WHEN David Cameron and George Osborne tour India next week, the Conservative duo will be hard-pressed to resist making the point that the Chancellor of the Exchequer has not, in nine years in the job, visited what his own Government deems the most promising overseas prospect for British goods and services. Gordon Brown has been a vocal champion of investment in India, but he has not been there. But once that piquant point is made, the challenge for both men is to address the political gridlock in Delhi, and not London.

The incursion of British business into India has, in recent years, been timid. The world’s largest democracy has been growing at roughly 8 per cent, swelling the ranks of middle- class consumers. Still, India got just one half of 1 per cent of the UK’s total foreign direct investment in 2004. Just less than 1 per cent of UK exports are to India (population 1.1 billion) with 4.5 per cent to Belgium (population 10 million). Meanwhile, the UK has become India’s biggest market in Europe for IT services. India has leapt up the league table of international investors in the UK to third place last year.

Neither the British Government nor British business is chiefly to blame for the increasingly lop-sided UK-India economic relationship. No doubt trade promotion could improve, but the UK Trade and Investment office has, at Mr Brown’s instruction, expanded across nine offices in India. Where the opportunities exist, British businesses are exploiting them — Mr Cameron will open a new JCB plant in Pune on Monday.

The problem is that the door to the Indian market is only ajar. The sectors where the British could compete in India — and help to modernise and enrich the Indian economy by bringing competition and best practice — are precisely the ones that are effectively blocked to foreigners. They include insurance, legal services and banking.

The nation of shopkeepers finds itself unable to sell to the largest market of English- language shoppers. Foreign direct investment in retailing is severely restricted. This constrains British business, but, more importantly, hurts Indians. Two thirds of people live in rural areas and more than three quarters of them are subsistence farmers who cannot make a proper living. A third of produce rots before it can be sold. There are, therefore, great opportunities in logistics and retail — businesses in which Britain has some expertise. But the chief obstacle to that is India’s industrial oligarchy, which seeks to build its own retail empire and ensures that the politicians in Delhi maintain the trade barriers to protect them. The irony is that India has succeeded most conspicuously in the area where the internet has removed all barriers to entry: IT.

Fitness last

GYM CLUBS have followed a classic business path. Rapid early growth bred fashionable excitement, followed by huge over-investment leading to years of low returns and stagnation. On the stock market, the gym sector appeared overnight, flourished and died like a day lily, sold to optimistic private equity houses and replaced by a full house of gambling shares.

Sir Richard Branson hopes that he will lead the industry back out into sunlit uplands by merging his Virgin Active, which is particularly active abroad, with Holmes Place, which has passed through various hands at home. Consolidating a group with 350,000 members is, according to the Branson camp, the first step towards a £1 billion flotation.

Unfortunately, the locker room is full of private equity houses hoping to refloat gym club chains. But the resistance settings are high. It is not just that the industry has become mature fast. It is also cyclical. Membership has become a leading economic indicator and it is pointing downwards.

Higher taxes have caught people by surprise, compounded by rises in utility bills, transport costs and mortgage payments. Gym membership is spending at its most discretionary. More people seem to be choosing the sofa than the StairMaster. Health and fitness club members have fallen by 50,000 in the past year.

Toy story

THE Hornby train set company is, apparently, steaming to the rescue of the downed Airfix model business. It is the kind of story that preys upon those with a weakness for bad puns and nursery nostalgia. But if Hornby does buy Airfix, there will be nothing cute or childish about it. It will be an adult lesson in global business, the merits of outsourcing and the mystery of niche marketing.

In 1997, Hornby was in trouble. Sales were sliding, products were stale and margins were shrinking. It made the painful decision to phase out UK production and move manufacturing to a company in China. If it had not, Hornby’s chief executive, Frank Martin, has said: “We would have been bust now.”

Instead, Hornby reported an £8.2 million profit. Cost savings from moving to China were ploughed back into new models that tickle the fancy of its mainly affluent adult customers. Hornby realised its future was its past and that it had grown up. The products will still be train and car racing sets, but they can be controlled digitally, just like PlayStations.

Airfix outsourced production, but to a French company that went bust and let it down. Less cost was saved and, until recently, products were not kept consistently rejuvenated. Outsourcing can do more than save money. It can refocus a consumer-oriented company on its key function of designing and marketing goods to potential customers.

jamesharding@thetimes.co.uk

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