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Investing in India: Is the UK doing enough?

By Shairi Mathur. Source: 31 March 2005 India News in Europe

Post-liberalisation, the Indian economy has become an attractive destination for Foreign Direct Investment (FDI). Potential foreign investors are lured by the size of the Indian market, low labour costs and an educated pool of management and technical personnel, stable legal system and finally, strategic location of India for expanding into Asian markets.

The Indo-British Partnership (IBP) set up in 1993 to promote bilateral trade and investment was very successful in its endeavour with the UK becoming the third largest investor in India after the US and Mauritius.

Indo-British trade figures are estimated at £5 billion per annum. However, India's bilateral trade with China is over £7 billion per annum and with the US is over £10 billion.**

From the Indian point of view, UK investment in India is disappointing; especially considering the enthusiasm in recent years among Indian businesses investing in the UK.

Not only does the UK emerge as the top European investment location for Indian companies targeting the European markets and beyond; but India is also the second largest source of FDI from Asia.

Driven by a desire to see more trade and investment by the UK in India, the Indo-British Parliamentary Forum (IBPF) delegation that visited the UK in the first week of February this year asked this very question of a distinguished panel hosted by the Foreign Policy Centre (FPC), a London based think tank.

The eloquent Jyotiraditya Scindia MP confounded the UK panel comprising of representatives from the government, big corporate firms, and industry by repeatedly asking, "Why is there relatively less investment from the UK in India as compared to other countries?"

The answer to this question cannot solely lie in problems with the Indian economy since the much cited impediments such as dealing with bureaucracy, restricting labour regulations, inhibiting industrial and trade policies and poor infrastructure; are universally forbidding to foreign investors. This then could possibly mean that the new economic policies such as the introduction of the new Patent Law and VAT in India are not likely to change UK attitudes either.

Perhaps there is more of a need to look within the UK itself and for policy makers and investors to ask themselves why they do not have the confidence that the US does in investing in India.

Still, it is not all a pessimistic picture. Renewed hope lies in the relatively near future with the introduction of Chinese-style Special Economic Zones (SEZs) in different parts of India, beginning in May 2005.

These zones are deemed foreign territory for tariff and trade operations and are to have excellent infrastructure facilities.

It is still too early to examine how successful these will be, however the UK, if it so desires, would have to act very soon in order to carve its share within these expected "engines of economic growth."

For the sake of Indo-British relations, let's hope that this is not a missed opportunity.

*Shairi Mathur is Project Officer for India at the Foreign Policy Centre, a leading London-based European think tank with a Global Outlook.

This is an article published originally at http://www.indianewsineurope.com/