Indian economy to return to 8% growth, Ikea enters

The High Commissioner of India to the UK HE Mr Ranjan Mathai and Asia House CEO Michael Lawrence at a private breakfast briefing held at Asia House.

The High Commissioner of India to the UK HE Mr Ranjan Mathai and Asia House CEO Michael Lawrence at a private breakfast briefing held at Asia House.

Indian economy to return to 8% growth, Ikea enters

12/02/14

By Naomi Canton

India’s economy is expected to bounce back to a growth rate of eight per cent in the next two to three years – these were the upbeat comments from the newly appointed High Commissioner of India to the UK HE Mr Ranjan Mathai.

The 1974 batch Indian Foreign Service Officer, who retired from the top diplomatic post of Foreign Secretary in July last year, took over the London job from Jaimini Bhagwati. It is the second time he has been on a mission to the UK. The first time he was the Deputy High Commissioner of India to the UK between 2005 and 2007.The 61-year-old has previously been Indian Ambassador to France, Qatar and Israel, and served in Indian missions in the USA and Iran.

Indian Government hopeful the economy will return to 8 per cent plus growth

Speaking after a private breakfast briefing held at Asia House on Friday,7 February 2014, Mr Mathai said: “We are hopeful of being back on the eight per cent plus growth path in the next two to three years and if we can get our act together, it’s very likely we can reach a high growth trajectory in two years.”

The Indian economy grew at more than 7.5 per cent between 2003 and 2010, reaching close to 10 per cent in 2010 and then dropped to 6.2 per cent in 2011 to 2012 and five per cent in 2012 to 2013. It is expected to grow at less than five per cent in the next financial year.

Mathai said the current account deficit had been dramatically reduced which would help strengthen the weak rupee.  “We were worried that at one time the current account deficit would be four to five per cent of GDP but it has probably gone to substantially less than that in the last few months. The final figure remains to be seen; but the current account deficit is probably under control. It is not just that, we have cut down imports of gold; we are ensuring that exports will be on a high growth trajectory and we are seeing success in export growth,” he added.

UK-India relations seem to be experiencing a high, unlike US-India relations which have been damaged by the fallout from the Nannygate scandal. This has been helped by the fact that the UK recently rescinded its decision to impose a controversial £3,000 visa bond scheme on Indians visiting the UK.

The UK is now the third largest investor in India and India is the fifth largest investor in the UK, with a strong focus by India on investing in manufacturing in the UK. There are about 700 Indian companies in the UK and Tata, which made more money (£1.7bn) in 2013 pre-tax profits than it paid for Jaguar Land Rover (£1.3bn) in 2008, is the largest private sector employer in the manufacturing sector in the UK. Two-way trade between the two countries is expected to double by 2015.

The Indian High Commissioner to the UK HE Mr Ranjan Mathai signs the Asia House guest book.

The Indian High Commissioner to the UK HE Mr Ranjan Mathai signs the Asia House guest book.

 

Mathai explained why he took the London post up despite having announced his retirement.

“I thought it would be an interesting opportunity to do useful work in a place I know well and with whom we have a very valuable relationship both today and in the future.

Historically we share similar values and we can do a lot of business with each other,” he said. “I would like to advance our political and strategic relationship and further build the trade and investment we do with each other. I also want to try and get more Indian businesses to come to the UK and for people to leverage London’s position as a financial centre for the world. I would like to build a strong educational and cultural relationship and work with the strong and successful Indian community in the UK,” he added.

Mathai said that Indian businesses already needed a second visa to operate in the EU, even if based in the UK, as the UK is not included in the Schengen Visa, but many still chose to base their global operations out of the UK because of the close historical ties that India and the UK have. But he did not react to the question of if the UK voted to leave the EU, would Indian businesses still choose to be headquartered in the UK.

The India-UK relationship seems to be experiencing a high 

The current warm relationship between the two countries is in spite of several high-profile tax disputes that British multinational companies have got embroiled in in India. Mathai said he did not think the Vodafone tax dispute would deter British and other large multinational companies from doing business in India.

Vodafone has been involved in a long-running dispute with the Indian tax authorities over whether it should pay capital gains taxes for its 2007 purchase of the Indian telecoms business Hutchison. Shell is involved in a similar tax row.

Mathai said: “Every country in the world has at some point had an issue with tax, be it with national companies or foreign take-overs and we are confident that our tax laws are properly implemented and in fact are compliant with the best practices in the OECD. We have also set in place mechanisms for resolution of these disputes. Right now I think Vodafone is going through a process of arbitration that should provide us, I think, with the right solution. We are always encouraged that companies continue to invest in India. Vodafone for example has just increased its shareholding and its investment in India to 100 per cent which is permissible under the new FDI (foreign direct investment) ceiling from the telecoms industry reforms so they must be confident in the Indian economy and prospects.”

Vodafone India will be the first telecom operator in India to have 100 per cent foreign ownership.

However, to date, despite restrictions being eased by the Government in 2012 allowing FDI of up to 51 per cent in multi-brand retailing, not one foreign supermarket has entered India. On the contrary US chain Walmart, which had been the focus of a string of small shop owner protests against the decision, rather than announcing its multi-brand retail plans for India, announced it was splitting from its Indian partner Bharti Enterprises.
Meanwhile two Indian states have announced they are cancelling the approval in their states.

Tight regulations imposed by the Indian Government may also be putting foreign supermarket chains off. These include stipulations that foreign supermarkets must source 30 per cent of products from Indian SMEs. High costs of real estate, the corruption involved in acquiring land and the perceived lack of margins on sales owing to lower prices on goods may also be factors.

Mathai said: “We are aware of the facts which have had a major impact on investing in this sector. We have dealt with them and we have had very detailed talks with Ikea in which we have discussed many of that company’s issues about entering India and resolved them. Under the laws as they stand individual states are free to permit or deny the opening up of new stores.

Ikea and Tesco are both set to enter India soon

I think this is a process which will sort itself out and if Ikea is a successful operation other states may start to see the advantages of it. Ikea is continuing to have discussions with us and to the best of my knowledge they are going to open in India. Tesco is going to go into two states in India with Trent its Indian retail partner and these are very encouraging developments,” he said. When it goes ahead, Tesco will become the first foreign multinational company to enter multi-brand retail in India.  It made the first application to do so more than a year after India decided to allow 51 per cent FDI in the sector.

The world’s third largest retailer’s joint venture with Trent plans to open three to five stores a year.

In response to questions Mathai said he was not sure about the details of the 30 per cent sourcing of local products but I think they (western supermarkets) will find a model that works that is in the scope of Indian law.

British tourists likely to be given visa-on-arrival in India

Mathai said that the Indian Government was bringing out plans to expand its visa-on-arrival scheme, currently open to just a few countries, to include Britain and other countries.  He noted however that he was waiting for confirmation “to see a decision, to see a regulation come through for the High Commission in London.” This would not require legislation that had to go through Indian Parliament. “There just needs to be an administrative decision and a lot of the details and procedures will have to decided as to how to implement it,” he added.

Mathai agreed that many more Britons were applying for employment visas in India compared to 20 years ago. But British citizens have to earn a minimum $25,000 a year (apart from in a few professions) to be granted one.

Mathai said: “We like other countries have rules regarding salary levels required to ensure that those who get employment in our country do bring value in terms of skills and providing services that are not already available. There are many more people that have the prospect of taking up employment in India as the Indian economy grows. If they are providing services or skills that are not available locally then we would welcome them.”

Numbers of Indian students to the UK has fallen

Regarding the cancellation of the post-study work visa for Indian students in the UK 2012, which has led to a sharp fall in Indian applications to British universities, he said: “We have always taken the view that visa policies are for each country to decide. We did expect what we now see happening which is that since they withdrew the rights of Indian students to stay and work in the UK after completing their courses less Indian students are coming.”

He said many Indian students or their parents took out loans to come and study in the UK and the two year post-study work opportunity had helped them to get a start at paying back those loans and develop professional skills.

There remain many stalled projects in India, worth more than £100m, often blamed for India’s sluggish economic growth. But Mathai said whilst there has been a slowdown in some decision-making, it had not stopped completely.

In fact, he said a Cabinet Committee on Investment had been set up to gain clearance on projects that had been held up.

“There are very major decisions that have been taken and regulatory changes that have pushed through,” he said. “Sometimes it has taken institutional structures like the Cabinet Committee on Investment to help these processes along,” he added. “There is a fairly complex system of management in India. The ministries have specific jurisdictions but for major investment projects you need decision-making which is more holistic than leaving it to one department. Traditionally the resolution of issues took a long time. A lot of projects were stalled if they could not get financial closure or environmental clearance and it was very lengthy but now there is this faster track to bring issues to Cabinet level and get a decision.”

As for the BPO (business process outsourcing) sector in India, which includes call centres, he said: “We have no fear that the Philippines is taking over from us. We are aware it’s a competitive world. But our software industry has been upgrading and apart from call centres and BPO  we have  knowledge process outsourcing and we expect India to move up the value chain and to be able to offer very competitive industries from basic services upwards.  But we are of course aware that there is a lot more competition now at every level.”

NRIs fasting outside UK High Commission in protest at not being able to vote 

When asked why non-resident Indians (NRIs) would not be allowed to vote in the May General Elections, he said he was fully aware how many wanted to and some young Indians had been fasting outside the High Commission in London in protest but currently it was not allowed by Indian law, though the matter had even been raised in the Indian Parliament. He said it was not a matter for the government alone as the Election Commission would have to agree to the regulations and procedures.  There were problem with logistically managing ballot arrangements for such a large non-resident Indian (NRI) population but he confirmed that NRIs who travelled to India and were registered could cast their vote.

At the private invite-only breakfast briefing, held under the Chatham House rule, FDI into India, the May General Elections, India’s economic growth, the proposed Mumbai-Bangalore economic corridor and other corridors and  the UK-India relationship were discussed.

It was attended by representatives of Asia House’s corporate members including Standard Chartered, HSBC, BP, GSK, Tesco, Rio Tinto, PwC, McKinsey & Company and Linklaters.

naomi.canton@asiahouse.co.uk