The United Kingdom. Background Note

Transcription

1 The United Kingdom Background Note UK ECONOMY The UK, a leading trading power and financial center, is the third largest economy in Europe after Germany and France. Over the past two decades, the government has greatly reduced public ownership and contained the growth of social welfare programs. Agriculture is intensive, highly mechanized, and efficient by European standards, producing about 60% of food needs with less than 2% of the labor force. The UK has large coal, natural gas, and oil resources, but its oil and natural gas reserves are declining and the UK became a net importer of energy in Services, particularly banking, insurance, and business services, account by far for the largest proportion of GDP while industry continues to decline in importance. After emerging from recession in 1992, Britain's economy enjoyed the longest period of expansion on record during which time growth outpaced most of Western Europe. In 2008, however, the global financial crisis hit the economy particularly hard, due to the importance of its financial sector. Sharply declining home prices, high consumer debt, and the global economic slowdown compounded Britain's economic problems, pushing the economy into recession in the latter half of 2008 and prompting the then BROWN (Labour) government to implement a number of measures to stimulate the economy and stabilize the financial markets; these include nationalizing parts of the banking system, temporarily cutting taxes, suspending public sector borrowing rules, and moving forward public spending on capital projects. Facing burgeoning public deficits and debt levels, in 2010 the CAMERON-led coalition government (between Conservatives and Liberal Democrats) initiated a five-year austerity program, which aimed to lower London's budget deficit from over 10% of GDP in 2010 to nearly 1% by In November 2011, Chancellor of the Exchequer George OSBORNE announced additional austerity measures through 2017 because of slower-than-expected economic growth and the impact of the euro-zone debt crisis. The CAMERON government raised the value added tax from 17.5% to 20% in It has pledged to reduce the corporation tax rate to 21% by The Bank of England (BoE) implemented an asset purchase program of up to 375 billion (approximately $605 billion) as of December During times of economic crisis, the BoE coordinates interest rate moves with the European Central Bank, but Britain remains outside the European Economic and Monetary Union (EMU). In 2012, weak consumer spending and subdued business investment weighed on the economy. GDP fell 0.1%, and the budget deficit remained stubbornly high at 7.7% of GDP. Public debt continued to increase.

2 Factsheet Source: CIA World Factbook 2009(est.) 2010(est.) 2011(est.) 2012(est.) GDP(PPP) $2.228 trillion $2.275 trillion $2.29 trillion $2.323 trillion GDP- real growth rate -4.4% 1.4% 0.8% -0.1% Unemployment Rate 7.6% 7.8% 8.1% 7.8% Inflation Rate (consumer 2.2% 3.3% 4.5% 2.8% prices) Public Debt 68.2% of GDP 79.6% of GDP 86.3% of GDP 88.7% of GDP Exports $356.2 billion $410.2 billion $479.7 billion $481 billion Imports $483.9 billion $563.3 billion $639.5 billion $646 billion Sectors wise contribution to GDP (2012 est.) Agriculture: 0.7% Industry: 21.1% Services: 78.2% Forecast for the UK Economy Source: HM Treasury Forecast for the UK Economy- Feb 2012 INDIA AND UK BILATERAL RELATIONS Trade in Goods: India-UK Bilateral Trade (fig in US$ Million) Source: Ministry of Commerce, Govt. of India (Apr-Sept) 2 P a g e

3 Exports Imports Total Trade 5, (11.14) 4, (6.30) 9, (9.02) 6, (19.25) 4, (18.57) 11, (18.96) 6, (-0.83) 5, (18.54) 12, (7.40) 6, (-6.44) 4, (-24.02) 10, (-14.68) 7, (17.10) 5, (20.96) 12, (18.71) 8, (17.91) 7, (42.05) 16, (28.19) 4, , The trade between the two countries grew in by 7.4% to $12.5 billion a modest rise compared to the nearly 19 % growth in In the year total trade declined by % as a result of financial/economic crisis, but in 2010 volume of US$ 12.5 billion (+17.36% yoy growth) was registered. In the year the trade grew by 29% to US$ billion. In the first two quarters of year trade of 7.4 billion was registered. Although trade has increased in absolute terms, there has been a gradual decrease in UK s share in India s global bilateral trade, both in exports and imports during the last five years. The UK aims to double its bilateral trade with India by India seeks to increase its bilateral trade with the UK to 24 billion (US$ 38 billion) by India s main exports to the UK are cotton, ready-made garments and textiles, transport equipments, spices, ores and minerals, manufactures of metals, machinery and instruments, drugs & pharmaceuticals and marine products. The main imports from the UK to India are metalifers, ores and metal scraps, pearls & semi precious stones, professional instruments other than electronics, non-ferrous metals, chemicals and machinery. The UK is the largest market in Europe for Indian IT services. UK is the 21 st largest exporter to India and ranks at 8 th position as far as imports from India are concerned. In terms of total trade, UK ranks 16 th worldwide. (Source: Ministry of Commerce and Industry, GoI). On the other hand, India is 16 th largest exporter to UK worldwide and 4 th largest exporter in Asia after China, Hong Kong and Japan. India ranks 15 th amongst the countries importing from UK. (Source: ONS-The Pink Book 2011 edition) Trade in Services Trade between India and the UK in services has been at a lower level than trade in goods, but has been growing rapidly since The Office for National Statistics (ONS) UK in its report for 2011 has published the data for the year India ranked 22 nd as a source of UK service exports worth bn (as against 1.711bn in 2009/18th position). According to the ONS, the top UK exports to India were (i) Financial & Business services (ii) Transportation services, (iii) Travel services (iv) Computer & Information services, and (v) Communications services. India ranked 16 th as a source of service imports, worth 2.292bn in 2010 (as against bn/13th position in 2009) to UK worldwide and 2 nd largest exporter in Asia after Japan. The UK is the largest market in Europe for Indian IT services. Many British blue chip companies (about 30) and some smaller companies have offshored work to India creating over 60,000 jobs. Conservative industry estimates show that British businesses now save upwards of 1 billion every year due to off-shoring, the bulk of which is accounted for by India. 3 P a g e

4 As Indian firms win major IT contracts and there is increase in business process outsourcing (BPO) activity to India, India s service exports are poised to increase. Top Indian service exports to the UK include: (i) Travel services, (ii) Computer & Information Services (iii) Business & Financial services (iv) Transportation services and (v) Communication services. In addition to existing areas, the services trade is projected to grow in engineering process outsourcing and knowledge process outsourcing. Investment Relations Investments from UK to India UK stands at 3 rd position worldwide and 1 st in EU with a cumulative FDI of US$ billion from April 2000 to November UK contributes 9% of the total FDI into India. The FDI inflow during was US$ 2.7 billion. However, the FDI inflow from UK registered a record US$ 7.87 billion during the year of For the financial year investment of US$ 615 million has been registered in first three quarters. Financial Year FDI equity inflows from Total FDI inflows (April-March) (including equity, re-invested earnings & other United Kingdom capital) ** (US$ in million) (US$ in million) , , , , , , , , , , , , , , , , (up to Nov. 2012) ,650 Cumulative Total (April 2000-Nov. 2012) 17, ,865 FDI inflows from UK (by sector) The highest FDI equity inflows received from UK from April 2000 to November 2012 have been in the Chemicals (Other Than Fertilizers), which accounts for about 33% of FDI inflows from United Kingdom. Drugs & Pharmaceuticals, with about 17%, is in the second place and Services Sector, with over 16%, is in the third place. Major UK Investors in India Industry, GoI UK Investor Cairn UK Holding U.K. HSBC Bank Plc HSBC Bank Plc Castrol Ltd. Source: Ministry of Commerce and Indian Collaborator Cairn (I) Ltd. Reliance Ports & Terminals Reliance Holidays & Resorts India Ltd. Castrol India Ltd. 4 P a g e

5 Ecom Communications Ltd. Himachal Futuristic Communications Ltd. HOC Group Plc BOC(I) Ltd. Standard Chartered Bank Standard Chartered Investment & Loans Ltd. ENI (UK) Holdings Plc Hindustan Oil Exploration Company Ltd. JP Morgan International JP Morgan Security Pvt. Ltd Caparo Pvt. Ltd Caparo India Ltd. Powergen U.K. Plc Gujarat Powergen Energy Corporation Ltd. Scottish & New Castle Ltd. United Breweries Ltd. BP Plc Reliance Industries (30% state in 23 oil and gas blocks agreement signed in February 2011) Major Indian Investors in UK UKTI Indian Investor Tata Group ICICI Bank Limited United Spirits Limited Bennett Coleman &Co. Ltd. Suzlon Energy Ltd H C L Technologies Ltd. Havells India Limited Sahara India Hindalco Industries Limited Essar Energy Century Communication Ltd. Reliance Group India Infrastructure Finance Co. Ltd State Bank of India 3i Infotech Ltd Source: Sectors of operation Automobile, steel, chemicals, communications, etc. Banking Spirits and beverages Advertising Investment holding and sale of wind turbines IT and software services Lighting products manufacturing and sale Acquisition of the Grosvenor House Hotel, London Aluminium products and investment holding Acquisition of Stanlow oil refinery, 2nd largest refinery in the UK Audio, Video and film supply Telecommunications and investment business advisory Infrastructure investment financing Banking Software services INDIA-UK AREAS OF FUTURE COOPERATION An immense potential for collaboration between India and Britain exists in the following sectors- Skills Education and research Health, especially in the medical sciences Infrastructure Renewable Energy IT Tourism Technology transfer Civil Nuclear Cooperation (India and UK signed a Civil Nuclear Cooperation Agreement in February 2010) And also other newer areas like- Creative Industries Sports Disaster Management 5 P a g e