Table 2: FDI in India ($ Mn)
Table 3: European Investor in India ($ Mn)
India has faced the problem of stagnation in FDI in last few years and 2010 has been especially sensitive in this regard with FDI falling by 23%. UK being an important and consistent contributor to Indian FDI,the investment assumes paramount significance. With The UK FDI in India going up in 2010, the optimism looks very high.
A look at the UK FDI in India in Feb 2011 suggests that UK is again loosing the momentum which it gained in 2010. With the investment by UK in India in Feb 2011 being as low as $28 mn, there seems to be a need for serious rethink by Indian policy makers. The data clearly reveals that UK FDI in India has gone down significantly in the first two months of the calendar year (Table 1) with investment dipping to $ 46 mn. The 30% decrease in UK FDI in India in first two months clearly signal the gloomy days ahead. The figure is significantly lower than $ 150 mn in 2010.
An analysis into this aspect further shows that it is not only UK investment in India which has nosedived but India’s cumulative investment has also suffered heavy blow with FDI inflow (Table 2)dipping to $ 21 bn. The fall in direct investment was caused by companies facing hurdles obtaining land, gaining environmental clearance and poor infrastructure. Construction, mining and business services recorded the biggest drops in investment. India’s governance issues have also dented the confidence of investors in the country. The paradox is that FII investments have shown a reasonably better performance during the same period.
Dip in UK investment in India is also putting at the risk its dominance in terms of being the largest European investor in the country. Though UK still remains the largest cumulative European investor in India,the Netherland and Cyprus have consistently beaten UK in last 2 years. If the fall in UK FDI in India is not arrested soon, it might result into UK losing its position as largest European investor in India.
The decrease in UK FDI in India is disappointing as inadequate investment in emerging economies like India restrict the growth opportunities for UK companies. The lack of investment in India clearly shows that UK companies have not been able to adjust with Indian market which is fairly complex and challenging. On the other hand companies like Standard Chartered have reaped the rich benefit with India becoming the top most profit centre globally.
The impeded growth in FDI in India by UK companies is also due to complex regulations and restrictions. UK wants India to open up retail sector and further liberalize defence and financial services to promote economic growth. Irrespective of the reasons it is important that both the countries promote bilateral investments. The lack of investment by UK companies in India can be creating a loss-loss situation for both the countries.