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Gareth Thomas MP, Former Minister for Trade, Development and Consumer Affairs (jointly with DFID)
Deutsche Bank, Great Winchester Street, London, 24 April 2008
In 1870 when Deutsche Bank was founded its purpose was to promote and facilitate trade and investment between European countries and overseas markets.
140 years in, Deutsche Bank is still one of the big beasts of the financial service world.
I am a fan of India. It is a country of remarkable people, stunning sights and incredible experiences.
A country that has giving the world the Taj Mahal and the Samosa. That has given us Sachin Tendulkar and Bollywood.
And who can fail to marvel at the contribution to humanity of India’s greatest statesman Sardar Patel-Nehru – one time resident of my constituency – or the incomparable Mahatma Ghandi.
It is also the country of incredible potential. It will at some stage soon, I hope, take its rightful place in the UN Security Council.
But it is above all its economy where the potential remains phenomenal.
And where already Britain is playing a role in unlocking that potential.
But where there is so much more that we could do together in terms of trade.
At the start of this year, Gordon Brown led a business delegation to New Delhi.
Together with Prime Minister Singh, he underlined the need for “a confident 21st century India, working with a confident 21st century Britain”.
UK-India bilateral trade – already $10 billion per year – is increasing at a rate of 20% per year.
The UK is India’s fourth largest trading partner – India’s number one partner in Europe.
In Britain, the services sector accounts for three-quarters of GDP and employs over 24 million people.
In India, services is the fastest growing sector and continues to grow at 10% every year – contributing over half of India’s GDP.
The UK – and our EU partners – stands to benefit from Indian services.
“Off-shore”, skilled Indian customer service professionals drive business success.
“On-shore” the EU must continue to attract high quality Indian talent – the million graduates India produces every year.
The UK service sector has much to offer India. Retail, accountancy, advice on European law, and – obviously – in financial services.
British companies are there already.
Achieving much success in India and have benefited from India’s economic reforms. Kick started in the early 1980s. Taken forward by Manmohan Singh in the early 1990s
Doors have begun to open to foreign participation in telecoms, IT, retail, banking and insurance.
India has opened the oil and gas and aviation sectors to private enterprise.
BP for example employs about 1,400 people in India. And continues to explore options for developing an integrated gas network in India.
India is now the fastest growing aviation market in the world.
Delhi Airport has plans to handle 100 million passengers a year, more than any airport in the world.
The result is that hundreds of new aircraft are being ordered.
In telecoms India makes 5.5 million new mobile phone connections per month – double the UK – notably in rural areas where telecoms have previously been absent.
BT and Cable and Wireless are part of that success story.
As too are Vodafone, who last year invested $11 billion in India with plans to expand operations in smaller towns and villages.
The impact on the Kerala fishing industry of such market opening is striking.
Before mobile phones, fishermen would head straight to Cochin, or land their catch at the nearest port – creating gluts and low prices on some parts of the coast – shortages in other areas.
Today, fishermen have “real time” market information along the coast. Catches land where demand – and prices – are most favourable.
So the poorest are benefiting as development takes placed driven in part by trade with Britain.
Access to money
Foreign banks, such as Deutsche Bank, are in the vanguard with micro finance initiatives.
Initiatives that help the untouched and the poorest.
Deutsche Bank empowers under-privileged sections of Indian society – through support to leading NGOs like the Pratham India Education Initiatives.
Microfinance is attracting more interest from major UK banks, who increasingly view microfinance as a serious business.
Venture capital firms are taking equity stakes in microfinance groups – to take them to the next level.
And that expansion of microfinance is a reflection of the fact that Indians are crying out for opportunities.
They don’t want hand outs. They don’t mind paying interest. They just want to get on with running their businesses.
These Microfinance initiatives – often supported by funding from UK banks – are helping to address financial exclusion.
An EU-India FTA would significantly enhance the Indian investment climate for European business.
This could help boost the Indian agricultural sector. Held back by a lack of investment in infrastructure.
India’s agricultural sector suffers from a dependence on outdated technologies.
A rural-to-retail supply chain lacking the infrastructure to handle the transport and storage of perishables.
Of India’s total fruit and vegetable production, 30% rot before reaching the market.
The Indian economy has grown 8.5% over the last five years, the agricultural sector by barely 2.5%.
Increased UK – and European investment – in Indian infrastructure could turn this around. Making the agriculture sector more efficient and boosting export competitiveness.
However India remains a complex environment for UK companies to do business.
Many await the next phase of Indian reform – to bring the Indian economy into the 21st Century.
The potential benefits to India are clear.
Sectors open to foreign participation – biotech, IT, and telecoms – achieve growth rates up to 40%.
The legal, accounting, and transport sectors – which remain closed, or partially open, – experience single digit growth.
Now at the end of any transaction is a lawyer. Or, more likely than not, two legal teams!.
The Indian legal sector – of great interest to UK firms – remains a totally closed market.
And yet, high quality legal services break down investment barriers and allow commercial opportunities to be developed effectively.
The expansion of Indian business interests overseas means significant demand, from Indian businessmen, for quality international lawyers.
The UK is well placed to provide them.
Lack of progress holds back plans to make Mumbai an international centre for financial and professional services.
Or in the insurance sector.
It is true that Ariva, the Pru, Standard Life, Royal & Sun Alliance, and Legal and General are engaged in successful partnerships with Indian companies.
But UK insurers are held back from further expansion. Mainly due to the 26% cap on foreign ownership.
The Indian Finance Minister – Mr Chidambaram – said recently that insurance penetration in India is “pathetically low”. And that India must “move along with the rest of the world”.
Change and reform are being held back. Foreign ownership is viewed as handing over parts of the Indian economy, or, a threat to Indian jobs.
As a result, markets are sometimes dominated by the inefficient; stifling innovation and competition, and limiting expansion of life and health insurance to rural areas.
In the Indian banking sector too, foreign banks have earned a reputation for excellence.
Deutsche Bank, present in all major India cities, employs over 6,000 staff and is looking to expand.
Standard Chartered, HSBC and Barclays too have a significant presence in India.
The expansion of UK banking interests in India, particularly to rural areas is held back:-
With a population in excess of 1 billion, India allows only 12 new banking licences per year!
Indeed the need for further reform of the Indian banking sector is highlighted by the fact that only ten of the 27 publicly owned banks are fully computerised.
An EU–India Free Trade Agreement, which Britain supports, and indeed wants to champion, could unlock further investment in India and further development whilst at the same time offering new opportunities for British Business.
However, European and Indian trade negotiators are finding progress slow on the EU-India Free Trade Agreement.
The Commission – Mandelson – and European business is growing increasingly concerned at the pace of these negotiations.
Europe remains ready to make rapid progress – but the substance needs to be there on both sides.
Research suggests that an agreement could deliver real economic benefits for both India and the EU.
An agreement could increase India's exports into the EU by approximately 20%.
A strong boost to the Indian manufacturing sector.
An agreement would begin to tackle European tariffs in areas of interest to India - cars, pharmaceuticals, and textiles.
The biggest potential gains for India?
A 40% plus increase – worth 3.6 billion Euro – in exports to the EU of textiles and clothing.
We want to see and EU – India free trade agreement concluded.
But we want such bilateral agreements based on a new international trade deal – a concluded Doha round of world trade talks.
Those trade negotiations are delicately balanced. However, after seven years of negotiations the end is in sight.
The UK fully supports a deal this year. With continued political engagement this is a realistic prospect.
US elections, Indian elections and EU elections – next year – mean if a deal is not reached in the next 6–8 weeks, there won’t be a deal for at least another 2 years.
For the UK, services are vital to any balanced DDA outcome.
Without movement here, any deal will be difficult for some to accept.
New market access for industrial producers is also important. Greater flexibility is needed – especially from major emerging economies.
The so-called “NAMA 11” – including; Argentina, Brazil, South Africa and India must consider deeper cuts in their industrial tariffs.
And – having already taken the bold move to eliminate export subsidies – Europe must demonstrate leadership on agricultural tariffs.
The Prime Minister is engaged.
And the Head of the World Trade Organisation – Pascal Lamy – remains optimistic.
The next few weeks will be critical, as we move towards a Ministerial discussion during May.
I hope you – the business community, who stand to benefit significantly – will work with us to engage key governments.
India as all of you know remains a country of great contrast.
At the pinnacle of the world economy, India dominates the global billionaires’ list.
India’s population of millionaires grew last year to 100,000.
At the bottom, one in three Indians live in abject poverty – on less than $1 a day.
I am seized by the need to ensure that market opening benefits the entire Indian economy – both rich and poor alike.
India has made impressive strides in economic growth in recent times.
India’s thriving economy has lifted 100 million people out of poverty.
Reform must of course help those being left behind.
The UK is working with the Indian Government to help to tackle poverty and sustain Indian economic growth and development.
DFID is working with the Competition Commission of India, and the World Bank, to identify and focus on key barriers which inhibit Indian growth.
The UK has funded research in key sectors of the Indian economy.
We are helping Indian policy makers to analyse different markets and identify factors impeding more effective competition.
And at the start of the year, Gordon Brown announced a new aid package to India – to help India’s poorest
Our support has already has helped to get an extra 9.5 million children into school and provide water and sanitation for 10 million.
Global trade and investment must work for everyone – in the developed and developing world – both rich and poor.
The UK – Government and business – is well placed to help to ensure that India is equipped to meet the challenges of an open global economy.
The signs are encouraging.
Recent statements by Mr Chidambaram underline that India cannot achieve target growth – 10% by 2011 – unless reforms are undertaken.
Mr Chidambaram has made it clear that he believes that increased foreign participation in:
are necessary.
Offering new opportunities. Especially if we can agree a new free trade agreement and conclude the Doha round.
Trade Minister Nath can derive great satisfaction at over $155 billion worth of exports in 2007-08.
He has set an ambitious, $200 billion target for exports this year.
The UK can help India achieve this ambitious target.
We are a natural ally of India in encouraging Europe to open up in areas of interests.
As allies we need to support the global economy and restore confidence.
The alternative risks nations succumbing to the growing tide of protectionism.
The UK-India partnership – Governments and business – must continue to be at the forefront of those making the case for increased openness.
I believe that strengthening still further UK-India trade will help India’s development, will help India to lift more of it’s people out of poverty and at the same time be good too for British business, British jobs and our economy.
Thank you.
