Will Indian pride scupper May’s trade deal?

THE Prime Minister plans to visit India next month, and the hype has already started. She paints a vision of a Britain no longer focused on Europe which will have to look more closely at other markets. With China recently pausing for breath, India — one of the world’s fastest-growing countries — is an obvious place to start.

The IMF says India could grow at 7.6% for the next two years. If it can keep that up into the 2020s, its economy will be larger than that of Italy, France or the UK. The problem is that size on its own does not mean much; income per head is the key, and in India’s case there are a lot of heads. The average income per head is less than $2000, one of the lowest in the world. Even today in that vast subcontinent, a lot of people do not have much to spend.

On the other hand, the money is not spread equally and there is a rising and fast-growing middle class that will continue to expand in income and numbers at a considerable rate. The market is clearly here; the problem is getting access to it.

In its near-70 years of independence, India has never been particularly kind to foreign companies, although it has lightened up in recent times. But, however friendly the national government, it cannot overcome problems and dif- ferent political administrations at the local level. Distribution in India is tough, in terms of the bureaucratic hoops to be negotiated and the overworked infrastructure. Even if a British company’s goods are wanted by Indian customers, getting them to a place where the customers can see and buy them is neither cheap nor easy. As a result, exporting to India is not a task for the faint-hearted or for anyone without a bulging wallet. And no trade deal, however well-structured, is going to overcome problems like these.

There is more subtle issue, too. A part of WPP, the global marketing company, compiles and maintains a register of the leading brands in the world’s major markets. It does this because brands matter hugely to a company whose core business is advertising, and because brand strength serves as a proxy for sales growth and the prosperity of the companies. But it also gives it huge insight into the changing pattern of business in these markets.

This is where the Theresa May could come unstuck, not just with India but with many of the markets in the East and in South America. Writing in the introduction to his latest report, WPP’s David Roth highlights significant new challenges for multinationals trying to sell into these markets. “Competition from local brands is increasing across fast-growing markets because of several factors,” he says.

First, the quality of local brands has improved. Second, as the range of choice improves, customers become more value-conscious — particularly at a time like now when some countries are experiencing an economic slowdown. Third, local brands have discovered they c an make significant headway by playing on the perception that, being local, they better understand the needs of local consumers.

This third force may in the long term be the biggest obstacle. Even in this country, there is populist talk of the need to import less and to buy British, but how much stronger is that strand in developing markets anxious to shake off any vestiges of colonial heritage? One of the major forces in India is a new nationalism — a pride in all things Indian with new companies determined to challenge the multinationals in their home market. And that is a sentiment even the most ambitiously-structured trade deal will struggle to overcome. employment is high, so are living expenses — and most people do not have a great deal of money.

But High Streets really cannot cope with falling sales for whatever reason, and particularly when costs are rising as sharply as they are now. A huge amount of stuff is imported and the 16% fall in the value of the pound since the referendum has played havoc with profit margins. On top of that, they are grappling with further rises in energy costs and the upward spike in the minimum wage — both of which are big issues. In addition, business rates and rents only ever go in one direction.

It is too early to write off the sector, because how shops fare for the year always depends to a disproportionate extent on how they do in the run-up to Christmas, a race that will start once Hallowe’en is out of the way. But it will not be easy — even this peak spending season is not what it was, partly because more and more presents are bought online, and also because shoppers now wait for the flash sales that retailers use to bring in the trade. And if sales fail to live up to the highest expectations, we must surely expect several more big-name closures when the rents fall due in January.

‘Even today in that vast subcontinent, a lot of people do not have much to spend’