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Study notes

Indian Growth and the UK Economy

  • Levels: GCSE, AS, A Level, IB
  • Exam boards: AQA, Edexcel, OCR, IB, Eduqas, WJEC

The Indian economy has experienced rapid growth in recent years and is making some significant development progress. The Modi reforms aiming to sustain Indian growth and fast-forward the development path including attracting FDI into railways / construction / retailing and pro-poor and pro-rural initiatives to stimulate inclusive growth. In what way ways is the UK economy affected by India’s rise to become one of the fastest-growing countries in the world:

UK Export opportunities

  • Per capita incomes are rising in India, an emerging middle-class of consumers provides opportunities for UK businesses to sell goods and services to the Indian economy. 
  • Total UK-India bilateral trade in goods and services was £16.33 Bn in 2015. Main UK exports to India include power generating machinery, beverages, scientific instruments and appliances and chemical materials & products. 
  • As per capita incomes rise, so too do the trade opportunities in both goods and services including basic financial services, education and retailing.

UK Investment opportunities

  • UK is the third largest investor in India (after Mauritius and Singapore) - investment now amounts to nearly £25bn (equivalent to 8% of total FDI inflows into the Indian economy). 
  • UK companies currently employ around 788,000 people across India. 
  • There are huge opportunities for UK construction companies to bid for infrastructure contracts covering telecoms, sanitation and transport projects. 
  • A major opportunity comes with India’s rapidly growing energy and renewables market. They are investing huge amounts into solar power to reduce dependency on oil and coal.

Outsourcing

  • Over the years, many UK firms have outsourced some of the services to Indian businesses. With low labour costs and an educated, efficient work force, India has been a favoured location for outsourcing although there are signs that this process has now slowed down.

Impact of Indian students in the UK

  • India provides the second largest group of international students after China, with about 20,000 students in higher education in the UK in the academic year 2013-2014. 
  • They provide an important short term source of fee income for universities + the wider multiplier effects of students living and spending money in UK towns and cities.

Skilled Indian workers living in the UK

  • The UK has received many thousands of migrants born in India. According to the latest estimates there are about 800,000 residents of the UK that were born in India, about 9.6 per cent of the total non-UK born resident population. 
  • The NHS benefits from an inflow of human capital from overseas. About 9 per cent of all doctors practicing in the UK gained their medical qualification in India.

Indian investment into the UK

  • Another perspective is to consider investments made by the Indian economy in the UK. 
  • India has a growing number of scale multinational businesses such as Infosys, Tata and Reliance Industries. 
  • The Tata Group is one of the world’s biggest conglomerates and a few years ago it bough Jaguar Land Rover. 
  • India is a leading global investor in the UK, indeed India invests more in the UK than in the rest of the EU combined. More than 800 Indian companies currently operate in the UK, employing more than 110,000 people.

Export competition from Indian businesses

  • Increasing export competition from Indian businesses is becoming a growing feature for producers in many developed countries. 
  • The 'Make in India’ programme is aimed at transforming India into a global manufacturing hub and improving its business climate for both domestic and foreign investors. 
  • India's manufacturing sector accounted for only 17% of GDP in 2015 but the government has set a target of 25% of GDP by 2022. 
  • India already produces more than 3 million cars per year and Deloitte believes that Indi will be the 6th most favourable location for manufacturing by 2020.

The wider effects of Indian growth and development might also be considered. China and India are the largest contributors to global GDP growth and what happens to their economic cycles influences variables such as commodity prices.

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