The future is Indian: so wake up, Whitehall

By George Osborne (THE TIMES, 05/09/2006):

The message from the sub-continent could not be clearer. Britain is in danger of missing the bus — again. I say “again” because in China we have failed to make the most of the extraordinary opportunities of the past decade, languishing behind 11 other nations in our levels of trade. Now in India we risk losing out as well, despite the enormous potential for British companies.

Spend any time in India and that potential is obvious. After decades of socialism and bureaucracy, the Indian economy is now growing more than three times as quickly as ours. Exports are up a quarter in just one year; 450 shopping centres are now under construction; five million new mobile phone users sign up each month; and one in three Microsoft employees is Indian. As I saw for myself at the National Stock Exchange in Bombay, the country is brimming with self-confidence and new wealth.

Of course massive challenges remain. India’s infrastructure needs huge investment. The bureaucracy, or “licence raj” as it is known, has still to be tamed — although Manmohan Singh, the Prime Minister, is committed to reform. Above all, 300 million Indians live on less than a dollar a day. Under the giant advertising hoardings advertising Yahoo! Mail and ICICI credit cards to the middle class live whole families out in the open.

Seeing the slums has been a searing experience. But the ambition of every senior politician and business leader whom David Cameron and I have met is to overcome that poverty. And 1 per cent of the country’s poor cross the poverty line every year — a testament to the power of globalisation as a force for good. It seems to me that there is another ambition, though it is rarely said out loud: to overtake China.

That may well happen. India is set in our lifetimes to become the most populous nation on Earth and it has some distinct advantages over its neighbour to the east. Demographics are on their side. While China’s “one child” policy has left it with a rapidly ageing population, half of all Indians are less than 25 years old. A quarter of those who will join the world’s workforce in the next five years will be from India.

Democracy is on India’s side too. Who knows what the future holds for Chinese communism? Political risk is a concern of every investor in China. Yet in Delhi we will be having lunch with a prime minister who can boast a bigger democratic mandate than all the prime ministers and presidents of Europe and the United States put together.

Not that Britain has to choose between the two countries. I want to see big increases in our trade and investment with both these new economic powerhouses. In Shanghai last year I saw how much more British business could achieve with the right leadership from our Government.

But I believe the opportunities in India may be even greater. We share a common language and a shared history — what one Indian pharmaceutical company described to me as “cultural comfort”. Two per cent of our own population is of Indian descent, and 20,000 Indian students study in Britain each year. We are two service-orientated economies whose skills fit neatly together.

Of course there are British success stories in India, such as JCB’s recent investment in Poona. But all too often this isn’t happening. Time and again, I have been told here how Britain, despite a historically high base of investment, is now falling behind the United States, Germany, Japan and others. As the Commons Select Committee on Trade and Industry put it this summer in its excellent report on India: “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 falling behind their major competitors.” Perhaps it is not surprising given the failure of political leadership from our Government. The German Chancellor visited India recently with a big delegation of German business; our Chancellor has never set foot in the country.

So what can we do about it? First of all, we should be promoting free trade. Britain needs to make sure that as the EU develops its internal market it does not at the same time put up barriers to the outside world. We must try to restart the Doha round. But if we cannot get a breakthrough, we should consider an EU-India free trade agreement. One form this could take is a deal for India (and other developing economies) that opens EU markets in the same way as the “everything but arms” initiative has opened markets for the poorest small countries.

Secondly, we could do more to help trade in services. Mutual recognition of some professional qualifications would help enormously. Then there is the work of  UK Trade and Investment, the trade promotional arm of the British Government. Its efforts are poorly focused and confused. Different English regional development agencies are here trying to push their own agendas, often in direct conflict with each other. That makes even less sense when we consider that the UK is smaller than most Indian states.

Above all, we need to get rid of the patronising assumption that the only thing India has to offer is a giant back office. I have met here Indian companies who have bought pharmaceutical factories in Huddersfield, opened call centres in Northern Ireland and, in the case of Tata Consultancy Services, have UK operations that employ more than 7,000 people. Yet many tell me that the British Government, unlike our competitors, still does not see this as a partnership of equals. If Britain is to compete in the new global economy, it is time to think again.