by Hindustan Computers Limited (HCL) a major Indian IT company.
We also undertook a visit to India, where our attention was continually
drawn to the opportunities presented for the UK higher education
sector by the companies and organisations we met. We took formal
evidence upon our return from representatives of higher education
institutions (HEI) with an interest in India. These were Lord
Patten of Barnes, Chancellor of Oxford University and Newcastle
University, and Dr Tidu Maini, Pro Rector, Development & Corporate
Affairs for Imperial College London. We also took evidence from
the British Council, which has responsibilities for promoting
the UK's education sector in India.
17. We received 28 written memoranda from other companies,
trade associations and individuals, which are listed on page 65.
We express our gratitude to those who provided evidence to the
Committee and those who met and discussed issues with us during
our visit to India.
1 CIA, Factbook, 2005 CIA website (14 June 2006):
www.cia.gov/cia/publications/factbook/index.html Back
2
The policy of protecting an indigenous industry against imported
goods of a similar type. Back
3
Appendix 30, Annex A, para 2 Back
4
OECD website (14 June 2006): stats.oecd.org/WBOS/default.aspx?DatasetCode=CSP6 Back
5
Indian Ministry of Statistics and Programme Implementation (MOSPI),
National Accounts Press Release: Statement S-1.2: Macro economic
aggregates and population, available on the MOSPI website
(14 June 2006): mospi.nic.in/3_macro_agg_const.pdf Back
6
OECD website (14 June 2006): stats.oecd.org/WBOS/default.aspx?DatasetCode=CSP6 Back
7
MOSPI website (14 June 2006): mospi.nic.in/nad_summary_constant_supply.htm Back
8
Astaire Research, The India Report, 31 May 2006 Back
9
Q 372 Back
10
Appendix 1 Back
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