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Britain and India: The odd couple

Jade

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WHEN David Cameron became prime minister one of his priorities was to deepen economic ties with India which had been neglected for years. Visiting the technology hub of Bangalore in 2010 he pledged to take the relationship “to the next level”. On September 21st British and Indian ministers and business folk gathered in Mumbai to discuss bilateral links. Though the diplomats and politicians were upbeat, many bosses were circumspect. The Indo-British relationship is still “losing its share of our minds and our trade,” said a senior Indian business figure.

Such laments have been commonplace for a decade as India’s trade has shifted to the east. China is now India’s biggest trading partner. Indians sell it raw materials and buy everything from toys to turbines. Yet in some ways the tilt east is overstated. Investment and financial links between the two Asian giants are feeble. There are no direct flights between the business hubs of Shanghai and Mumbai. And even as their sea lanes teem with trade, tension crackles over their Himalayan border.

Far from being a failure, Britain’s economic relationship with India is a mirror image of the Chinese one. Planeloads of bankers and Bollywood stars jet between London and Mumbai on 84 flights a week. Britain’s banks lend more to India than any other country’s, accounting for 28% of the world’s exposure to India, according to the Bank for International Settlements.

Britain is India’s biggest counterparty for foreign direct investment (FDI)—something official figures do not show. The figures omit deals routed via tax havens and downplay the worth of long-standing investments. Adjusted for these factors, Britain is the favourite destination for FDI by Indian firms with about $30 billion invested, or about a quarter of India’s outbound FDI stock. Tata Group’s takeovers of Corus and Jaguar Land Rover explain a chunk of this. Both are crucial for British jobs and research and development. Cyrus Mistry, Tata’s boss, is the most important industrialist in both countries.

In the other direction, British firms have at stake perhaps $85 billion in India, more than any other country and about 30% of all FDI into India. Some are golden-oldie investors such as Unilever; two big banks, HSBC and Standard Chartered; and British American Tobacco, which owns a third of ITC, a smokes-to-biscuits conglomerate based in Kolkata. Newcomers include Vodafone, BP and Diageo, which have used big acquisitions to boost their exposure to India, with mixed results.

The disappointment is trade in goods. Germany has created lots of jobs at home by exporting to fast-growing emerging markets. Britain has done less well. At the turn of the 21st century it was in the top five countries with which India traded. Now it is India’s eighth-biggest export market and 23rd-biggest source of imports. India ranks 18th on the list of Britain’s export destinations and 17th as a supplier of imports. China trades more goods in a week with India than Britain does in a month.

This lopsided relationship reflects both countries’ strengths and flaws. Both have sophisticated equity markets and big listed firms with cosmopolitan managers. This explains the pattern of FDI, with big takeovers common. Trade is low because both countries are mediocre at manufacturing. Britain no longer makes things emerging economies want, and India is not yet a base for the kind of cheap, labour-intensive production, whether of trainers or iPads, that ends up on British high streets.

Economic reality is hard to change but India is in the front-line of Britain’s push to make its diplomacy more commercial. Diplomats now talk about getting British ministers in the room when big British and Indian firms discuss deals. More co-ordination might help elsewhere, for example in infrastructure. British firms typically work alone and sell services such as feasibility studies and advice on regulation. Japanese and Korean companies get their hands dirty and are increasingly acting in concert to offer giant integrated packages to finance and build big projects, often with bilateral government agreements. “Britain is missing the bus,” says an industry chief.

Getting more small British firms on the ground in India is another priority. They generate jobs and trade. The city of Pune, a carmaking hub, hosts 300-400 German companies. The southern state of Tamil Nadu has a cluster of over 70 South Korean firms. No such British hub exists. Britain lacks giants such as Volkswagen and Hyundai, which bring their supply chains with them. And small British firms are either uninterested in or scared of India.

Over time India may open up more industries that Britain is good at. Much attention has been focused on supermarkets, with Tesco and others knocking on India’s door. But imagine what giant London-listed mining firms such as Rio Tinto and Anglo American could do to boost the flagging output of India’s mines, helping its balance of payments in the process.

Although trade in services between the two nations has grown fast, it is just $7 billion a year, a fraction of overall trade. Britain sells more services to Luxembourg than to India. By easing visa rules Britain could persuade more Indian firms to set up global bases in London and use the city’s finance and business skills. And by opening its protected legal, education and media industries to greater competition, India would get an influx of British know-how.

Today everyone wants to be best pals with India. France says its relationship is “special”; Russia believes its position is “special and privileged”; America says its ties are “indispensable”; Japan reckons its bond with India is “intimate”; and Germany counts itself as a “very close friend”. Even China hails “two ancient civilisations, connected by mountains, rivers and cultures”. Mr Cameron’s claim that Britain can be India’s “partner of choice” is overblown. But he is right that the economic relationship is closer than many realise and that, though lopsided, it can be built on.

http://www.economist.com/news/brita...ial-ties-trade-between-them-feeble-odd-couple
 
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Nice article. It's all about political wisdom & will. Otherwise, why should a country like India with so much of talent & manpower, still exporting raw materials instead of moving up the value chain?
 
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A good read. 30% of India's FDI is from UK!! I didnt know it.
 
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I still regularly hear complaints from potential investors to India that there is way too much red tape and corruption in trying to establish business in India. Delhi and Gujarat seems to have eased off to a large extent but what about the other states and especially the poorer states which needs these investments to boost their economies ? With its relatively cheap and skilled labor force which has the added advantage of being proficient in English, India can increase its clout.
 
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Indians are very anti-business.

Far too much jingoism, red tape and bureaucracy to ever be able to match us.

Even China hails “two ancient civilisations, connected by mountains, rivers and cultures”. :lol:
 
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Even China hails “two ancient civilisations, connected by mountains, rivers and cultures”. :lol:

Doesn't change the fact that Indians are extremely anti-business which is reflected by the collapse of your currency.

Anti-business people will never progress which is why India never progress.
 
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[Bregs];4835900 said:
very comprehensive article

That is why I like Economist. Very Comprehensive, even I don't agree with them on many issue. I guess Economist is some what similar to Hindu
 
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@ Jade

Thanks for sharing and its from the economist so its got all the credibility.

My take on this is:

As Govt of India is policy paralyzed since the CIA sponsored chaos have taken placed because we have not given to all of the demands of US like they have got us nuke deal and all the recognition and waivers but its the Russia and France who have benefited.

As the Indian businesses were full of cash reserves be it private like reliance, aditya birla or govt. owned PSUs they all have gone abroad and diversified.

Britain was the obvious choice as we know them inside out the language, the rules and regulations, infrastructure was all there.

Now, its the time to take the partnership to the REAL next level by not only using Britishers and their influence all over the world for our economic interest but also make use of its soft power in our strategic interests.

As they still holds good influence over many many countries they have ruled like pakistan for example.
 
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Doesn't change the fact that Indians are extremely anti-business which is reflected by the collapse of your currency.

Anti-business people will never progress which is why India never progress.

wow...our currency is collapsing....thatz new :D
 
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