Europe Discovers India's Potential Jan 02

The EU is India's largest trading partner and biggest foreign investor. Yet, trade and investment between them is well below what it should be! In order to correct this, a joint Commission was set up to identify the areas of co-operation and highlight the problems. European consultants worked with Indian experts from Federation of Indian Chambers of Commerce and Industries (FICCI) and the Confederation of Indian Industries (CII).

Four particular sectors were identified for European investments in India: -

a) food processing b) mechanical engineering c) telecommunications d) information technology

a) Food Processing: -

This represents 6.3% of GDP and consists of primary products consumed in their natural state with packaged/processed food representing just 5% of final consumption. Indian subsistence farming makes it one of the world's largest producers of food but it accounts for less than 1.5% of international food trade! Food processing needs an investment of nearly £5bn (300 billion rupees) over the next five years mainly to improve infrastructure; effective cold chain facilities, improved transport, storage warehouse, new techniques for sowing, growing, fertilising and irrigating as well as integrated livestock development.

b) Mechanical engineering: -

The Indian engineering goods sector is worth about £20bn and it has seen an average growth rate of 5.9% since 1990. It has received the highest foreign investment inflows of all the sectors, most of these meeting the new demands of the automotive and consumer industries and infrastructure. With the exception of automobiles, there are no quantitative restrictions on the import of engineering goods.

c) Telecommunications: -

Despite being the sixth largest network in the world and the third largest among the emerging economies, India has a telecom density of just 3.7%, far below the world average of 10%. Cellular penetration is even lower at 0.1% compared to China at 1.1% or Malaysia at 2%. There is a huge scope for investment here as the Indian Government aims to achieve a basic teledensity of 7% by 2007 requiring an additional 50 million new connections, costing £25bn and realising service revenue of £100bn!

d) Information technology (IT): -

India is a leading exporter of software and software solutions. It is the most competitive supplier of skilled IT professionals to the developed world. Sadly, the IT sector contributes only 2% to India's GDP - compare this with 40% of GDP in USA and 65% in Malaysia! It lags behind in every respect: PC penetration (5 million), teleconnectivity (26 million landlines) and Internet usage. Growth rate in this area is 50% per annum and it is expected to contribute 28% of GDP by 2020.

Indians have a natural flair for enterprise. Sadly, India is disabled and disadvantaged by extensive bureaucracy - a "civil service" culture - that frustrates potential foreign investors. Why should India restrict foreign ownership of commerce and trade e.g. telephone companies have a cap of 49% equity for foreign investors. How can India attract the huge investment required to transform its telecommunications? Without such investment it cannot realise the full potential of its pool of IT skills!

India is a country ready for the investor. 50million middle-class Indians have real spending power. There are many Indians in Europe and North America with substantial funds to invest and the EU, including the EIB, is willing to fund joint projects. The UK has not enjoyed full benefit of its EU membership as it has failed to exploit the funding available for joint projects. Germany has excelled in this way by using EU funding to invest heavily in East and Central Europe. British Indians must examine how they can tap into EU resources - technical and financial - that can propel trade and investment between India and Europe. Indian investors in India have equal opportunity to invest in Europe, including in the accession countries. This could be an effective way to establish a market in the EU for their products.

I list below some useful websites for potential investors: -

www.inforegio.cec.eu.int

www.cec.org.uk/info/pubs/funding/contents.htm

www.cordis.lu/sme/home.html

http://sme.cordis.lu/home/index.cfm

www.fpb.co.uk

www.thebritishandhowtodealwiththem.com/readers

My Report in the European Parliament: "Agreement for scientific, technological and Intellectual Property (IP) co-operation between the EC and India" (CNS010175-COM(01)0448) supports the Agreement signed by India and the EU in November 2001. Information on this and other EU matters can be viewed directly on www.europarl.eu.int.