One striking aspect of the economic relations between India and the UK is that they have not followed the route popularised by the dependency theories about the roles of the Centre and the periphery or the metropolitan countries and the satellites. Thus, while the strong trade relations, which dominated the colonial period, have slowly ebbed in the recent years, new vistas to extend cooperation into other more important and strategic areas have opened up to compensate.
We find that while the share of India?s merchandise trade with the UK has dropped from more than a third in the colonial period to about 6% in the early 1990s and to less than 3% in the more recent years, the two countries have seen a sharp surge in bilateral investments. The surge in bilateral investments, even in the face of shrinking share of merchandise trade, has ensured that the UK continues to be the largest European investor in India and the fourth largest international investor, after Mauritius, Singapore and the US. Similarly, India has zoomed up from the seventh to the second position among international investors in the UK. This is evident from some of the biggest acquisitions involving the two countries, such as Vodafone?s $11-billion acquisition of Hutchison Essar and Tata?s acquisition of Corus for $12 billion.
As many as 700 of the 1,200 Indian companies operating in the EU are in the UK. Though most of the companies are in the IT sector, new inroads have been made in steel and engineering. And to cap it all, the Tatas have now become the largest foreign investor in industry and the single largest manufacturing company in the UK. Today, there are more than 70 Indian companies listed on the London Stock Exchange.
The growth of UK investments in India have been much more historical with companies like Cox & Kings and PricewaterhouseCoopers present in the country since the 19th century. The train, Maharajas? Express, which Cox & Kings runs through a joint venture with the Indian Railways, is the most luxurious train in the world. But the prime of the place has been taken by new entrants, like Cairn Energy, which has made large findings of oil and gas. British Gas and Shell have also expanded their operations in India. The most favoured areas of British investors include electrical and software segments (22%), power and oil refining (21%), financial and non- financial services (12%), timber products (8%) and telecom (6%).
The close interaction between investors of the two countries has been enhanced through government-to-government relations, where the first major breakthrough was achieved when the two countries launched their comprehensive strategic partnership in 2004. It was Tony Blair, the then PM of Britain, who mooted the idea of India joining the G-8 discussions and invited the Indian PM to the G-8 plus 5 Gleneagles summit in 2005. The UK?s continued support of India?s candidature for a permanent membership to the UN Security Council, the civil nuclear cooperation agreement signed between the two nations early this year and the large induction of the jet trainer aircraft into the IAF highlight the growing importance of the strategic relations between the two nations.
One reason why the extensive relations between the two countries have continued to survive and flourish is the people-to-people relations. Indians (1.5-2 million) form the largest ethnic group in the UK. Today, there are 8 British MPs who are of Indian origin and close to two dozen peers of the House of Lords. Estimates also show that a million people travel between the two countries each year. The other human face of the relationship between the two countries is the large number of Indian students that flock to the education institutions of excellence in the UK. Indians constitute the second largest foreign student body in the UK, with about 40,000 students enrolled in higher education courses in 2009. And there are 80 collaborative India-UK programmes leading to the awarding of UK degrees in India and it is estimated that the British Council administered over 2,10,000 UK exams in India.
Another important indicator of the close relationship between the two countries is the sizeable growth in aid. UK alone contributed close to a third of the bilateral and multilateral aid to India in 2008 amounting to $613 million. And most recent numbers show that India has received more overseas aid from the UK than from any other country since 1998. But the the potential synergies between the two countries are even larger, given that the $3-trillion UK economy, the fifth largest in the world, is almost three times larger than the $1-trillion-plus Indian economy, which is still way down in the twelfth position.
p.raghavan@expressindia.com
