India is sending right signals on WTO

Written by Rituparna Bhuyan | Updated: Sep 19 2009, 04:37am hrs
UK trade, investment & business minister Lord Mervyn Davies, who headed Standard Chartered Bank till January, 2009, is in India to explore possible avenues of cooperation between the two countries. He spoke to FEs Rituparna Bhuyan on why he is bullish on India. Excerpts:

When do you expect the demand for foreign goods to revive in UK

It is only last September that Lehman Brothers went bankrupt. It is only a year ago that the worlds financial system was on the edge of total collapse. Consequently, there was a drop in confidence level as banks failed, trade collapsed and trade finance evaporated. The impact of what started as a sub-prime crisis, became an economic crisis. I think that the confidence has been gradually restored and banks have been recapitalised. Liquidity has returned to the wholesale market. We were the first to make the bold moves, we were the first ones to recapitalise banks. I think those were tough measures to be taken and, in hind sight, proved to be the right ones.

Global trade would take some time to get back to normal. UK economy has gone through a difficult phase but is much more confident now. It is a diverse economy and we continue to invest in it. We have increased spending, have put a fiscal stimulus in place which we believe is absolutely the right thing to do. Demand has gradually picked up round the globe. Demand for Indian goods, too, would revive and get back to be normal globally. What I want to stress on is that UK remains a key destination for good investment for India. Half of Indias investments were in to the UK. Inward investment from India to UK was up 44% last year.

Indias leading industrial house Tata acquired the Jaguar and Land Rover. But they sought support from the UK government. What do you have to say about it.

Tata is a wonderful group. A few years down the line you will see more Indian investments in UK. And I think you will see more British investments in India. It is a two-way street. Trade between India and UK is about 12.4 billion. I hope that would grow significantly. Tata saw a difficult time when it bought Jaguar. But it remains a great investment. I think you have seen TCS, HCL and other major Indian companies invest in UK. The message they come back with is that here is an open market, a very sophisticated market, which likes Indian companies. I think we are going to see more acquisitions on those lines. Well see Indian companies going global. The challenge in front of India now is to create global brands. Not international but global, brands from India that everybody recognises in Indonesia or in Britain. I think you are going to see that.

Lloyds is keen on restarting its operations in India. What is your assessment on UKs insurance and banking industrys interest in India.

Having run a bank as its chief executive and chairman, I can say India has a huge banking market. You have seen the penetration of HSBC, Standard Chartered, Citi Bank and others gradually increase. I think that gradual emergence of international players in the financial services industry in India is a positive trend. There is a huge pent up demand in the insurance industry to invest in India. It is not just Lloyds but also companies like Prudential. I would welcome changes in the regulation as I think insurance industry is very important to the development of capital markets and to the future of India. I would like to see more openness in the legal sector. Britain is very strong in these sectors. In financial services or in professional services there is no doubt that as India grows it will have to open up its markets in order to be competitive.

But there are concerns on opening up these sectors to foreign companies.

I think that the sort of companies that want to be in banking, insurance or legal services are very big international companies, the ones that operate in up to 80 countries are respected globally. I think it is important to open up financial services in India. It is an evolution. I dont think it will be a good idea for India to lift all restrictions at once but it needs to be done gradually. Gradually India will have to develop its capital market. India needs a really big bond market and an insurance market. The only way you are going to be global is by having global players as a key part of the economy.

There has been gradual lifting of restrictions but I think it is important to say that India is sending the right signals on WTO. It is important that India is part of a Doha trade agreement. And it is important for the world economy to get that agreement signed.

How does UK look at the recent developments at the Doha talks

The UK view is clearprotectionism will kill the global economy. It will set us back in economic progress. We are very clear that we need a collective agreement around the world on climate change or financial regulation or on trade. The way we are going to take billions of people out of poverty is by having a collective agreement on big issues.

London is a big financial centre. At the G-20 meet, remuneration to bankers is likely to be a key issue. What is your stand on the issue

London continues to thrive as a financial centre. You may have read that we are bigger than New York on the bond market. You have seen how vibrant the equities market in London is. You see how strong London is in arbitration cases or in foreign exchange. I think 34% of forex trading is done in London. Those that wrote off London have been proved wrong. London will remain a key financial centre in the world, if not number one but right at the very top. I think what is important for financial services is that the world was nearly bought to its knees. The global economy sent a shock wave that Asians describe as a financial tsunami. We cannot afford to have that again. The governments, regulators and bankers need to learn a lesson. New standards of regulations, capital, liquidity, governance need to be set across the industry worldwide.

We cannot have an Indian or an American or British solution to this. We need to have an international solution. The debate on remuneration is a healthy one. At the end of the day that if boards of banks do not take right measures, regulators and governments will be forced to step in. Banks cannot be so out of touch with society. It is very important that compensation in banks is geared to long-term returns. Owners of the companies, shareholders and institutions that were pressing certain banks for growth are as guilty as the bankers. So we all have got lessons to learn.

How can UK and India partner in Infrastructure development

Along with being a minister of trade, investment and business I am responsible for handling a new initiativeInfrastructure UK. This has been launched to converge the visioning for infrastructure, needed to remain a competitive nation. We see the British economy as a low carbon digital economy, which is open and is rich in skills. You need certain factors of production if you want to stand in competitive. We need a strong infrastructure for this. Looking at India, not only does it face a real challenge on education but also infrastructure. How to build storage, railway links, roads. Basically a network that allows movement of goods and people. Again, you cant do everything out of the governments pockets. You have to have PPP. In the area of infra we see big opportunities.

You interacted with many government functionaries, including human resources development minister Kapil Sibal. What avenues did you explore on education

India faces a huge challenge when it comes to education. Looking at the growth in population and the importance that is given to education by Indian families - which many countries in the world envy-the government faces a huge challenge. This also means an opportunity for more cooperation between India and the UK. This is because the world has recognised us as leaders in universities and certification. I had a very good discussion on these issues during my visit and we see lots of avenues for cooperation.

But India is apprehensive about opening up its education sector completely for foreign players

I anticipate changes in that. I think that as the governments thinking evolves, they will see opportunities.

How can the UK and India cooperate on education

What is interesting about India is that you have outsourced medical and engineering education. This is an interesting model. The UK sees a big opportunity in public private partnership. We are one of the leaders in PPP and I think that will be increasingly relevant not just in education but also infrastructure. In such a fast growing economy, with such a high population growth, PPP will be a key feature of the economic growth story. It will not be possible for the public finances to fund economic growth and development. It has to be a blend of private capital. India has started its journey and I believe that in the decades to come there will be more PPPs.