Drift and decline in Indo-UK trade

VIDYA RAM | Updated on May 09, 2012

Britain's trade diplomacy has not kept pace with economic change.

Has India downgraded Britain as a global partner? The contention earlier this week by Labour Member of Parliament Mr Barry Gardiner that this may be the case, particularly when it comes to trade, provoked strenuous rebuttals by British politicians from across political parties, and the High Commission here in London.

Casting doubt on British-Indian relations, particularly in Britain, is pretty sacrilegious, with political leader after leader stressing the weight it accords that relationship. Prime Minister David Cameron is no exception: pledging to make Britain India's “partner of choice” when he visited India on his first foreign tour as Prime Minister two years ago, while Britain tasked itself with doubling trade with India by 2015.


Trade has certainly been growing in absolute terms: UK-India trade for 2011 crossed the 10 billion-pound mark by the end of November last year, against 9.8 billion pounds for the year before, and was up 40 per cent for the year as a whole, after a fall of nearly 15 per cent the year before.

Yet, relative figures tell a somewhat different story. As a recent UK parliamentary briefing paper notes, in 2010, India was just the 15th-biggest destination for UK goods, accounting for 1.5 per cent of the total, and the 16th-most important when it came to UK goods imports (1.6 per cent). The picture wasn't much better when it came to services, holding 22nd and 11th position, respectively. And while exports of goods and services to India more than doubled in the decade to 2010, it had barely moved in relative terms, rising to 1.4 per cent, from 1 per cent of UK exports. (The percentage has remained relatively constant since the 1970s).

Investment by Britain in India has also been lagging behind other parts of Europe: while FDI from France rose to $685 million in 2010 from $117 million four years before, British investment has fallen to $475 million from $1.8 billion during that period, according to WTO figures.

Meanwhile, from the Indian perspective, Britain has fallen further down the rank of its export partners — from 4th position in 2000, to 7th last year, and from 3rd to 22nd when it comes to imports during that period. Now, UK imports account for just 1 per cent of India's total, behind countries from Australia and Switzerland to South Korea, Nigeria and Iran.


It's partly a reflection of how the British economy has been evolving during the past few decades: manufacturing — which accounts for the largest chunk of Indian imports — has been on the decline in Britain, a country, which, until recently, focused much of its efforts on the financial services industry (it still accords more weight to that sector than most parts of Europe, as protection of it was the key reason that Mr Cameron vetoed the European fiscal compact).

But it's also partly a failure by Britain to pro-actively pursue its choices in a scenario that has changed rapidly during the past 10 years. “Particularly in the last decade, the UK has been somewhat behind the curve when it comes to dealing with India or increasing its trade,” says Mr Christopher Ogden, a lecturer in international relations at St Andrews University, and author of a forthcoming book on Indian foreign policy. “It's been behind the curve in dealing with India, just as it's been with its engagement with China.”

This has come at a time when India's choices and leverages have been widening: India has identified 23 strategic partners, and Britain is simply one of them. “My sense is that the UK may no longer be one of India's top 5 strategic partners, a position that it used to hold 3 or 4 years ago,” argues Rahul Roy-Chaudhury, a senior fellow at the International Institute for Strategic Studies.

“When (British Prime Minister) David Cameron visited India in July 2010, there were $1.1 billion of trade deals, when (US President Barack) Obama visited, there were $10 billion of trade deals, when (French President Nicholas) Sarkozy visited, there were $14 billion of trade deals. There is a difference.”


Still, on some counts — such as Indian investment into Europe — ties between Britain and India are streets ahead of other countries. Between 2006 and 2011, Indian firms bought $22.4 billion worth of assets in Britain — with runner-up Germany at just $3.4 billion. India is a major employer, with its companies employing around 90,000 people in Britain.

(The government is keen to promote more such investments, and is introducing measures, such as reducing the time that those who bring certain substantial sums to invest in the country must wait to be eligible for a British passport).

The need for re-alignment and re-balancing, particularly in the wake of the financial crisis, and the troubles plaguing Britain's largest trading partner, the EU, has been recognised by Britain itself.

Chancellor George Osborne courted China on a recent visit to the country, and scored a number of deals, including promoting Britain as the yuan's second-largest offshore trading hub after Hong Kong. (It's seen as something of a coup, given fears that countries might concentrate their efforts on the European mainland, following Britain's increasing isolation from the rest of the EU.)

With India too, moves to improve trade have been accompanied by other gestures of solidarity, including the decision to maintain its direct aid payments (as part of its austerity drive, aid to countries from Russia and China, to Niger and Vietnam have been taken off the list). And last week, Foreign Secretary William Hague reiterated Britain's support for India's quest for a permanent UN Security Council membership — one of the stronger levers it still holds.

Outstanding issues — such as over non payments to British firm SIS Live during the Commonwealth Games — are being dealt with largely outside the public arena.  

Someone pointed out to me recently, there's been much rhetoric but little concrete analysis of the state of the relationship, particularly economic, between the two nations. “Downgrade” is perhaps too strong a word, but the instinct that this is a relationship that needs to be worked at and analysed, rather than treated with the complacency it largely is, is no bad thing.

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Published on January 29, 2012
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