Speech by the Chancellor of the Exchequer, Rt Hon George Osborne MP, Taj Mahal Hotel, Mumbai
Speech by the Chancellor of the Exchequer.
George Osborne visited India with the Prime Minister and other senior members of the Goverment as part of a trade delegation. While there he delivered the following speech on the growing economic partnership between the UK and India.
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- More about the Chancellor’s visit to India, from the FCO (opens in new browser window)
UK and India: a new economic partnership
Welcome everyone.
I want to thank the Indian Banks’ Association, as well as UK Trade and Investment, for hosting this speech.
It is a real pleasure to be back in Mumbai today.
I was last here in 2006, when David Cameron and I came to meet with and talk to the leading figures of Indian business and politics.
On the way back from that trip we resolved that if ever we formed a Government we would return with a large delegation to enhance this relationship.
This visit makes good on that promise.
Put simply, this is the strongest and most high-profile British delegation to visit India in modern times.
It includes six senior ministers - alongside the Prime Minister David Cameron and myself, we are joined by:
- The Business Secretary Vince Cable;
- The Foreign Secretary William Hague;
- The Minister for the Environment and Climate Change Greg Barker;
- And the Culture Secretary Jeremy Hunt.
While it took one of my predecessors as Chancellor ten years to visit India, I have made it a priority to come here in my first ten weeks.
Our delegation also includes leading figures from British business, sports and academia.
Top chief executives of some of the world’s best-known businesses, like Vodafone, BAe, and Rolls Royce, and leading financial sector firms, including Barclays, Standard Chartered, Deutsche, Clifford Chance, Aviva, Standard Life, and the London Stock Exchange.
Senior academics from Cambridge, Imperial College and our other universities.
Cultural leaders like the directors of the British Museum, the Victoria and Albert Museum, and the British Library.
And sporting figures, such as Olympic medal winners Sebastian Coe, Kelly Holmes and Stephen Redgrave to see the new facilities for the Commonwealth Games. Next time I will bring some cricketers.
And the scale of our visit is a demonstration of how serious we are about India.
Britain’s new coalition Government is here to renew and strengthen the partnership between our two countries.
Based on our shared interests, shared values, shared sense of threats and ever-burgeoning personal and business ties.
India’s economic success within the framework of a secular and plural democracy is of strategic importance to all open societies and all open economies.
The UK has a vital stake in India’s rise to global power and prosperity and we are here to listen and to learn, to find out how our strong relationship can grow stronger still.
So I want to talk today about those three core ingredients which I believe are needed in this new enhanced economic partnership.
They are, first, greater efforts to improve trade and investment flows between our countries - a partnership in trade and investment.
Second, a deeper understanding of the links between our financial services sectors - a partnership in finance.
And third, a better recognition of our shared goals on the international economic policy arena - a partnership for the world economy.
Let me say a few words about each in turn.
Starting with our trade and investment.
Our two countries have much to gain from expanding our trade relationship.
In the past, this has been a disappointing aspect of our bilateral ties.
The UK and India have slipped down the rankings of each other’s trading partners - we could and should be doing much more with each other.
In 2008, India was only the 19th most important source of foreign goods for the UK market and the 12th most important source of services.
A decade ago, the UK was India’s fourth most important source of imported goods. By 2009, we had fallen to being the 18th largest.
In other words, the UK has been losing its share of India’s booming trade with the outside world.
Now, it is all too easy to set eye-catching targets that disappear without trace after they have served a short-term need to grab headlines.
In January 2007, when the then British Chancellor of the Exchequer visited India, he promised great things for the bilateral trade relationship.
Gordon Brown announced that he aimed to double exports to India by 2010 - that is to say this year - and to quadruple exports by 2020.
A noble ambition, but easier said than done.
The value of UK exports of goods stood at £2.7 billion at the time of that announcement; by 2009, it had reached just £2.9bn.
It will be a stretch for us to reach the target of doubling exports in what remains of this year.
That is why we want to make progress on free trade talks.
We must make every effort to complete the Doha trade round. And we should ask trade experts to report to G20 leaders on steps to achieve this before the Seoul G20 Summit.
We should strengthen significantly EU-India trade links. Indeed, an ambitious Free Trade Agreement between the European Union and India will generate jobs and growth by tackling the unnecessary barriers to trade and investment between our regions.
By 2020, it could deliver benefits worth a combined €4.5 billion per annum shared between India and the EU.
Negotiations are now entering their fourth year. We need to provide the leadership to complete the free trade agreement by early next year.
We must reduce the costs of trade - particularly the frictions and delays at borders -which are often a far larger barrier to market access than tariffs.
The World Bank estimates that a 2 percent reduction in the costs of doing trade is equivalent to an ambitious Doha deal on tariffs.
So we need to do more, and do better, on trade between our two countries.
We need to build on what has already been achieved. There is a strong investment base:
- 700 out of 1,200 Indian firms in the European Union operate from within the UK;
- The largest single manufacturing employer in the UK is the Indian conglomerate Tata, which owns Jaguar, Land Rover and in the constituency I represent Brunner Mond;
- And the UK receives over 10 per cent of India’s outward investment flow.
So when it comes to investment, ours is not a one-way relationship.
But while the UK stock of inward investment is the fourth largest in India, the UK’s share of foreign direct investment has been declining. I want to change that.
Yesterday I launched Vodafone’s solar powered mobile phone, and exchanged greetings with a villager in Jharkhand.
Communicating from a mobile phone shop in Mumbai directly to a village a thousand miles away - this is the scale of the change in which British companies can participate.
The Government of India have set out ambitious plans for $500 billion infrastructure investment.
This is a massive opportunity for British engineers, architects, designers and construction firms to strengthen cooperation further.
I welcome that the Government of India is taking forward proposals for foreign insurers and pension funds to play a role in delivering this finance.
We should bring together CEOs from the UK and India to identify how we can further improve collaboration in this area.
So we need an enhanced trade and investment partnership. We also need to strengthen our partnership in financial services.
So this is the second crucial element of an enhanced economic relationship - the increasing importance of the financial links between our two economies.
Lack of access to finance is a major barrier to poverty reduction all over the world.
British banks are fully committed to the Government of India’s financial inclusion agenda and to the challenge of serving the needs of poorer communities in rural areas and smaller towns and cities.
We are here for the long haul. Indeed some UK banks have been in India for over 150 years.
Standard Chartered, HSBC and RBS are three of the top four foreign retail banks in India.
Offer them licences in the medium-sized towns and smaller cities and they will jump at the opportunity to be part of the huge effort to bring modern banking services to millions more Indians.
Just look at what they are already doing - Standard Chartered and HSBC have extensive networks of more than 100 branches between them covering 31 cities.
I also want to see British banks doing more to help India increase its financial capacity so that access to capital is not a brake on India’s economic growth.
A Confederation of Indian Industry report published this month noted that foreign banks held only 8.5 per cent of the banking sector’s assets and that this limited the country’s ability to secure higher investment growth.
But let’s also be clear about something else.
It is essential that we learn the lessons of the crisis and create financial systems that support growth rather than put it at risk.
India’s attention to macro-prudential risks enabled it to weather the storm better than the UK and other economies.
In the UK I have announced a new approach to financial regulation, including a stronger focus on macro-prudential risks to the financial system as a whole, stronger regulation of individual firms by the Bank of England, and enhanced consumer protection.
I know from my conversation this morning with Reserve Bank of India Governor Subbarao, how much both our countries have to gain from sharing our experiences in macro-prudential regulation.
I look forward to strengthening our cooperation as we both develop our global financial centres.
As the Governor said in his speech to the Indian Merchant’s Chamber, the Indian banking system will become increasingly international, with Indian banks increasing their presence abroad and foreign banks taking a larger presence in India.
India has seen tremendous benefits from the liberalisation of the financial sector, as I saw this morning at the Bombay Stock Exchange.
The dynamism of India’s capital and equity markets demonstrate the potential for other parts of the financial sector: for example in banking, through the implementation of the reforms set out in the RBI’s 2005 Roadmap.
And in insurance, by following through on India’s welcome commitment to raise the cap on foreign investment from 26% to 49%
I have another key message for financial regulators and financial institutions here in this great financial centre of the future.
And it is this - I believe in reciprocity.
I would like to see Indian banks establishing themselves even more prominently as big players in the City of London and throughout the UK.
Indian financial services firms are also increasingly active in the UK.
There are currently 9 Indian banks in the UK and all of them are growing and have plans to open more branches in the UK.
The UK is now home to more Indian banks than any other country in the world.
I very much welcome the fact that the India Infrastructure Finance Company based itself in London - a move symbolic of the depth of the financial services relationship between our two countries.
And I’m pleased to announce today that Exim Bank, India’s premier development bank for trade and investment, has been given a license from the FSA to set up their bank in the UK - bringing that number to 10 Indian banks and with more to follow I hope.
I can also announce that the State Bank of India, the oldest commercial bank in this country, will be making London their European Headquarters this year and will be adding to their network of branches across the UK.
This is precisely the kind of reciprocity our banking sectors need.
And I would welcome the arrival of more Indian banks in the UK as well as the expansion of the existing players already serving customers the length and breadth of the country.
So we will develop a partnership in finance to complement the new partnership in trade and investment.
And these will together help us form a new partnership for the global economy.
India’s policies of trade and investment liberalisation are reintegrating India into the world economy, allowing it to regain an influence it had three centuries ago.
Prime Minister Manmohan Singh once famously quoted Victor Hugo saying that ‘no power on Earth can stop an idea whose time has come’.
The emergence of India as a major economic power in the world is certainly one such idea.
That is why it is time to acknowledge that the post-1945 system of international financial institutions - particularly the IMF and the World Bank - needs to change.
It was built for a world of closed economies and just 50 states.
In a world in which relative economic power is shifting eastwards, we urgently need modernisation and reform.
We need a new global financial architecture that reflects the re-emergence of India and a number of other countries as linchpin powers in the world economy.
We need institutions that have the resources, the tools and the legitimacy to ensure countries can withstand economic shocks and prevent crises from spreading:
- Enhancing IMF resources - and I am pleased that this week the UK Parliament ratified our commitment to provide extra resources;
- Improving the IMF’s crisis prevention tools;
- And completing the reform to IMF quotas to give greater weight to under-represented and dynamic economies. I am determined the UK will take a lead this autumn in making sure India is fairly represented.
We need institutions that reflect the huge changes that have been taking place in the world economy, not ones that mask them.
India now has a strategic stake in multilateralism that it did not have for much of the post-war period.
The UK supports the G20’s emergence as the pre-eminent global grouping, in which the world’s largest economies work together to create a global order that is supportive of our mutual aspirations and ambitions:
- coordinating macroeconomic policies and agreeing actions in each G20 country to ensure sustainability and foster global growth;
- implementing reforms to strengthen the global financial system, in particular improving the quality and quantity of capital;
- and resisting protectionism and promoting open markets.
It is essential that India can play the significant role in these debates to which it is entitled because of the size and dynamism of its economy.
It is not just about multilateral relations. I also want our bilateral relationship to be strong.
Let’s not make this visit and these conversations a one-off, but rather ensure that:
- we meet annually;
- follow through on summit agreements;
- expand the dialogue to include other government ministries and regulators;
- and strengthen the involvement from the private sector.
Ladies and gentlemen.
Let me conclude by saying that India’s success is of strategic importance not just to the UK, but to all open societies and open economies and the UK is determined to do all it can to be a partner in that process.
We can be strong partners in trade.
We can be strong partners in finance.
And through this, we will be strong partners in the world.
Thank you.
[Ends]