Channel: Investment

Wednesday, May 19, 2010
UK is 4th largest investor into India despite steady drop in investment levels
Given the ongoing economic crises in Europe, it comes as no surprise that British investments into India
Tables & Graphs

Given the ongoing economic crises in Europe, it comes as no surprise that British investments into India nosedived in the year 2009-10 (April 2009 Feb 2010) taking UKs ranking from the 6th largest investor to the 9th largest investor into India. Notwithstanding the drop in annual investor ranking, UK still retains the position of fourth largest cumulative investor into India after Mauritius, Singapore and the United States.


Those who are in the cross border investments business will be very quick to point out that Mauritius and Singapore arent real investor nations but act as tax efficient transits. Cyprus and possibly Netherlands are other such tax friendly jurisdictions that also feature in the list of top 10 investors into India.


So although the UKs position as a direct investor into India may have dropped many notches, it is probably the #1 or #2 investing nation into India as its companies and other investment funds are most definitely using the one of these tax jurisdictions as investment channels. It is very difficult if not impossible to ascertain the investments that originated from the UK and reached India through indirect routes. Typically investment funds will use tax efficient investment channels to minimize capital gains tax as opposed to corporates that tend invest directly into the country.


For any unbiased investment professional the fundamentals in terms of numbers are absolutely staggering. India is the largest producer of films in the world, with more than 1,100 films released and around 3.7 billion tickets sold every year. However, the country is also one of the most under-screened and under-priced markets in the world. It has one screen for every 85,000 people compared to the global average of one screen per 45,000 people. With 72% of the 1.2 billion population under the age of 35 and a growing middle class which is ready to consume and spend on one of its primary forms of entertainment, both for the classes and the masses the demographic story is truly appetizing.


The calculations show that despite the drop, UK still is the 4th largest cumulative investor into India with an aggregate of USD 5.76b of investments in the time period April 2000 Feb 2010. That is equivalent to just over 5% of the total FDI received by India in the same period.


The highest rank that UK has ever attained as a nation investing into India is #2 which it did in the year 2006-07 when its companies directly invested USD 1.8b into the Indian economy. Since then investment originating from the UK have declined reaching its lowest level in the year 2009-10. In the first 11 months of the financial year 2009-10 its companies have thus far only invested USD 538m. In the same time period India received a total FDI of USD 24.68b.


The drop in direct investments does however point to another side to the story which is that UK companies are either not keen on investing or finding it hard to invest into India. Both reasons are very plausible. The UKs Office of National Statistics research puts the net outward investments from the UK throughout the world in the year 2008 as GBP 86b of which 64% of which went to the EU zone, 16% in the Americas, 10% in Asia, 9% in Australasia and only 1% in Africa.


Clearly UK companies still have a greater affinity towards investing mostly in the EU zone or North America. For instance in the year 2008 the investments made in India and China accounted for only 0.5% and 2% respectively of its total net outbound investments elsewhere in the world. This largely does point out that the UK companies are still reluctant to embrace globalisation.


The decrease in investments by UK companies in India is also surprising because net UK outward investments worldwide have gone up by 13% in 2008, but had a 28% fall in India. Even in the wider Asian region the UK investments have registered more than 30% growth.


The next five years will offer unprecedented opportunities for UK companies in a number of sectors in India. Of these the infrastructure sector does stand out. According to a recent report by Goldman Sachs, the Indian Government must spend USD 1.7 trillion in the next decade on improving its infrastructure if it needs to sustain its growth rates. The India Government has already earmarked at USD 1 trillion and is seeking the balance from private sector.


With the future looking very bleak for the Euro zone it is imperative that the UK companies think harder of increasing their investment levels in India in order to find growth markets.


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