Economics

New Trade Theory (NTT)

International free trade ensures increasing returns and this leads to better business benefits. From the perspective of achieving better business and trade NTT is indispensible for the nations. For internationally presenting a product it is mandatory to remain adherent to the standards. So, until a product is internationally accepted, the nations should shelter it.

So, it can be said that the New Trade Theory explains that a product which can complete internationally should be offered for trade purposes. The assumption of diminishing returns to scale is challenged by NTT. The protectionist nature to focus upon specific sector indeed helps to carry on innovation to provide best products in the international market. This happens only as per the Network effect. Networking takes place among nations.

For example, during mid Fifties the Japanese Automobile industry was challenged. It was not possible for Japan to manufacture all the parts. Most of the ancillary industries were located overseas and in other nations. But after initiation of a different model of trade, the nation produced all spare parts and accessories that were required by the automobile industries. Thus the nation protected the automobile industry, and started exporting vehicles of all sizes.

The idea of protecting new industry was not a new concept but it has been executed from the end of 1880s, the NTT or New Trade Theory ensures a better and mathematical economical result. The profits from better trade effect were visible after NTT was explained judiciously. Creation of networking with different nations leads to better returns of scale. The model of New Trade Theory has been technical and the possibilities were clearly predictable.

Following the New Trade Theory (NTT) and several free trade practices both the countries have been largely benefited. The trade relations have considerably grown and several new business associations have established.

The New Trade Theory was proposed by Paul Krugman. The theory explained the fact that when a country produces a product that it best produces, it experiences a comparative advantage. A good service can be obtained with better benefits. As a result the production gets multiplied and with the maximized production better trade can be initiated. Determination of comparative advantage is indeed interesting. For example, when India can produce better wheat and United Kingdom can produce better power generating equipments, better production is possible if India focuses upon wheat production and United Kingdom emphasizes power generator production.

For nations with more labor and land it is best to go for the labor intensive production. On the contrary the nations with more capital can focus on mechanical goods that require investment. Trade with the purpose of welfare enhancing is indeed heartening as it influences global growth.  There are several propositions and models. In case of recent trade relations between United Kingdom and India it has been noticed that new theories of trade plays and important part. Following the theory that supports increasing returns to scale, it becomes easier to practice better trade relations.


New trade theory and its difference with earlier trade process

Increasing returns to scale (IRS) has been an important source of process wise gains In case of liberalized economies firms operate at lower costs. At the same time there remains higher level of output after trade and exchanges with trading nations. Liberalization usually increases trade and finally leads to better IRS. Many economists propose that protectionism indeed ensure better profitability. Protectionism is a major cause of coexistence of companies producing same goods. So, thus monopolies can be stopped. Besides, in the New Trade Theory it is possible for companies to enter the market without frictions. Long terms gains can be achievable as there remain better scope of price mechanism.

Increase in competition among the firms lead towards innovative technologies to ensure cheap and better products, this is with the purpose of prevailing better in the market. In case of conventional arguments it can be said that a nation fails to produce all goods and become self sufficient by following the New Trade Theory. Still, it is possible for a nation to boost up industries and increase the level and quality of production just by aiding. Thus, a nation that wants to export a product needs to ensure that the product is of global standard.


The following terms are essential to understand Indo-British trade terms better

Autarchy
This resembles no trade. There are Autarchic governments which attempt to eliminate all sorts of imports and exports. This force their subjects to live with indigenous products produced within the economy.

These governments in fact consider that all other cultures are against and evil or even corrupt. In case of contact with the people things can be antagonistic. Being a responsible government none of the government practices this and India and UK also do not follow this model of trade term.

Mercantilism
 This concept of trade deals with the fact that trade for national advantage. Mercantilists consider that across the globe there are finite store of wealth so, when one country gets more automatically another nation is deprived. Mercantilists controls and restrict imports and always encourage subsidize exports. Japan is an example of a country that has taken this policy but neither India nor United Kingdom follows this model of trade.

 
Protectionism
Protectionist government restricts or tax imports to benefit domestic manufacturers and as a result there remain more jobs within the nation. Protectionists believe that there are benefits from keeping jobs at home. United Kingdom followed this model after Second World War and as a result domestic production was not at all challenged. This policy allows import of the goods that does not pose challenge to the domestic market.


Strategic Trade
Many governments allow and patronize domestic companies in production of military goods. Thus dependence upon the foreign companies for preparation of strategic items decreases. For example, United States fund aerospace division to carry out research and development.
Fair Trade

This is a new movement that aims to provide more of the profits from trading directly with the producers in the third world countries. This is likely only by using consumer preferences. With the purpose of helping people middlemen are removed in case of such trade policies, both United Kingdom and India are now following free trade policies to some extent. To be specific several policies of Britain are much indulgent towards free trade. Government policies can largely remove barriers to their implementation in a free market economy but in India several Governmental policies are followed.


Overview of the economy of United Kingdom

For enhancement of economic growth it is necessary to implement market simulation. Strategic mechanism is mandatory in terms of reaching and exploring the emerging markets. Nations usually attempt to build their economies with investments, industrial and trade incentives. These factors remain adhered to domestic consumption, export. India and United Kingdom follow inward-outward oriented strategies. Local investment and production are meant for domestic consumption and similarly the imports are used for consumption and production. With the advent of the global market place exports have become a significant determinant of national income.

For many decades India follow the pervasive system of industrial licensing. This in turn created a bureaucratic control over the countrys production system. Licensing has been abolished in India in 18 industries following the latest licensing model of Britain.

To ensure effective export promotion UK has balanced export promotion and import penetration. Earlier, UK failed to explore its opportunities. Great Britain was the centre of industrial revolutions and technological progresses have been immense. In the second half of the 19th century Britain failed to utilize major innovations.  The missed opportunity and experience facilitated the nation to understand and utilize the present available resources at their best. The New Trade Theory again clarifies the fact the mutual trade and best use of technological innovation is mandatory in case of all bilateral trade deals.

Earlier during the era of British Empire economy of United Kingdom was the largest in the world. As a country UK was the first to industrialize. Industrial Revolution has been one of the major historical events of the world. Till today UK is the sixth largest economy in the world in terms of purchasing power.

UK is a member nation of the G7, at present it is expanding to the G8 and G20. It is moreover the founding member of the Commonwealth Group. Commonwealth is an association formed by former British Empire states. In true sense the British Economy is globalised economies in the world. London, the capital city is considered being the largest financial center in the globe.
The British economy includes the economies of England, Scotland, Wales and Northern Ireland. Channel Isles and the Isle of Man and the part of the British Isles and have received the offshore banking status.

The Bank of England offered interest rates to 1.0 per cent by the end of the year 2008 a drop of 0.5 per cent was expected for most of 2009 and 2010. Budget deficit of UK has been of about 5.3 per cent of GDP in the year 2008. With diverse economic stimulus packages and several bank bailouts being worked on, it is expected to get bigger to 11.3 per cent of GDP in 2009 and then 13 per cent of GDP in 2010.

During 2008, UK had the 43rd largest relative national public debt, and it was 47.2 per cent of GDP. This number is likely to rise to 58.5 per cent of GDP by the year 2009 and 70 per cent of GDP in the year 2010. Inflation was low up to 3.6 per cent in the year 2008, but has dropped back after the economic collapse. It is expected to be 0.4 per cent in the year 2009 and 0.8 per cent in the year 2010. It had the 58th lowest inflation rate in the world by the end of 2008.

Rate of unemployment had reached 6.3 per cent in the UK by the end of 2008. (According to the Office of National Statistics, it reached close to 2 million unemployed). This figure is suppose to grow to about 8-10 percent. United Kingdom has the third highest current account shortfall in the world. It was of about US186 billion. Huge trade deficit in manufacturing sector forced the nation to become a net importer of energy. It runs 654.7 billion of imports (6th in the world) and 468.7 billion of exports (9th in the world export rankings).

United Kingdom has been the 2nd largest recipient of foreign direct investment (FDI) in the financial year 2007.


UK GDP related facts and figures

In the Europe, the UK economy is second largest and in the World it is 5th largest. During 2008, GDP growth was about 1.1 per cent. It has been probable to contract in future years. The expected GDP growth is of -3.2 per cent in 2009 and -1.1 per cent during 2010. Population of UK is of 61million and a GDP per capita is US37.4k, this indicates that UK is the 30th richest country in the planet.

 
Economic History of UK

The nation had the largest economy in the world. During nineteenth century the nation ruled about one quarter of the world as the British Empire. The countrys global trade system transported capital, people, resources and generated vast profits for the Empire. From the time of the World War II the British Empire has weakened by the costs of warfare. At the same time the Republic of Ireland left the United Kingdom.

Recently, there have been two distinctive phases of strong economic performance. The first was under the initiative of the Prime Ministership of Margaret Thatcher. Thatcher broke the unions and guided in free market reforms that helped the United Kingdom to shed its Sick Man of Europe mantle.

The second started from the time of the New Labour government. It came to power in 1997, with Gordon Brown serving as both as Chancellor of the Exchequer Gordon Brown and later Prime Minister, inheriting and expanding a period of continuous economic growth from 1992 to 2007.  During this time New Trade Theories (NTT) were executed for better benefits of the nation.

 
Economy of UK during 2001-2007

The UK experienced a boom in both stock market and housing between 2001 and 2007.
During the phase obtaining credit at affordable rates was cheap and easy. The regulation lax and rules were reconstructed. Mortgage rates increase a lot and it rose to about 125 per cent. House and real estate prices almost tripled in some areas during that time. It is worth mentioning that the London Stock Exchange (LSE) reached record highs.

The home prices started to fall in the third quarter of 2007 and since then it was the beginning of the decline. Actually the recession was well anticipated from the period. Banks experienced setbacks, Northern Rock was forced to turn to the Bank of England as lender of last option in September 2007, this was indeed as an effect of less financial capital. Government slowly initiated the process of nationalizing the banks.

 
Economy of UK during 2008

The bank Northern Rock was nationalized and thus British governments involvement in the financial sector increased.

Financial organizations like Bradford  Bingley, help Alliance  Leicester and HBOS were sold. And to provide capital, funding and underwriting of more than 400 billion GBP to both over-leveraged giants like RBS and Lloyds TSB were carried on. Barclays, HSBC and Standard Chartered etc also received governmental patronage.

During the time of second quarter of 2008 the UK was officially in recession. It was a massive setback as Sterling had dropped more than 30 per cent several against the other main currencies. It was the time of recession.

The consumer faiths upon the financial companies were downhill and at the same time the rate of unemployment was uphill. Retail sector was the next victim of recession. Few of the household names like Woolworths, Zavvi , Somerfield, TescoMFI, Adams and Waterfords Wedgewood entered into severe financial crisis.


 
Economy of UK during 2009

Things were unpredictable in the year 2009, though several economists suggested earlier that there might be betterment in the later parts of the year, the reality differed. The British economy was greatly declining. And it was declining at a rapid pace that it was predicted.

The nations all sectors faced recession and was struggling, with less consumer confidence, the housing market experienced a shock. Further, employment was not available. Manufacturing was carried on either at the lowest point, or was dropping quicker than ever before.

With the aim of overcoming blame for the recession and the fall, out from his prior statements that he had controlled the Boom and Bust cycle, Prime Minster Gordon Brown came with a major economic stimulus package for the nation. It has added to the existing high debt levels above 40 percent of GDP. This further led to the speculation that Britains sovereign debt ratings would be downgraded. This would further lower down the Sterling value.

 
Economy of UK during 2010 A forecast

In the year 2010 the conditions are improving and slowly the recession is getting supplemented. The strong governmental influence indeed made the scenario better.
It has been forecasted that during the year there will be a growth of about 0 to 5 percent.  With the median remaining within the -1 to -2 percentages., though most of the economists state about the remaining downside risks.

It is projected that The Bank of England Interest Rate, Inflation and the three month Treasury rate etc will remain under 1 per cent, under 1 per cent and 1.3 per cent respectively.
The budget balance is forecast to grow dangerously to -13 per cent of GDP, which would take UK national public debt above 70 per cent of GDP. 

Fiscal and monetary policy of UK

During the first Quarter of 2009, the Bank of England has already lowered down the Interest Rates to a historic low of about 1.0 per cent. This has been again with a drop to 0.5 Further measures are almost certainly required, and this will include quantities easing, in other words printing more currency.

UK Real Estate, UK Property Market

Since 1992, the real estate and property market of the United Kingdom witnessed massive growth. It has been great that there were several changes in the economic conditions of the nation still this sector has been positively growing. Between the years 2000 and 2007 alone, many areas saw median prices trebling in worth. From the third quarter of 2007, prices came down each month it has reached record levels of price drops. There has been a record low in terms of new property sales.
At present market conditions have improved, prices have now dropped back to the affordable levels. There remain fears of further fall and associated issues like rising unemployment and reluctance among the financial organizations who offer assistance for lending or to continue to limit the market.

Tax System in UK  Overview

In the United Kingdom, tax is applied by both central and local governments. The Central Government accumulates taxes through Her Majesties Revenue and Customs (HM Revenue  Customs) department. The taxes are collected in the form of VAT (value added tax), income tax, National Insurance, corporation tax and fuel duty etc.


Overview of Indian Economy

In the year 1948 GAAT or General Agreement on Tariffs and Trade was established in Geneva. India was the founder member of GATT. WTO or World Trade Organization has been Indias successor. Indias contribution in an increasingly rule based system in the process of international trade has been to ensure more stability and predictability.

Being within the parameters of liberalization multilateral trading system has been promoted by government of India. This helped the nation in balancing of trade with involvement of a third country. Before liberalization India has not faced the process and constraints of rapid expansion of trade. The policy of Most Favored Nation helped India to trade on a non discriminatory basis. Further, India has been able to consolidate disputes with the trading nations.

Better resource utilization and specialization of resources have been prominent in the last few years. This has bridged the gap that earlier prevailed between United Kingdom and India. Export expansion has been a major milestone. Agricultural goods of the nation along with agro based industries where exported in UK and other European countries. The process of export expansion has been further accelerated in the context of barrier less trade. This can be regarded as partial free trade.
New Trade Theory has been ideal for the nation and in the post liberalization period it has been noted that the nation enjoyed trade benefits as an effect of competitive advantage.   WTO (World Trade Organization) started functioning from early 1995 and this was an improvised version of Dunkel Draft. Dunkel Draft has largely expanded the opportunities of trade negotiations in services and agricultural products. This has been the prime basis of WTO formation.

The New Trade theoretical support has been the prime reason behind enormous growth of the Indian economy. Free trade ensures certain obvious and definite gains to the countries involved. At the same time employment in India has largely increased. In this context it can be mentioned that Indian IT giants influenced massive job growth in the United Kingdom during the fiscal year 2008-2009.  Similarly, Indian market witnessed requirement of both skilled and unskilled laboures. Both Britain and India have entered in to profitable bi lateral terms. These two nations utilized the trade theories to promote national economies.

The important characteristics of the GATWTO along with the Dunkel Draft frames basic overview of bilateral international trade terms. Both India and UK have overcome the serious short comings of these agreements. This has been possible as Indian economy was open for the UK based corporations and business houses after 1991.  The trend towards market lead globalization has been prominent during early 90s and at that point of time UK found Indian growing market open for trade and investment. The unequal competitions between nations get supplemented with the implementation of New Trade Theory. Obtaining the best product at the best rate is only possible by following the new theory of trade.

In the recent past after acceptance of liberalization policies India has been one of the top performers in the world economy but at the same time quickly rising inflation and the complexities of running the worlds biggest democracy are proving challenges to the Indian Government.
Indias economy witnessed a massive boom in last few years and even in the year 2007 the growth was of 9.2 percent. In the earlier year it has been 9.6 percent. Indian market growth has been the result of consistent markets reforms, and huge inflows of FDI. Besides these increasing foreign exchange reserves, massive boom in the IT and real estate sector helped in the flourishing of the capital market.

During global slowdown of 2008 India witnessed tough times, The Reserve Bank of India considered an inflation target as 4 percent. But in the mid of 2008 inflation was 11 percent and it was highest for the decade. The increasing prices of oil, food along with the resources essential for Indias construction boom plays an important role in this.

In the energy sector Indias growth has been remarkable and the nation has secured new fossil fuel from China. In the hunt of alternative and nonconventional energy the country has entered into a wide ranging nuclear agreement with the United States. This will reduce oil thirst.

With the purpose of combating inflation a tighter monetary policy is desired, but this will indeed help to lower the growth of the Indian economy, at the same time the domestic demand will be dampened. The external demand is also coming down further this increases the downside risks.

The stock market of India has fallen more than 40 during the first six months of January 2008. It is notable that 6b of foreign funds has gone out of the country during the period this has been the result of the slowing economic growth clubbed with the perceptions that the market was over-valued.
A massive change in the Indian trade policies have been reflected in the changing economic scenario of the nation. After following the New Trade Theories the economy structure of the nation have drastically changed. A per studies long term health of the Indian economy is right, and then this will be a needed rectification rather than a downtrend.

Indian Government emphasizes on long term growth and for this the proper infrastructure of the country as being prerequisite, 23.8 trillion rupee or 559 billion (approx) have been considered for better infrastructural growth of the nation. This was scheduled at the time of the 11th five year plan. It expects to provide fund to the 70 of the entire project costs, the other 30 being gets poured from the private sector. Numerous ports, roadways, airports and railways are all considered as vital for the Indian Economy. These areas have been prioritized and have been targeted for investment. 

There remains a wide array of home bred companies in India who adds self confidence to the nation. There are several domestic companies in India that considerably contributes in the nations economic progress. These companies are also increasingly expanding in abroad. India has successfully contributed more new members to the Forbes Global 2000 than any other nations since last four years.


Recent Growth Trends in Indian Economy

Since last three years Indian Economy has largely grown, it has grown by more than 9 percent. In the last decade it has grown consistently by 7 percent. In turn this has been a large reason of poverty reduction. 10 percent of the poverty has been reduced. Still it is a fact that 60 percent of Indias 1.1 billion populations earning and depending upon agriculture. It has been a challenge for this population to deal with the droughts and floods. For the developing state of India poverty eradication is indeed a major challenge.

There has been a major structural transformation adopted by the national government in recent times. It has reduced growth constraints and has contributed greatly to the above all growth and prosperity of India. Still, there are still major political and bureaucratic issues around federal vs state bureaucracy, parallel economy, corruption etc. Indias public debt is of 58 percent of GDP, this is as per the studies of the according to the CIA World Fact book.

At the time of stable growth, the Indian service sector has greatly fared. The growth rate of this sector was 11.18 in the year of 2007 and at later it has also contributed 53 of GDP. Growth of the industrial sector has been of about 10.63 percent. Later it has increased to even 29 percent of GDP. Agriculture contributes to 17 of the nations economy.

The growth in the manufacturing sector has played the major role in generating the countrys excellent growth momentum. The growth percentage of the manufacturing sector rose progressively from 8.98 percent in 2005, to 12 percent in the year of 2006. The storage and communication sector also attained a noteworthy growth rate of 16.64 during 2006.

Several other factors that have contributed to this healthy environment are sustained in investment along with the high savings rates. In regard to the percentage of gross capital formation in GDP there has been a significant rise. This noticeable rise has been from 22.8 percent in the financial year 2001, to 35.9 percent in the financial year of 2006. In addition, the gross rate of savings as an amount to GDP registered concrete growth from 23.5 percent to 34.8 percent for the period.
Member of G20

India is part of the G-20, Group of Twenty.
India and UK, trade partner over centuries, influence of the colonial era

India has been a British colony for almost 200 years and it has achieved freedom during 1947. Though the nation achieved independence from the United Kingdom, the basic trade and economic policies of the nation have relevance with several British policies. In the recent past India and UKs trade terms underwent massive changes if compared to the colonial era. India was once perceived as a less developed country. It is now a fact that Indian economy changed fast and now it has transformed itself into the rapidly growing economy. In terms of growth Indian economy is fourth largest growing economy of the planet. India as a nation is fourth largest economy in purchasing power equality terms and UK is the 4th in GDP dollar terms. From UKs perspective India has been the 15th largest market for export. India has been the fifth largest nation in terms of exporting goods in developing countries. It is worth mentioning that export in India has been more than that of in China. India has been 25th largest exporter to the UK.

Synopsis of the Indo-British trade and utilization of the New Trade Theory (Present trade relations)

Indo- British trade terms have been substantial and till the financial year of 2002, United Kingdom has been the second leading trade partner. In the year 2008, trade terms with United Kingdom have been in the fifth position. Both in export and import trade terms have considerably grown. Indian exports readymade garments to United Kingdom which include gems and jewelries, leather, footwear, metal manufacturers, engineering products, power generating equipments, software related services, chemicals, pharmaceuticals, tea, rice, agricultural products and marine products. Besides products like preserved fruits, nuts and vegetables etc are also exported. In terms of import, India enjoys non-ferrous metals, gold, rough diamonds, telecom equipments, power generation equipments, industrial machinery, chemicals etc.

 
Overview of FDI and investments

In total FDI flows to India, UK is ranked as number 5. During the financial year 2003-2004, FDI has declined. It has been down from 366 US  million in 2000-01 to 167 US  million in 2003-04. Sectors where FDI has been remarkable are power, oil and gas, telecom, service industries etc.

Top sectors for UK FDI to India are currently power and oil and gas, telecom, and service industries. Recently there has been a major change in areas like biotech, healthcare, pharmaceuticals, automotive and other ICT and hi-tech. More and more bilateral cooperation is getting prominent among the two nations.

In the IT sector there has been vat changes, India at present is the second largest investor in the UK from Asia in the IT and ITES areas. This is in number of projects and in number of investments it is number eight. It is notable that Indian businesses in the UK increased about 47 in the year of 2003. It is about 28 new countries that opened operations in the UK during 2003. Flagships for Indian ICT such like Tata Consultancy Services (TCS) and Wipro have contributed a lot. Again, Reliance Infocomms 207 million acquisition of Flag Telecom along with Wockhardts 10.85 million acquisition of CP Pharmaceuticals can be considered  as the two largest Indian investments in 2003.

It is prudent to mention that in addition, leading Indian biotechnology companies have came in association with clients from UK. Astra Zeneca has set up an RD Centre in the city of Bangalore. Ranbaxy and GlaxoSmithKline have signed an agreement for combined research and development. Industry delegations from both the countries have visited each other.

At the same time, British oil and gas giants like British Gas, Shell and Cairns Energy have declared their plans to expand their operations in India. Many businesses have set up customer care offices in India.

Presence of UK Based companies in India gets prominence when the Information Technology sector. in India. India is well set as a preferred global hub for software development. In Business Process Outsourcing also it has attracted attention of many UK based companies.


Several other economic ties between UK and India

Along with trade and investment, UKs department for international development (DFID) assists the Government of India in achieving the deficiency and poverty reduction objectives. This procedure is in accordance with the Indian Government of Indias Tenth Plan. In compliance with the internationally agreed Millennium Development Goals (MDGs), Britain aids India. This program substantiates the District Primary Education Programme (DPEP), health interventions (AIDS, TB, Polio) etc.

It is quite notable that the Trade and investment relations among the two nations have been greatly beneficial by numerous bilateral interactions between the two nations. An important association has been the India-UK Round Table. It has been a non-governmental body established in the year 2000. The purpose was to make recommendations for the development of bilateral relations of all aspects. Then, the 7th Meeting was held in Kolkata, India on10th January, 2004. In the year 2006-2007, India exported in 5.6 billion US  and in the next year 2007-2008 this rose to 7.0 billion US .  The areas of bilateral co-operations are as follows
Agriculture and Food Processing
Healthcare
Infrastructure
High Technology
IT
Energy

Later, an agreement was signed between India and UK named as The Prime Ministers Initiative. With this initiative, the new strategic ties among Britain and India were set up. This has been related to the areas like culture, education, Defense Policy etc. This also aimed to strengthen mutual economic and trade issues of these two nations.

United Kingdom has been a major trade partner of India. UK is Indias most economically significant trading partner with 18.7 percent of Indian exports reaches the EU. About 17.7 of the exports reach the Britain.  The Indo-British partnership for trade related to goods and services is now rising, also investment has never been enhanced with many Indian companies increasingly realizing that there is no restriction for the Indian professionals to work, acquire and operate in the UK.

Business to Business Relations

The UK India Business Council (UKIBC), earlier known as the Indo-British Partnership Network (IBPN) has been a major business organization supporting the growth of bilateral trade between the nations, and also the business and investment opportunities among the two countries.

Leading sectors that attract Foreign Direct Investment (FDI) from UK are as mentioned below

1. Telecommunications
2. Fuels (power  Oil refining)
3. Chemicals (other than fertilizers)
4. Services Sector (financial and non-financial)
India is considered to be the eighteenth largest market for trade and commerce. It is indeed the second largest country among the developing markets. Consumer class of India is rapidly expanding and at the same time economy of the nation is expanding at a pretty fast pace. Liberalization of the Indian economy is a process, with adaptation of the New Trade Theories,  NTT) the trade barriers mostly removed and the peak tariff down from 350 in 1991 to 20 in 2005. Privatization programs are slowly reducing significant role of the public sector in the production and consumption of goods.

Latest Trends

In the year 2010, Business Secretary Lord Mandelson and Indian Commerce Minister Anand Sharma have been involved in trade talks in London. This has further consolidated trade ties between the two countries.

Following the New Trade Theories energy and innovation related to the world-class knowledge economy can change life for millions in both the nations. It is proposed that both the nations will follow the procedures to ensure eco friendly trade and commerce. JETCO, The Joint Economic Trade Committee (JETCO) talks have been affirmative and decisions have been taken to initiate intense activity between the UK and Indian Governments for better trade terms.

Outcome of the UK-India trade talks of 2010

India has been one of the largest consumer markets of the globe and retail will be the key issue for UK. The retail sector of India has witnessed a growth of 10 of the Indias total GDP. On the other hand United Kingdom has experiences in management of supply chains that leads to better agricultural businesses. This might be suitable for the growth of Indian grains. As 35 to 40 percent of the grains are lost during transit in India, it is best to rely upon the supply chain process of the UK.
India has 80,000 kilometers of road that require either be increasing or constructing, and a UK-India roads group has been set up to carry out the work in a better way.  There have been special plans to turn Indian airdromes to better air hubs and UK will share technical expertise to make the process a successful venture. In the food and drink sector, India is the worlds largest market for whisky. 90 million cases are sold every year. Indian banks like ICICI and State Bank of India are expanding across the UK and UK based banks are eager to open up and expand operations in India.
Both United Kingdom and India shares a common interest in dealing with the global backlog of more than four million copyrights.

It is a fact that UKs bilateral trade with India is worth of about 12.6bn. The United Kingdom is the biggest European investor in India. More than 600 Indian firms are present in the UK.  About two thirds are in information technology. There remain scopes of employment as the new Indian IT players are opening up operations in the United Kingdom. In the year 2009 about 4000 new jobs have been created due to presence of Indian IT companies. All these trade terms are possible only as India has adopted the policy of liberalization.

New Trade Theory and growing trade relations between United Kingdom and India


Influence of the New Trade Theory has a strong impact upon the trade relations between United Kingdom and India. The New Trade Theory have been brainchild of researchers like Helpman (1981), Krugman (1979), and Lancaster (1980). This theory was proposed to supplement the traditional policies of trade. The global economic scenario considerably changed new theories were required to supplement the theories and data of World War II phase. Deardorff (1984) and Helpman and Krugman (1985) made it clear that the new trade theory was the result of three major facts
 Concentration of trade among the industrialized nations
 The uphill ratio of trade to GDP
 Trade and business between the industrialized nations largely remained intra industry trade

With the proper execution and practice of New Trade Theory better economies of scale was achievable. The Indo- Britain trade is a great example of increasing trade relation between a developed and developing nation. After following the theories both the nations have been benefited. Relative trade with the developing countries increased as per the theory. In primaries, manufactures, and services the theories have become largely popular.

Indian market was liberalized and the New Trade Theories have largely contributed in the nations growth.  Indo- Britain trade practices increased and across sectors the benefits were prominent. On the verge of globalization New Trade Theory played an essential role in nurturing market expansion.
With implication of the theory both developing and developed nations have been benefited. Krugman Rose opined that there was a time when role of the developed nations were insignificant but with the proper implication of the new trade theories the dynamics of trade terms have changed.

It is a fact that a tropical country might produce banana better and on the contrary the technological and industrial devices might be in more production in the European nations with small areas for cultivation. In such a case if the tropical country focuses upon food processing and the European focuses upon technological innovation, then the production of both can increase. Finally, following the parameters of New Trade Theory with mutual trade and exchange of goods and products, better economies of scale can be achieved.

There remain several empirical grounds of trade liberalization. It is notable that in several conventional arguments that relates to the static and dynamic gains from liberalization comes out on the basis of fragile and conventional theoretical grounds. Though new trade theory deals with the account of many complexities of international trade, the logical thrust of many models justifies interference, such policy conclusions are rejected.

The monopolistic competition can be well supplemented with the principles of New Trade Theory. Monopolistic competition is a scenario where a manufacturer wants to create monopolies for the short run with the purpose of creating market power and finally profit. Control over the market price is essential to arrest monopolistic competition. Independent decision making might nurture monopolistic competition. So, in case of bilateral trade there remain less chances of any such competition. Free entry and exit from the market can be considered as another major feature of monopolistic competition.

With any unique product a company can enter the market and trade. In pursuance of positive profit there are companies that offer unique product. By following the New Trade Theories free entry and exit from the market can be regulated. At times the companies involved in monopolistic competition or MC has market power. In case of trade following the New Trade Theories, chances of developing market power remain lesser. With a product, trans national companies aim to make profit in a competitive trade scenario. This occurs as similar product might remain in the market as the nation might import similar product from other nations as well.

In India, several products offered by the UK based businesses are available. At the same time similar products from other nations and off course the products developed in the indigenous market are also available. So, in case of competition of making the market, less chances remains of monopolistic competition or MC. This is a major positive side of NTT.

Creation of brand name and brand consciousness is a major step towards developing market power. The leading global brands create advertisements to make their products better available to the common people. And persuasive advertising is a major process of creating brand awareness. Once the brand awareness is created, consumers eye to buy products or services from that particular brand.  So, creating a market is essential step for the global businesses.

In India, prior to liberalization it was difficult for the European and US based brands to offer products. But at present with the revision of the older trade terms companies hold 49 percent of the stake and collaborate with a local business to enter Indian market. In this regard it is worth mentioning that across the United Kingdom the Indian labors and workers find opportunities to work. As mentioned earlier, majority of the Information Technology related jobs generate in the United Kingdom only due to the presence of Indian IT companies and outsourcing giants like Tata Consultancy Services, Tech Mahindra, Infosys, HCL etc. Both UK and India have been immensely benefited with the implications of the New Trade Theories.

The growth of Indo-U.K. trade relations as claimed by both sides have been the biggest success stories that has been possible only Indias post-liberalization phase. There are crisis and several non publicized episodes as well, to be specific these remains almost in every nations that get involved in trade terms. There have been domestic politics, both in London and New Delhi but it is common and predictable in case of bilateral trade.

It is undeniable fact that Britain has emerged as Indias fourth largest trading partner globally, followed by and the second largest in entire Europe. The statistics state that trade in goods and services is worth of 8.7 billion Again, the Indian companies are the second largest investors in Great Britain, this is just next to America There are different 500 Indian companies, mostly these companies are in the IT sector, maintain offices in Great Britain and Britain is the third largest investor in India after 1991.Post liberalization phase began after 1991.

Indian market is emerging and for a nation like UK it is a positive side to get an edge to explore the growing markets. Similarly, the Indian capitals are also getting invested in the UK as Indian companies are largely opening up marketing and operations office in the UK.

With lesser protectionists attitude things have changed and reciprocal trade terms have consolidated bilateral trade terms between UK and India. However, one area of major concern is what the Indian often finds it difficult to move in due to visa constraints. This might be more relaxed with better benefits of both nations. Still, this is not at all clouding the Indo-British relations. Several special visa conditions have been proposed by UK to make trading further easier and simple. CII or Confederation of Indian Industries considers that visa conditions have become easier.

As India and the U.K. want to push forward their mutual engagement, these measures related to the visa processes are indeed bound to be counter-productive.

Indo- British trade is not confined within goods and services, in terms of diplomatic aspects both the nations have come forward. The wide-ranging agreement has been signed on 12th Feb 2010. This agreement has been signed between Indias Atomic Energy Commission chairman Mr. Srikumar Bannerjee, and Mr. Richard Stagg, the British high commissioner to India. Both the nations have been affirmative about positive aspects of the agreement.

This agreement is suppose to facilitate India to access to civilian nuclear energy though the country has refused to sign the Non-Proliferation Treaty. Officially considered as the United States-India Nuclear Cooperation Approval and Nonproliferation Enhancement Act, this act prevented India to do any sort of Nuclear related collaborative efforts with the US for about 36 years from the date of its first nuclear bomb tests. It is indicative that a new relation between India and UK will develop after implication of the agreement.

It can be regarded that trade ties between two nations have increased and the trend indicates it will further rise in future. Trade terms have largely changed after India adopted the policy of open trade with liberalization policy. New Trade Theories are now practically getting implemented.


British Business Group or (BBG) is an outstanding place to develop business contacts remain keep up to date with the latest business opportunities and ideas. It is possible to maintain the business contacts and remain up to date about the latest business ideas.

It is the forum for British and Indian companies and investors to meet and exchange ideas. This can be also considered as the platform for networking in friendly and informal environment.
Similarly in Mumbai, the financial capital of India, BBG in Mumbai has more than 300 members, this includes top corporate firms, professional firms, subject matter experts and individuals. From blue chip companies of the United Kingdom to the potential investors, all accumulate. This reminds again of the success of New Trade Theory. The process of trading have smoothened,
The HYPERLINK httpwww.bbgmumbai.orgmembership.php t _selfmembership is definitely beneficial as it enables a company individual with a chance to promote them  gain business prospects. Moreover it provides an update about latest most relevant social, political  business issues. Besides, there are several committees and organizations that offer interactive areas for bridging the UK and India based investors.

It is expected that by the end of the year 2015, bilateral trade between UK and India will cross 40 billion dollars. In the year 2009 it has been about 12 billion dollars. The report forwarded by the Confederation of Indian Industry (CII) projects that a target for merchandise trade at 40 billion by 2015 with special importance on expanding services trade to 12 billion. In addition there will be special focus to pull up few other areas of operation and trade.

Global companies are now exploring emerging markets, and this since last few years it has been noticed that several UK based companies are sharing knowledge with their Indian counterparts. There are different ways of reaching a new market, bilateral trade is the basis of reaching a new market with the purpose of trade and explore new market. Political thinkers often opined that it might be a concept of Neo  colonialism. However, India and United Kingdom have fared well as trade partners in the recent past. India has liberalized but still in many aspects liberalization is in the nascent stage and the nation has miles to go in future. Adherence to the New Trade Theory, trade terms might be more favorable for India.


Broader trade policies of UK in brief

United Kingdom is a member of the seven OECD countries the New Trade Theory has been highly instrumental in shaping the enhanced trade policy of the nation. The industrial policy during the post Second World War phase has indeed helped the nation to be a prominent player in international trade.
Relative importance of post world war choices have been small, contribution remained of the pre- war contributions.

During the post war phase policy response to the post war internationalism has been affirmative. UK nurtured free trade, but in many aspects the nation acted as a protectionist.

On national industry of the United Kingdom the post war post war internationalism considerably weakened several industries and it has also let to low growth of several sectors. For this later the New Trade Theories have pushed the country better towards industrial growth. Relations with growing economies like India have further fostered the overall industrial growth.

In terms of wider context of decision making on industrial policies, the nation had strong institutions but it remained weak in terms of directing industries.

In the post war phase there has been several political influences on the industrial area and there has been a major stress for protection of the prevailing trade policies for greater benefit of the nation.
There has been a major shift in the policy and trade process after the Second World War. Not only in the United Kingdom, several European nations changed their trade policies. Fromfree trade to protectionism. This has been a major step. England was not an exception at that post war time.
Britain followed a politically capricious industrial policy and this is a typical character of a nation that faces war and incurs expenses.

For the sake of public interests several governments adopt some control over price, output and product quality. United Kingdom frames the strategy for attainment of the best developmental policies. Control of the monopoly power was prominent at that time as well. Later, after the implications of New Trade theory, things have improved a lot. There has been major issues related to trade and terms and United States as a nation followed strong trade policies after the war. This helped the nation to go ahead in the international trade.

Since July 1991 the new trade policy has been executed in India and since then the trade scenario with the UK has changed. It has been a historic policy change and the new trade policy has been highly effective. With the radical departure of the past industrial policies thing gave dramatically changed. Indian market conditions were suddenly not ready to accept the wide global ecomony and during the phase special steps were taken.

Priority was give to the exports instead of emphasizing the imports. There has been a change in the five years planning of the nation. Imports were limited at the same time in India but the market witnesses several shifts. In the 90s export considerably grew and the demand exceeded along with fall of price. During 90s tea export of India has been considerable. By following the New Trade Theories, it becomes much easier for the nations to export excess tea against other engineering product from the UK.

There have been several propositions related to the new economic reforms. The new market driven economy was not suitable for a country that followed separate model for decades. In 1990s there was a slowdown in global trade and as a result it is not difficult for India to achieve the trade policies that the international open market followed.

Indian production system was much advanced and finally it became easier for a country like India to endow resources to make trade terms with United Kingdom better. There were several conditions of success and India followed them successfully. To make the process of liberalization and new trade policies successful, India accumulate foreign capital. This helped the nation to meet the balance of payments and other payment difficulties.

There are several ways of initiating better trade terms between UK and India. With advancement of time those avenues are slowly opening up. Indian Economy is shining with the implementation of policies like liberalization and execution of trade and commerce basing upon the New Trade Theories. There are several ways trading being within the parameters of the new theory and both India and United Kingdom has been immensely benefited by following new theories of trade. India has been a British colony earlier and Britain is continuing trade terms with Indian people since last three hundred years (including the colonial era).

There have been ups and downs, highs and lows in the trade relations between India and Britain. But the trade continued over the decades. There are new theories that make trade ties better and substantial but India has been associated with Britain for trade and commerce and continued consistent trade.

This is now the time for United Kingdom to make the best uses of Indian knowledge if Information technology is concerned. There are several Indian companies that are locally registered for operating within the trading parameters of UK. This helps sectors like retail, bank, aviation, automobile, food processing etc to make the market better. At the same time India gets the best technological assistance by trading with Britain. In terms of making power generation tools and mechanical engineering UK based companies are performing well.

It can be said that the trade relations between India and the United Kingdom is much based upon the New Trade Theory. By supplementing imperfect competition and by considering better economies of scale both the nations have been immensely benefited. After complex analysis by the economists both the nations are following the profitable model of NTT.

The semiconductor industry has revolutionized the trade relations between United Kingdom and India. Large pools of talented Indian professionals are catering the requirements of the businesses of Britain. On the contrary with joint ownerships there has been a great change. Indian telecom service providers have collaborated with the UK based players to make the maximum benefits. So it can be well deduced that after liberalization and by utilizing the advantages of economies of scale both UK and India have gained a lot.

There still remain few governmental delays but in case of all diplomatic moves this exists. Different processes associated to governmental initiatives get delayed across the globe. Bureaucratic decision and validation of processes are constraints but these can be supplemented with enhanced initiatives to make the New Trade Theories more successful.