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Indo-British trade January 19, 2007

Posted by Sharath Rao in economics, india.
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While the Indian communists often allege that foreign trade doesn’t benefit India as much as it does the outsiders, the sentiment in UK is quite the other way around.

And yet while India is keeping its part of the deal, growing at 8% a year, Britain has thus far been slow to profit. A report by the House of Commons select committee on trade and industry recently declared that British business had been left behind. Exports have grown slowly compared with those from other big economies (see chart): a baffling mixture of scrap metal and pearls has constituted almost two-thirds of Britain’s sales to India recently, the select committee found. British firms have also been unadventurous investors. Just 0.5% of their foreign direct investment has gone to India in the past few years, although India’s share picked up in 2005.

Common sense suggests that both of them can’t be right.

Here is something else on the Indian immigrant community in the UK.

They are a conspicuously successful bunch. The most recent survey of what 18- year-olds are up to in Britain could not find enough unemployed Indians to constitute a meaningful sample. Those who have arrived in the past few years have entered the labour market right at the top. Indians have been granted over three times as many visas for highly skilled migrants as any other nationality since the Home Office invented the category in 2002.

Before someone starts singing the song about “Indians being smarter”, let me remind you of this thing called ‘selection bias’ which partly accounts for this difference.

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