UK-India Trade

Priti Patel Excerpts

Wednesday 25th January 2012 Westminster Hall

[Stephen Hammond]

My hon. Friend is, of course, correct. We can only hope that the Indian high commission in London will make that point to its Government. I know that my right hon. Friend the Minister has already made the point.

I return to the issues surrounding Dr Singh’s visit and the matters that we must reiterate to the Indian Government for doubling bilateral trade. We all accept the need to rebalance our economy, but we must exploit those areas of competitive advantage, and clearly a major one is and will remain financial services. The City of London corporation has been working actively in India for some time to build the City as the partner of first choice for the provision of financial services and to highlight the UK as a location of choice for overseas investment. The opening of the Mumbai office, and the lord mayor’s regular visits allow a continuing dialogue on the issuance of capital, insurance, asset management, infrastructure finance, consultancy, London exchanges, and legal matters. I could go on.

Our ability to expand trade in financial services would benefit from the removal of some of the restrictions that are in place on foreign institutions. There has been some liberalisation of the rules for foreign banks, which are now allowed to open 12 new branches a year, but there is a huge appetite among many international banks and particularly UK banks for a much greater allowance for branches in India. There is also countervailing pressure on UK banks that want to become established in India, not to open branches, but to form wholly owned subsidiaries, thereby receiving national treatment. They receive only partial national treatment, and that does not equate to the same treatment received by Indian banks that are trying to set up. I hope that the Indian Government will listen to the need for further liberalisation.

The same is true for both legal services and the accountancy profession. Broadly speaking, restrictions are such that internationally respected firms of lawyers and accountants are unable to practise on the Indian subcontinent.

[Priti Patel (Witham) (Con)]

India’s economic liberalisation has been taking place over the past 20 years, and things are moving fast. Does my hon. Friend agree that India must concentrate on sorting out business practices and ethics to ensure that all businesses in India and those in the UK that choose to go to India are not affected reputationally, as SIS has been?

[Stephen Hammond]

My hon. Friend is absolutely right. One of the greatest encouragements to international trade is certainty in the business environment, whether political, legal, accountancy or business ethics. She makes an outstanding point, which is absolutely correct.

I have touched on the financial services industry, and I hope that the Minister will outline what the Government are doing to ensure that pressure is maintained for further liberalisation of the area. There are other industries in which the relationship between the United Kingdom and India is growing and could be pivotal to us if we accept the opportunities. In the telecoms world, the UK has traditionally enjoyed, and still does, a competitive advantage over many countries in Europe and the world. It has been a leader in the development of mobile and tele-optic fibre technology and policy.

India suffers from a highly fragmented mobile technology market and might benefit if it were slightly less fragmented, but it is undeniably true that the market is dynamic. In one of the past six months, 18 million new mobile connections were made, and there is significant demand from the Government for the enhancement and expansion of broadband and some machine solutions to manage logistics. There is an opportunity for the UK telecoms industry, and it could become pivotal to our future.

The same is true of the higher education sector. One of the last high commissioners, His Excellency Nalin Surie, expressed disappointment that the UK had failed to grasp the opportunities that India thought that it was opening up to UK academic institutions and at its inability to open faculties in India. At last, over the past two or three years, there has been reversal of that. There are immense opportunities for new faculties and collaboration on high tech and pharmaceuticals, particularly in some areas of post-doctoral research. The UK higher education sector would do well to grab them.

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[Barry Gardiner (Brent North) (Lab)]

I am delighted to serve under your chairmanship, Mr Walker. In accordance with your guidance, I will try to speak exceedingly quickly. I am delighted to speak in the debate, and I pay tribute to the hon. Member for Wimbledon (Stephen Hammond) for initiating it. He has made many valuable points.

For the past 15 years, I have counted myself, and been counted, as a friend of India. In 1999, I founded Labour Friends of India, which I now once again chair. I set up and currently chair the all-party group on UK-India trade and investment. I declare those matters as interests. I have argued the case for, and often defended, India in Parliament. However, true friends do not just tell us what we want to hear, and today I want to be a true friend of India—yes, praising her development and economic progress, but also highly critical of her failure to achieve her full potential for economic growth.

There is no doubt that India’s growth is impressive. Like all the BRIC nations, she has consistently outgrown long-term predictions, with average growth of 7.45% between 2000 and 2011. India emerged practically unscathed from the international financial crash, with GDP dropping only as low as 5.8%—a figure unimaginable to us in the UK during peak periods.

The advancement in infrastructure has been clear to see for those who are frequent visitors, and the UN recently reported that India is on target to reduce her poverty rate from 51% in 1990 to 22% by 2015. The suggestion of the hon. Member for Banbury (Tony Baldry) that the Indian Government are not doing enough to tackle the country’s domestic poverty is frankly outrageous. However, of all the BRIC nations, India is the furthest removed from its potential, and the causes of that disparity show no sign of changing soon.

India’s failure to reform its markets, deal with the problem of corruption and establish a market conducive to foreign investment means that it has consistently failed to realise its potential for growth. If those structural problems continue to plague India in the years ahead, it will struggle to maintain the current rate of poverty reduction and development, and will stand no chance of building the infrastructure that it will require, just a quarter of a century from now, to deal with what will then be an ageing population.

On regulatory reform, India has consistently dangled the carrot of liberalisation in front of investors, only to renege on its promises and refuse to change. Making promises of reform that remain unfulfilled is more damaging than refusing to reform in the first place. Just last week, the central Government caved in to public pressure and paused the long-awaited retail sector reforms.

A recently released study estimated that those reforms would have opened the door to more than $1 billion of foreign direct investment in the food retail sector and increased the size of the organised retail market to $260 billion by 2020. That would have resulted in an aggregate increase in income of $35 billion to $45 billion a year for all producers combined, 3 million to 4 million new jobs directly, and 4 million to 6 million new indirect jobs. The Government also stood to gain by the move and would have expected to receive an additional income of $25 billion to $30 billion, by way of increased tax collection and reduction of tax slippages. That investment is not only on hold, but at permanent risk, as investors begin to question whether India will ever follow through its pledges on liberalisation.

Retail is just one sector where foreign investors are begging for the reforms that will allow them to start pouring capital into the country. Last week I met representatives from the UK’s banking, accounting, insurance and legal sectors. They told me that they had been poised to invest heavily in India for decades, but their patience, too, is wearing thin. In the retail banking sector, the largest foreign bank in India is limited to fewer than 100 branches, in a country with a population of more than 1 billion. It considers itself fortunate; the strict licensing laws have until now limited almost all other foreign banks to one branch in Mumbai.

With liberalisation, the banking sector would pour tens of billions of dollars into India. In the legal sector, the limitations are even stronger. No foreign lawyer is allowed to practise in India. The Indian market is dominated by small-scale practices rife with corruption and inefficiency. Liberalising the legal sector would improve productivity, pull billions of dollars of foreign investment into the country and go a long way towards eliminating the graft that stagnates that legal system.

Perhaps the best example of India’s hesitance on market reforms, however, is the EU-India free trade agreement—the longest awaited free trade agreement in European history. Time and again, negotiators have made compromises and offers, only for the goalposts to be moved. Despite compromises on medical patents, immigration and other areas, the Indian Government seem as far away as ever from signing.

India now insists that reforms in such areas as financial services and retail are for bilateral agreements, not EU-wide treaties. Those involved in the negotiations from an EU perspective have begun publicly doubting whether India wants to sign the treaty at all. The FTA exemplifies the failure of Indian leaders to grab the bull of reform by the horns, and drag India into the modern global economy.

It is not just market reform and liberalisation that hold India back. On a range of issues including the use of technology, agricultural productivity, education and the problem of corruption, India needs to do more. We know that India can transform sectors when it decides to. The infrastructure strategy for the current five-year plan is astonishing. The Government have predicted that $1 trillion will be spent on infrastructure over the next five years. That means billions of dollars of foreign investment that will revolutionise the infrastructure of the country and prepare it for its future needs in transport, energy and housing. It is just a shame that that bold vision is not repeated in other areas of the economy.

On corruption, Congress has repeatedly refused to take the steps that would not only mark the beginning of the end for corruption in India, but would reassure Indians, as well as foreign investors, that the Government are serious about tackling the problem. Anna Hazare and his supporters have been attacked. They have been deliberately frustrated and undermined by politicians from all parties.

[Priti Patel]

Will the hon. Gentleman give way?

[Barry Gardiner]

Other colleagues want to get in, so I will not take interventions.

The most recent version of the Lokpal Bill has question marks over it with respect to the independence of the body it would create and why senior politicians and judiciary should be excluded from its reach. A stronger Bill, which satisfied all the concerns, would have sent the message across the world that India will no longer tolerate corruption and graft.

I reiterate that I outline these criticisms out of concern for India, and in the hope that its Government will indeed make the necessary reforms to enable the country to bloom in the coming decades. But India is by no means alone in its failure to change.

Here in the UK, we have fundamentally failed to realign our trade and investment towards the economies that will offer the best prospects for growth and returns in the future. I praise the focus that the current Government have placed on trade with India, including the Prime Minister’s first overseas visit, but we need to do much more.

Between 2000 and 2010, the UK’s imports from India rose by 250%, while UK goods and services exported to India rose by 140%. Over the period, India has become a relatively more important trading partner for the UK. UK imports from India in 2010 accounted for 0.9% more than in 2000 and exports of goods and services to India accounted for 0.4 of a percentage point more than in 2000. That is to be expected. As India has grown in importance on the world stage, so it has grown in importance to the UK’s overall trade.

However, it is not against the percentage of overall UK trade that we should judge whether trade with India has grown enough, but against the percentage of overall Indian trade. That is the only way to see whether British companies are making the most of the opportunities available in India, and whether the Government are doing enough to prepare businesses and the general population for the shift in the balance of economic world power that will move eastwards in the rest of the century.

Despite growing at such a high rate, between 2000 and 2010 the UK fell from fourth to seventh in the list of India’s largest export markets, and was overtaken by Singapore and the Netherlands. Similarly, in terms of import partners, the UK fell from third in 2000 to 22nd in 2010. Most recently, we were overtaken by the Republic of Korea. The UK now provides only 1% of all imports into India. That shows that Britain is falling behind in the world race to provide India’s population with the goods and services they want. In our current economic situation, with the lowered demand of our domestic and European markets, we cannot afford that to continue. Our companies must begin to look to India far more as a source of growth and as an essential market for their future survival. The trade delegations and CEO forums will undoubtedly help to close the gap, but the Government need to be much more active in promoting India to British businessmen and entrepreneurs.

There are good programmes, which must be increased in size. The UK-India education and research initiative is a scheme designed to increase links between educational institutions in our two countries. Education is one sector in which India needs huge growth in the coming years, and it also happens to be one in which the UK is a world leader. The scheme establishes relationships between universities, but so far has involved supporting the development of only two new universities in India, and supporting a small number of exchange students.

If we are serious about targeting India as a major source of our future growth, we need to support tens of thousands of Britons to study in India and build the personal and cultural connections that will help them successfully navigate the Indian market in the future. We need to work with all UK educational providers to offer them active assistance in penetrating the Indian market.

My view of the relations between the UK and India is a real masala. I am profoundly hopeful, but also seriously worried. I am hopeful that India will make the changes needed to maximise its growth, eradicate poverty and prepare for the future, but I am worried that the required leadership may come too late. I am hopeful that British companies can take their proper place in the Indian market and help to provide our economy with growth for the future, but worried that UK businesses and entrepreneurs have become too hesitant to grasp the opportunities.

Finally, I note that the high commission does not have a presence here today. That is extraordinary for a debate of this nature on India. I have never known that to happen before, and it shows not only a lack of rudder at the high commission but a downgrading in the mind of the Indian Government of the importance of what we say in this Chamber, and of the UK in India’s relationships.

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[Caroline Nokes]

I thank my hon. Friend for those comments. Pune university has a staggering 650,000 undergraduates, which is an enormous number compared with Southampton university. However, that does not prevent the two institutions from working together to share business visions and fresh perspectives. My hon. Friend the Member for Cities of London and Westminster (Mark Field) mentioned that young people are the future, and that is exactly the sort of initiative and message that is being promoted in the Solent region.

I am conscious that my comments about Anglo-Indian trade relations will be exclusively positive because that is the experience of the members in my constituency.

[Priti Patel]

I am delighted to hear that the experience of my hon. Friend’s constituents has been positive, because, as we have heard during this debate, things have not always been perfect. Does she hold the view that when Dr Singh comes to visit this country later this year, it is incumbent on our Government to raise some of the barriers to doing business, particularly relating to corruption and the other issues that have been raised here today?

[Caroline Nokes]

My hon. Friend makes an important point. We cannot focus just on the positives, although they are there and they are important. We must ensure that some of these issues are resolved, preferably before the Prime Minister’s visit in the summer.

I hope that the initiative that we have seen in the Solent region is not the first, and that it is something that can be spread across the whole of the UK. I know that UKTI has been very positive in supporting that view and is looking forward to welcoming the delegation from Pune when it comes to Southampton later this year. In short, I regard our relations as wholly positive. I have kept my comments deliberately brief so that other Members can contribute. I hope that the links that we have established in the Solent region will go from strength to strength.