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INDIAN INSTITUTE OF FOREIGN TRADE, DELHI

Indian Economy Assignment


Second Year, 5th trimester

Indo-UK Bilateral Trade Relations

Gaurishankar Jha Roll no-79

The report involves analyzing the Bilateral Trade relation between India and UK. It involves sector wise analysis based on goods and services using quantitative methods and strategic framework.

Contents
Overview .......................................................................................................................................... 3 Trade in Goods: ................................................................................................................................ 4 Trade in Services: ............................................................................................................................ 5 Projections of Gains from Trade ...................................................................................................... 6 The Road Ahead ............................................................................................................................... 6

Indo-UK Trade analysis

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Overview
India and UK's trade relations have undergone a massive change from the colonial period. Once perceived as a less developed country, India had transformed itself into the fastest growing economies of the world currently. It is not hidden that India is world's fourth largest economy in purchasing power parity terms and UK is the 4th in GDP dollar terms. So both these Economic powers are poised to grow in terms of trade and investment. To boost the Economic ties the Joint Economic and Trade Committee (JETCO) was set up in January 2005 to help India and the UK in identifying ways for further boost bilateral trade and investment. As part of endeavour of political establishment to boost the co-operation between the two nations, the India-UK Annual Summit was held in Delhi, India on January 21, 2008. The two Prime Ministers issued a joint statement on the India-UK Strategic Partnership after the Summit. The two nations agreed on the following: On the importance of more representative and effective international institutions to address global challenges. To cooperate in developing collaboration between small and medium enterprises, entrepreneurs and venture capitalists. The evolving Indo-UK relationship has to take into consideration both the current and future circumstances. With the growth rate in India and China three times higher than in Europe; population and potential consumer market five times bigger than Europes; wages one tenth of UK wages; 125000 computer science graduates yearly compared to 5000 in UK India and UK have to address both challenges and opportunities that might arise in the future.

Despite the slowdown in international markets, India has been exhuming confidence. India has economically and industrially advanced to a level from where further development can be accelerated even more. The projected GDP of India in 2025 is likely to surpass that of UK. Within three decades, India is projected to have the world's third largest economy and more people than China. Rising incomes in India will result in a strong growth of middle class consumer, thus creating opportunities for exporting UK firms. The growth of India and other developing countries will benefit UK with cheaper goods for its consumers, new markets for exporters, and faster growing investments for its savings. India will also be able to leverage its good relations with the UK to access other EU markets, including the new accession countries.

Indo-UK Trade analysis

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Trade in Goods:
Indo-UK trade has been growing at a CAGR of 14% since 2001.Trade of goods has been growing at a CAGR of 13% while services sector has registered a 15% growth.
(In million)

Total

2001

2002

2003

2004

2005

2006

2007

2008

Trade of 3588 goods Services trade

3559 1451 5010

4377 1540 5917

4521 2087 6608

5579 2465 8044

5814 3231 9045

6777 3487 10264

8603 4056 12659

1492

Total Trade in 5080 Goods


Source: UK Trade Info

The basket of goods imported and exported is shown below in the pie charts. Manufactured goods both classified and unclassified forms the biggest share in the pie. The proportion of Foods & Live Animals imported from India has consistently decreased from 10.73% in 2000 to 6.91% in 2008 where the proportion of Minerals fuels, Lubricants & Related Materials has increased drastically increased from meagre 0.01% in 2000 to 8.18% in 2008.

The exports of Crude Materials, Inedible, except Fuels have shown an upward trend with an increase in its proportion of goods basket from 3.44% in 2000 to 9.98% in 2008.

Indo-UK Trade analysis

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Overall the trade between the two countries has increased over the years, with manufacturing items forming the bulk of the trade with Minerals Fuels rising in the direction towards UK and Crude Materials in the direction towards India.

Trade in Services:
Service trade 2008:
Export Import Major Exporting country Major importing country Indias total service trade(0809) Export Import Top 5 UK export to India

170 bn 115 bn
USA USA 138(Billion USD) 88(Billion USD) 38(Billion USD) Transportation, Travel, Other Business Services, Financial Services, Communication Services Travel, Other Business Services, Transportation, IT/ITES, Communication, UK export to India(In

Top 5 UK import from India

Break up of different sector UK import from India(In


million)

million)

Travel Transport

455 468

856 451 257 55 113 12 449

Computer and Information 54 services Financial Services Communication Services Insurance Services Other Business services 246 60 28 375

Indo-UK Trade analysis

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Projections of Gains from Trade


Static projection: It is based on Compounded Annual Growth Rate (CAGR)
Goods Indias total export to UK Indias total import from UK Service UKs total export to India UKs total import from India Total Trade volume 2008(Billion USD) 8.2(4.47) 7.6(4.15) 3.34(1.82) 4.1(2.22) 23.24 2015(Billion USD) 18 15 8 9 50

Note: All forecasts are based upon CAGR observed in the period 1999-2008.Figures in bracket are in Billion GBP.

Dynamic projection: This forecast is based on Trade model, which takes both
demand and supply side equation.
UK Demand side:

Indias Export to UK~ = 0.199467 + (1.488727 * UKGDP~) (43.42267 * UKIP~) (16.89231 * OILPRICE~) Indias Demand side (Indias Import from UK~) = 0.001662 (20.16892* IIP~) + (3.761797* INDGDP~) (22.73884* INDIAN TARIFF~) + (48.69571* OIL PRICE~)

Based on this equation trade forecast shows: (In $ billion)


Total Trade Indias total export to UK Indias total import from UK Total Trade volume 2008 12.3 10.9 23.2 2015 17-26 16-18 33-44

Note: Here lower range of forecasted value for 2015 is based on demand side while upper range is based on supply side.

The Road Ahead


Though India-UK relations spanning several decades have intensified, yet there is much more scope for the expansion in trade relations. India and UK have to adopt tangible measures to increase the low bilateral trade in goods and services ( 12.6 billion in 2008) and breathe new life into the trading equation.

Indo-UK Trade analysis

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Despite other contenders on the horizon, India would like to expand trade with the UK. The trade figure of UK-US and UK-China indicate the future potential for IndoUK trade. There is no reason why India cannot become as big a trade partner of the UK as US and China currently is.

Huge potential for Trade to go up

Diplomatic pointers

Consider
UKUS Trade: GBP 117 bn UKGermany Trade: GBP 94bn Indo-US Trade: US$50bn Indo-China Trade: US$60bn (Estimated, 2010)

Strategic partnership Climate Change WTO negotiations Terrorism Commonwealth UN Security Council Expansion

So both from the aspect of Trade as well as diplomatic relation the Indo-UK trade is likely to go up in the years. However for the trade to get that untapped potential, it is required that both the nations and the industry should explore all possible ways to enhance the trade volume and all impediment to the trade should be removed to unleash the true potential of trade between India and UK.

Indo-UK Trade analysis

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