India: slowly opening up to the world

India: slowly opening up to the world

India is an increasingly powerful economic force

  • Population: 1.22 billion
  • GDP (nominal): .82 trillion (¾ of UK GDP of .4 trillion)
  • GDP (PPP): .68 trillion (twice the UK GDP of .3 trillion)
  • GDP per capita (PPP): ,900 (10 times less than UK’s ,900)
  • GDP growth over 2012-18: 6.5% p.a.[29]
  • UK exports to India 2012:  £6.9 billion (1.4% of UK total exports) [30]

India is becoming an increasingly powerful player in the global economy. Driven by urbanisation, Indian GDP per head has risen from less than 0 per person in 1990 to ,000 today and growth is expected to average around 7% per year over the next decade.[31] As the country gets wealthier, India’s weight in the global economy will rise: accounting for around 3% of global GDP in 1990, India is expected to account for over 6% in 2018.[32]

  • India’s urban population is expected to double from 300 million to 600 million by 2030, driving a huge increase in consumer spending in urban areas as the new middle classes look to improve their quality of life. The level of consumer spending in Delhi and Mumbai is already twice the national average, and “tier II” cities are also growing in wealth.[33]
  • To support this transformation, India has ambitious plans to promote growth, with over US trillion of infrastructure development planned over the next 5 years and similar investments in public services and privatised state industries.

A growing Indian middle class presents huge opportunities for UK firms

Although progress is both patchy and slow, India is opening up to the global economy and paving the way for greater foreign ownership and trade. The UK has a number of advantages to boosting trade with India, including Indian respect for the quality of both the UK’s brands and legal system, and there is a long history of bilateral trade between the two.

Despite these potential advantages, India currently accounts for only 1.4% of UK exports. While this share grew by 59% between 2001 and 2012, it remains a low figure. This does not sufficiently reflect the value of the UK’s historic ties with India, and UK firms have often been left behind by more agile foreign and domestic competitors who have worked harder at their relationships with Indian partners.

However, the growth of the Indian market includes a number of sectors where the UK is well positioned to capitalise:

  • In financial services, the UK’s reputation for good practice is helping UK firms support the maturation of the Indian finance sector.
  • Consumption of English language media is growing rapidly, creating market opportunities for UK creative industries (such as music, television and film), IT goods and services (such as software engineering) and educational establishments.
  • The rising affluence of Indian citizens has also led to demand for education rapidly outstripping supply, and the UK’s reputation in India for high-quality education carries the potential to attract greater numbers of Indian students.
  • As larger indigenous Indian retailers begin to emerge, there are opportunities for foreign retail companies to enter the Indian market at scale, bringing with them their expertise in managing supply chains, branding and marketing.

UK firms also stand to benefit from growing FDI from India; it was the fourth largest investor into the UK in 2013, ahead of China, and is the second largest investor in London after the US.[34]

For many British firms, India is already a major market

Arup: The company has won contracts to support the development of New Delhi Railway station, the Zirakpur Masterplan in the Punjab, and the Rajiv Gandhi International Airport, Hyderabad.

Marks & Spencer India is a priority market for Marks & Spencer. The company has seen strong growth in India in recent years where the company currently operates 36 stores across the country.

Tesco has partnered with Tata Group, bringing their expertise in supply chain and distribution to Tata’s domestic network.

Diageo recently took a controlling stake in United Spirits, the world’s largest spirits producer by volume and largest player in the Indian market. India is currently the largest whisky market in the world but Scotch has only 1% of the market. EU pressure led to the Indian government protecting the status of Scotch in 2011.

OCS Group, an international facilities services provider, recently announced plans to double the size of its Indian operations, taking the staff in the country to 40,000. OCS currently employs a worldwide total of 85,000 people in 40 countries. OCS plans to grow its workforce over the next five years as it builds out the total facilities management (TFM) offer across India, making OCS the second-largest British employer in the country.  OCS has been successful in building on the strength of its UK brand in India, but the positive reputation of EU standards in their sector – which were heavily influenced by the UK - has also proved a strong marketing tool for the company..

Standard Chartered has operated in India since 1858 and is India's largest international bank, with 99 branches in 42 cities. As one of the largest banks in India, Asia and Africa, Standard Chartered is well placed to profit from an increase in trade between the three regions.

BP has investments of over US$ 8 billion and employs over 8500 people in India. It has a strategic partnership with India’s Reliance Industries Limited, working with them to explore for, produce and market natural gas in India. In addition, Castrol India is the leader in the Indian lubricants market.

But getting access to the Indian market is proving challenging

  • Businesses often find themselves confronted by high tariffs to protect domestic industries: for example, the 100% tariff on cars is a major barrier to increasingly exports, and wine and spirits tariffs blunt the ability of Scotch whisky to fully reach the world’s largest whisky market.
  • The lack of infrastructure for commerce in India remains a huge problem for fully exploiting those opportunities that are available. For example, Marks & Spencer has yet to expand into food retailing due to lack of cold storage in the domestic supply chain.
  • Government-imposed foreign ownership limits in Joint Ventures have, especially in advanced industries such as aerospace, prevented expansion due to concerns over loss of IP in technology transfer arrangements.
  • Retrospective changes to the corporate tax regime create an uncertain environment for investment, and withholding tax agreements between the UK and India make life difficult for small firms.

With EU–India FTA negotiations still to be concluded, UK business remains hampered by high tariffs, a complex regulatory system and extensive non-tariff barriers, which together represent a significant challenge to expanding operations in India in the short term.


References

[29] IMF World Economic Outlook, April 2013

[30] ONS Pink Book 2013

[31] MGI

[32] IMF World Economic Outlook, April 2013

[33] Euromonitor International, ‘India’s Rapid Unplanned Urbanisation Creates Opportunities and Challenges’, 2013

[34] UK Trade & Investment, Inward Investment Report 2012/13, July 2013