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Rt. Hon. Lord Mandelson, First Secretary of State, Secretary of State for Business, Innovation & Skills, Lord President of the Council
CII Partnership Summit, Delhi, 19 January 2009
I am delighted to be back here in Delhi, although I almost didn’t make it due to Delhi fog.
This morning I want to talk about the UK, India and the downturn. For a couple of years up until about the middle of last year there was a debate going on in the financial services sector and in the financial media over the extent to which the emerging economies - including India, of course - had ‘decoupled’ from the developed world. Have India, China and the other emerging economies achieved enough momentum economically to fundamentally break the link between their economic destiny and ours in the EU and the US?
It was one of those technical debates that also had a pretty strong political subtext. At least before the credit crunch and the resulting crisis in the real economy substituted a set of even more pressing worries, there was indeed already a lot of anxiety in Europe and the US about the implications of the rise of India and the rest of Asia for our own economies. Along with its real consequences for emerging markets investors, decoupling was also about the emergence of a new economic order in the world.
Well, the last few months have been all about just how coupled together we are. The credit crisis has delivered the first major external economic shock of India’s meteoric 21st century rise. What began as a surge in foreclosures on the US mortgage market and a liquidity crisis has rapidly spread like an infection to the real economies of the US and Europe, and from there around the world. India is less dependent on export demand than China or other parts of Asia, but the pressures on developed world investment can and is having the same impact on growth in India, China and the other emerging economies. This is indeed the first major economic crisis of the global age, and it is everybody’s crisis. We all share it.
And it is going to shape the mindset of a generation of politicians, businesspeople and entrepreneurs in India and the UK. What I want to argue today is that if we draw the wrong conclusions, especially about open trade and globalization, we could turn a global downturn into something deeper, longer and therefore significantly worse.
The first challenge will simply be to preserve the openness of the global economy itself in the face of intense pressures. The World Bank has just said that it expects that world trade growth will go into reverse in 2009 for the first time since 1982. If the Bank is right that levels of investment from the developed to the emerging economies in 2009 could also be just half of the $1trillion of 2007 then the global economy risks losing a huge slice of the demand that drives international trade and growing prosperity.
We should reflect on the lessons of the 1930s, that if we allow the openness of the global economy to go into reverse, a global recession will become a global slump. The pressure to reach for trade barriers or other forms of protectionism is stronger during a downturn – but all the more important to resist. Hence the importance of coordinating fiscal stimuli as much as possible around the world.
India’s experience since 1991 certainly argues in favour of guarding the benefits of globalization. Of course, the strains of rapid industrialization in India are huge. Extending the benefits of India’s emergence as a global economy to every village and hamlet will be a huge challenge for your country. But the basic outcome of India’s growing openness has been a growing economic prosperity that has and will continue to transform lives for the better.
I welcome the fact that the Indian government remains so committed to liberalization of its financial, legal and accountancy sectors, which will be an important contributor to attracting the foreign investment it wants for its large infrastructure projects. The Indian knowledge economy has ambitions to cater for a global market. The expansion of Indian manufacturing, which the government rightly sees as central to defining India’s future place in global value chains, will be built on the further opening up of the Indian market to industrial imports.
Even assuming that the political case for this essential growing openness will prevail, we are still faced with the huge challenge of global economic governance.
Getting this right obviously means reflecting on the way the economic world actually works. So I’d argue that the first significance of the G20 meeting in Washington last November was its guest list. India was there. So was China and others. The G20 as a format is untried and untested. But it has the potential at least fundamentally to reshape the steering committee of the global economy in a way that is overdue. As chair of the group for 2009, the UK will be ambitious. At the London Summit in April we want to win agreement on the principles, priorities and process for an ambitious agenda to strengthen the global financial system, reform the World Bank and the IMF and ensure that the global trading system remains open.
No matter how much we are all hanging on the words of the gentleman who will move into the Oval Office tomorrow, the new global economic order will not be shaped exclusively by the Washington Consensus. How well we prepare global institutions for that new order will define how well it can work.
There are huge questions. Quantifying just what the developed world and the emerging economies can legitimately expect from each other on trade, or climate change, for example, is a political minefield, as I know from the Doha Round of WTO trade negotiations over the last four years. These are the political basics for a stable new global economic order. We cannot allow the G20 process – or indeed the Doha Round, or the climate change agenda - to stall or suffer from lack of focus because we cannot answer the big questions.
Defending global economic integration and working together to renew the institutions and principles that govern globalization – should unite India and Europe, and India and the UK. Back in 2007 Kamal and I launched a free trade agreement negotiation between the EU and India precisely because we believed that closer economic openness between India and Europe is in the long term economic and strategic interests of both sides. Europe is India’s biggest market, and the top export market for its ten biggest exports. Europe and the UK can be a source for the industrial goods that will drive India’s own manufacturing boom. As with the wider Doha Round, the downturn does not reduce the value of a bilateral trade deal, it raises it. The EU and India should call the deal what it would be – a confidence-building economic stimulus package - and sign it before the end of the year.
For UK companies to maximize their potential for success in India they need to grasp the extent to which the Indian market of today is not the market of ten years, or even five years ago. One of the key things I want to impress on the British businesspeople who are traveling with me, is the need to engage with the entrepreneurialism that is flowering outside of a foreigner’s typical focus, in regional cities like Pune. In particular I am keen to encourage UK manufacturing companies to look for joint ventures and opportunities in India’s growing industrial sector and higher up the value chain. Through UKTI, we are currently recruiting 4 private sector specialists in ICT, life sciences, energy and advanced engineering to work with India based companies to identify opportunities for hundreds of UK businesses in these areas.
I have also brought with me to India a team of the UK’s best civil nuclear technology experts and over the next couple of days we will be working with Indian counterparts to identify opportunities for further collaboration. Indeed, across the whole green collar sector, I want to give UK companies a chance to benefit from exposure to India’s embrace of the low carbon agenda. We are already working together on low carbon vehicle technology, and this week’s Symposium on International Automotive Technology in Pune, which I will be attending, will showcase some of the UK’s growing expertise in automotive research and development.
For all their obvious differences in terms of industrialization and development, the UK and India face many similar challenges. We are both looking for ways to empower our people to take advantage of globalization through skills and education. We both want societies that reward innovation and creativity and entrepreneurship. We both want to make sure that globalization’s benefits extend to the man in the Nano as much as the man in the Jag, so to speak. And perhaps most importantly, to the man and woman who can’t yet afford either.
The events in Mumbai last November provoked a deep wave of solidarity and support for India in the UK – and not just because of the obvious strong ties between our two countries. It was felt across Europe and around the world. The grim prerogative of terrorism is that it makes us innocent victims first, and nationalities or ethnicities second. Nobody would disagree that building a global front against terrorism is a noble and necessary objective, one that must be central for each and every country in this region. My argument today would be that cooperating to shape our shared economic future should engage us with the same force and the same focus.
So my checklist for the global politics of the downturn? Well, learn the lessons of economic history, and whatever the temptations, whatever the distractions, keep trade flowing and the global economy open. Sign the EU-India FTA. Get Barack Obama to pour some of that tidal wave of political capital he has into getting a Doha Deal by the summer. Use the downturn to leverage a shift to low carbon technology. Let the G20 Summit in London in April be one of those rare moments in international politics when the old gives way to a new agenda. So there you have it.
We have to address all these things. I profoundly believe we have no choice.
ENDS
