With the developing countries India and China taking the lead for recovery of global economy from sluggish performance, the investment in two countries have become vital in recent years and so in this context UK investment in India has global dimensions.UK FDI in India has shown dismal figures in last few years but the year 2010 looks to have moved ahead from previous shocks with UK looking to rebuild its investment in India.
The table clearly reveals that UK is trying to restore its pre-recession investment level in India. In first 11 months of thecalendar year 2010, the UK investment in India has increased to $659 million against $454 million recorded last year. The increase is encouraging as FDI in India in the corresponding period has declined by 26%. With the increase in investment, UK share in India bound FDI has gone up to 3.4% from 1.7% observed in 2009. The increase in investment level not only shows the recovery in UK economy but also brings in focus the emphasis of UK government to widen the business engagement with India. Clearly the companies missing the emerging markets like India will be at disadvantage.
The month wise data for UK investment in India shows that except February, September & October, UK investment in India this year have increased their share in India's total inbound FDI. This clearly shows that not only volume has grown but also number of investments has registered an impressive growth.
UK FDI profile in India matches with its FDI profile globally. The largest five sectors of UK FDI globally are financial services,mining including oil & gas, Transport and Communications, Chemicals, plastics and fuels, Retail/Wholesale trade. The UK investment in India is mostly in Food Products, Financial Services,Transport and Communications, Real Estate and Business Services in Retail/wholesale trade.The two sectors of the top 5 where UK did not account for significant investments into the Indian market are mining (including oil & gas) and chemicals.
The top 5 sectors where India receives FDI are Services (including financial and non-financial), Housing and Real Estate, Telecommunications, Construction activities, Computing - Software and Hardware. UK companies are generally present in most of the top 10 sectors that received FDI in India.
Among European nations, UK is clearly the largest investor in India. It is closely followed by Netherlands, Cyprus, Germany and France. However the presence of Cyprus in the top investors list is purely due to its preferential tax treaty with India. It should not be treated as the ultimate source of FDI.
Given the history of UK and India it is very much the expected case that Britain will command such a position amongst all other European nations. However UK's position as the top investor into India is coming under threat. In the last financial year 2009-10 it dropped to the 9th largest investor into India, ahead of France but behind Germany. Given India's current appetite for infrastructure investments, both France and Germany stand to gain fair amount. German companies are vying for major construction contracts and companies in France are already lining up to develop and maintain a number of nuclear power plants in India.
In cumulative terms, UK has thus far invested USD 6.3 bnin the time period Apr 2000 - Nov 2010 accounting for about 5% of India's total FDI received in this period. Mauritius accounts for 42% of foreign investments into India. Clearly a number of UK investments could also be flowing through Mauritius into India but that is fairly difficult to ascertain.
The only nearest competitor for UK from Europe that invests into India is Netherlands. There are certain cases where Netherlands has also been used for tax efficient investment transits but for most part a number of industrial investments have originated from that nation. Other bigger European economies such as Germany, France and Italy have still some catching up to do with the UK.
So while winds of changes are blowing in the world with India becoming one of the hubs for global investments, UK looks forward to rebuild the momentum after a sluggish performance during the crisis years.It is especially heartening as India has struggled to keep the pace of FDI in 2010. Despite the investments gaining the forefront the level of investment is still much below the actual potential and so any complacency cannot be justified. Clearly the two countries need to facilitate the bilateral investment to increase the gain from global integration.