Bilateral trade is thriving with exports from Hong Kong to India between January and June this year worth US$3.5billion, according to consulate figures. India's exports to Hong Kong were worth US$3.9billion during the same period.

Mr Ralte said this represented a growth of 60.4 per cent over the same period in 2007. In turn, growth for 2007 was 38 per cent over the previous year, 'clearly indicating that there is much greater activity going on in this area'.

'Gems and jewellery account for 83 per cent of Hong Kong's imports from India and 67 per cent of its exports to India. This sector, therefore, accounts for the lion's share of bilateral trade, although growth has also been healthy in areas of machinery and instruments,' he said.

'The growing trend in trade between India and China is also partially reflected in India-Hong Kong figures, as much of Hong Kong's trade is re-exports.' The biggest growth area has been in financial services with more Indian banks setting up operations in Hong Kong. Mr Ralte said there were 11 Indian banks at the last count and more Indian professionals were now taking up places in Hong Kong's financial services sector.

'The Hong Kong stock exchange and the Mumbai stock exchange have discussed the possibility of signing a memorandum of understanding. They have exchanged delegations and are constantly discussing with each other,' the consul general said.

'At least one new joint venture has been set up in the brokerage side and more funds based in Hong Kong are either already in India or are seriously looking at various sectors in India. Some Indian entities have also studied the Hong Kong markets and have shown interest to enter.'

He said India was initially confident that its banking system would not be affected by the United States subprime crisis, but ministers were now more cautious as markets had taken a hit with inflation also a concern.

'Only one of our private banks reported having some mild exposure. However, the credit crunch followed by the oil price rise, and the rising cost of food grains added to the cyclical inflation in the country, and it has affected the Indian domestic market,' he said.

The situation saw Indian stock exchanges lose some of the gains they had made, but Mr Ralte said he was confident that measures taken by India's central bank to raise the base rate would halt any downward trend.

'Prospects for the future continue to remain good as the requirements of the country in infrastructure remain high and government is committed to policies that will drive investment into the sector,' he said.

Further reforms in India's insurance and telecommunications sectors to allow more foreign equity participation and a reform of the pension fund scheme to make it more flexible are on the agenda.

Mr Ralte said India was also keen to host a visit by the Secretary for Commerce Rita Lau Ng Wai-lan, following recent visits by Financial Secretary John Tsang Chun-wah and Secretary for Security Ambrose Lee Siu-kwong.

On the travel front, an agreement that improves the opportunities for more flights between Hong Kong and India had also helped improve ties with 'very few restrictions for growth in this sector at the moment', he said.

'There are two areas in air travel that I hope will eventually happen: fares will fall as a result of an increased number of passengers, and airlines will find more suitable arrival-departures for India which will make India a destination and not just a stop-over.

'As the situation improves, travel agents also need to study India more closely so that they can offer better and more attractive packaged tours. One of the constraints is that of hotel rooms in India, but that is another area of opportunity for Hong Kong's entrepreneurs.'

Mr Ralte said Hong Kong remained the vibrant city he knew from a previous posting in 1985-86. 'It has, however, overcome the despondency that was there then, and it has lost that frenetic fervour for making money that was the hallmark of that time.'