UK firms ‘must look to potential’ of India

Kumar, chief executive of the Indian Council for Research on International Economic Relations, was speaking during a visit to Edinburgh over recent days, describing the domestic problems of the economic giant which he described as being "in perpetual take-off".

The former chief economist with the Confederation of Indian Industry said UK businesses should be aware his country is moving into hi-tech sectors, including electronics, the auto industry and civilian aircraft, but should also be seen as a potential collaborator. This is partly to join in research and to help India tackle the environmental challenges from economic growth such as river pollution and drinking water quality.

Kumar said Scottish financial services companies should look to the potential. Standard Life has a local partner, but Kumar pointed out there is plenty more business for Scottish expertise - 60% of Indian farmers do not have any bank account.

There is a caution: "In India, you need to be a marathon runner, not a sprinter".

However, his most pressing warnings are to Indians themselves. The private sector had assumed that it could get on with growth despite government, he said, but the slow pace of economic and regulatory reform in the public sector can no longer be ignored. Business needs to unblock the many obstacles to investment, which he joked is "the activity of last resort in India".

This is not only a message for Indian business, but for foreign investors. Kumar said they should be more willing to tackle government issues, pressuring ministries and regulators and holding them to account.

The growth rate of unreformed "stumbling India" is forecast at 5.5% over the next 30 years, but if it frees up its markets, it could cruise along at 10% to 12%. Kumar is not an enthusiast for the untrammelled free market, however, arguing that Asia and the West have to find new economic models no longer based on limitless demand.

The country's education has successes at the top end, with technology institute graduates able to command big salaries, and driving the IT sector. Yet they lack official certification because it is not worth engaging with the qualifications bureaucracy.

The curriculum in the country's older universities can take years to change, and it is not worth the while of many academics, who themselves are undervalued and poorly paid in the public system.

Most telling in the higher education sector is that Indians are currently spending five billion US dollars each year on paying for their families to be educated overseas.

That is already proving lucrative for British universities, but Kumar said there is a strong case for Western institutions to set up campuses in India to tap into this huge market, as some are already doing in China.

It is the government school system that is struggling most, he said, with teacher absences running at 50%. Only around 10% of young people are continuing in education after school, which he said is wholly inadequate for a country seeking to compete internationally. He backs a voucher system, to which the private sector could respond by setting up schools.

Kumar's visit to Scotland was to work with the International Futures Forum, the St Andrews-based think-tank, looking abroad for radical ways of solving public policy problems.

The Indian visitor said that although his country has been described as "functioning anarchy", parts of it are now closer to pure anarchy, groups including Muslims are being left behind by economic growth, while richer regions may turn against the drag from poorer ones.

He said positive signs include the effects of a right to information law, which has opened up a highly-politicised bureaucracy to a lively independent media.

One suggestion to handle the communal tensions between Hindus and Muslims could be a free trade zone with Pakistan and Bangladesh.