Even under a new government, the Indian economy continues to suffer. Ahead of the 2014/15 Union Budget, the Federation of Indian Chambers of Commerce and Industry (FICCI) has lowered its GDP growth forecast for the fiscal year 2014/15 from 5.5% to 5.3%.
The previous government failed to tackle a growing number of economic challenges; the pressure is piling on Prime Minister Narendra Modi to transfer to a national level the pro-business stance he took as Gujarat’s Chief Minister.
The Union Budget will be delivered on 10 July by India’s new finance minister, Arun Jaitley. As we saw from the automotive industry leaders’ comments in our article ahead of the Union Budget, the sector has high expectations for favourable treatment in a budget that is likely to jump start the economy, and revitalise India’s major industries.
India’s automotive industry has high expectations for favourable treatment in a budget that is likely to jump start the economy, and revitalise India’s major industries
One of the key issues the Modi government will need to address is India’s widening trade deficit. India imports significantly more than it exports; due to relatively high manufacturing costs in India, products that it could export are made more cheaply in other Asian countries, leaving India’s trade deficit at around US$10bn.
To be published later in the year, India’s Foreign Trade Policy 2014-2019 will seek to redress the trade deficit, and is expected to favour manufacturing and significantly increase India’s share of global trade by the end of the decade.
Great Britain is a key trading partner for India, but even there the imbalance is visible. Since 2010, Britain’s exports to India have increased by half. In 2013, exports of goods and services to India totalled £7.7bn (US$13.2bn) – but it’s not a two-way exchange. To boost British-India trade, the Chancellor of the Exchequer, George Osborne, and Foreign Secretary, William Hague, headed a trade mission to India.
It’s not clear how much business Britain’s top ministers managed to generate on this visit, but it did secure them an audience with the new PM. It also produced a commitment from Mahindra to invest £20m (US$34m) in the UK for research into electric car production and Formula 1 vehicle development. There’s a deeper connection for Mahindra between motorsport and EVs, too – the Mahindra group is backing a team in the upcoming Formula E race series.
One of the key issues the Modi government will need to address is India’s widening trade deficit
With little potential for pure EVs in India, Mahindra’s underlying desire is to develop technology for ultra-low emission mainstream cars, which would help it meet tightening Indian emissions regulations, and prepare products for export into regions with tougher emissions standards. £20m for mainstream EV cars and Formula 1 is a drop in the ocean, yet it is being hailed as a success for the UK. A BBC report suggests that Mahindra will decide by the end of the year whether to sign off a much more substantial £100m research investment, and a possible future manufacturing investment somewhere in Europe.
The Mahindra interest – followed up by a possible deeper commitment – sits perfectly with Britain’s role as a key F1 R&D location, and the government’s promotion of Britain as a pioneer in high-end alternative drive technology. But first let’s see India come up with an alternative drive for its faltering economy.
Martin Kahl is Editor, Automotive World.
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