UK-India Trade

Debate between Priti Patel and Barry Gardiner

Wednesday 25th January 2012 Westminster Hall

[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.