PM Modi, Save Your Breath: The Real FDI Is to Be Found in India
Indian investor wealth is increasing but most of that money is being parked abroad as foreign investment.
Like the fictional Dick Whittington, our Prime Minister was in London recently to seek investment. It may be true that the streets of London are literally paved with gold. And a good part of it may even be Indian. What India needs is investment – foreign or Indian doesn’t matter. Indians have now emerged as one of the world’s biggest overseas investors and Narendra Modi should be pursuing investment at home more vigorously than abroad.
Who Is Actually Behind FDI in India?
Overall foreign direct investment (FDI) into India grew by 27 per cent year-on-year to $30.93 billion in 2014-15. Mauritius accounted for about 29 per cent of the country’s total FDI inflows. India attracted $9.03 billion in FDI from Mauritius in 2014-15, whereas it was $6.74 billion from Singapore. Both these countries are tax havens and money from them is mostly passed through funds. So who is actually investing in India?
Countries like the US and the UK together make up 50 per cent of mergers & acquisitions [M&A] in India, and Japan is responsible for another 10 per cent. Together these countries account for three-fifths of FDI via M&A inflows. While M&A data will tell us about the citizenship of the corporates, we will never know the citizenship of their primary owners. But according to those familiar with this, Indians are the biggest source of FDI investment in India.
India is the Third Largest Investor in UK
UK-inward FDI Stock – the amount of FDI in the UK – is estimated to have passed the £1 trillion level in 2014. The UK’s increased focus on emerging markets in recent years is starting to pay off. India has become the third-largest source market for FDI projects in the UK. Investments from India increased by 65 per cent, making it the third-largest source of FDI for the UK – higher than even Germany.
Indian pharmaceuticals company Cipla is set to invest £100 million in UK-based research on a range of drugs. Automotive manufacturer Mahindra will also inject £20 million into the British economy as it develops its electric vehicle technology, with the company’s first car expected to go on sale in the UK within a year. Additionally, with 1,000 companies in Britain, led by Tata, parent of Jaguar Land Rover, Indian investment in Britain is more than in the rest of Europe combined.
Like FDI in India, Indian FDI overseas also mostly transits through tax havens. Netherlands and Singapore attract most of the FDI from India, with a share of 28.8 per cent and 15.2 per cent, respectively. British Virgin Islands and Mauritius have a share of 10.3 per cent and 7.0 per cent with an investment of $3,687 million and $3,029 million made in these countries, respectively.
Illegal Money-Flow Out of India a Drain on Economy
In addition a huge amount is sent abroad illicitly through financial channels. Washington DC-based research body Global Financial Integrity (GFI) has calculated that an additional $439 billion of illicit funds flowed out of India between 2002 and 2012. Illicit funds can be money from evasion of taxes or capital controls, bribes and kickbacks, or proceeds of crimes like human and antiquities trafficking.
We care about illicit funds because they are a drain on the economy that, in many ways, perpetuates poverty and inequality worldwide. India exports 4 per cent of its GDP illicitly or 10.3 per cent of its foreign trade. Last year it sent out about $51.63 billion via these channels, which is equal to 215.4 per cent of the incoming FDI.
Indians are becoming wealthier. Some much faster than others. The Hurun Global Rich List of 2015 says that India has broken into the top three of the billionaires list for the first time; India added 27 billionaires since 2014, taking the total to 97.
Bottomline: PM Should Court Indian Investment in India
India has replaced Russia and sits behind the US and China who still lead by a wide margin with 537 and 430 respectively. The combined wealth of these billionaires is close to $266 billion. The PM would do better by staying back in India and coaxing these rich folks to invest more in India and less abroad.
And he has much work to do here. India ranks 130/189 in the World Bank’s Ease of Doing Business rankings. Aditya Birla group chairman Kumaramangalam Birla recently said a delay of two-three months was pretty much the norm in India at present and it was seen that India was the least transparent and most uncertain of the 36 countries that the group operates in. Our message to the PM must be to seek investment here in India.
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