THE EAST INDIA COMPANY COMES FULL CIRCLE: INDIA'S INVESTMENT SURGE IN THE UK

Investments made by Indian companies in the UK have positive financial fallout for both given that this generates more employment opportunities, leads to sharing of advanced technologies and provides enhanced market access. Suresh Shukla takes stock of this symbiotic relationship

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The East India Company, once a symbol of British colonial rule in India, is now owned by an Indian entrepreneur, Sanjiv Mehta. It’s a fascinating twist of history that perfectly captures the dynamic shift in economic power. This intriguing fact sets the stage for a broader narrative: India’s remarkable rise as one of the United Kingdom’s largest foreign investors. The United Kingdom (UK) and India share a complex history filled with controversies, trade and business cooperation. However, it’s not just geopolitics that attracts Indian companies to invest in the UK.

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The UK is a significant financial powerhouse, boasting advanced technology and a robust market. This leads to the puzzling question: Why are Indian companies investing so much in overseas firms when their domestic market is rapidly growing? First let us understand the magnitude of FDI flow by India in the UK. In 2021-22, Indian foreign direct investment (FDI) played a crucial role in the UK economy, with India being one of the top source markets for FDI projects in the UK. The total inward FDI from India was ￡9.3 billion, creating 8,664 new jobs.

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Only the US was involved in more FDI projects in the UK, and no other country besides India created more new jobs through FDI projects. In 2023, there was a record of 954 Indian companies operating in the UK, up from 900 in 2022. These companies employed 105,931 people and paid ￡944 million in corporation tax, a significant increase from ￡298.13 million in 2022. The growing footprint of Indian companies in the UK through strategic acquisitions and investments has significant economic implications, not only for the UK but also for India. This section explores the various economic impacts of these acquisitions and what they mean for India’s economic landscape.

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Job Creation and Employment Opportunities

One of the immediate economic benefits of these acquisitions is job creation. When Indian companies invest in the UK, they often expand their operations, leading to the creation of new jobs both in the UK and back in India. Here are some examples:

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Reliance’s Acquisition of Hamleys

This has led to the establishment of numerous Hamleys stores across India, creating retail jobs and stimulating local economies.

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Technological Advancement and Transfer

Acquiring technologically advanced companies allows Indian firms to bring cutting-edge technology back to India, fostering innovation and improving competitiveness. For example: Tata Motors has benefited from the advanced engineering and design expertise of Jaguar Land Rover, which has been instrumental in enhancing Tata Motors’s automotive technology capabilities. This technological transfer is crucial for the development of India’s automotive industry, a sector India is keen on developing.

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Reliance’s Acquisition of Faradion

By acquiring the leading battery technology company Faradion, Reliance aims to leverage its state-of-the-art technology at its upcoming fully integrated energy storage giga-factory. This initiative is part of the ambitious Dhirubhai Ambani Green Energy Giga Complex project in Jamnagar, India. In a press release, Reliance emphasised that this acquisition will significantly strengthen its efforts to build one of the world’s most advanced and integrated ‘new energy’ ecosystems. By integrating Faradion’s cutting-edge technology, Reliance is poised to place India at the forefront of leading battery technologies, enhancing the country’s position in the global energy market and contributing to sustainable energy solutions.

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Enhanced Market Access

These acquisitions provide Indian companies with direct access to established markets, which can be leveraged to expand their global presence. For instance, Infosys has acquired Brilliant Basics, a London-based company known for its top-notch product design and customer experience (CX) innovations, leveraging a design thinking-led approach for global programmes. This acquisition expands Infosys’ global network of digital studios, dedicated to providing comprehensive digital transformation solutions to meet the evolving demands of customers for next-generation experiences. With Brilliant Basics, Infosys has strengthened its digital design services in Europe and the Middle East and enhanced its expertise in the financial services, retail and telecommunications sectors.

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Financial Gains and Capital Inflow

Investing in profitable foreign companies generates financial returns that can be reinvested in India. These returns often come in the form of dividends, profits, or increased stock valuations. For example, companies like Tata Motors generate revenues from their foreign acquisitions, contributing to their overall financial health. This capital can be reinvested in India, fuelling further growth and development.

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Foreign Exchange Earnings

Profits earned in foreign currencies such as dollars, euros or pounds can be brought back to India, strengthening the country’s foreign exchange reserves and enhancing its economic stability.

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Strengthening Trade Relations

The strategic investments by Indian companies in the UK contribute to stronger bilateral trade relations. These investments help balance trade, improve diplomatic ties, and open up new avenues for collaboration. For instance, the investments made by Indian companies in the UK contribute to the UK’s economy, while the returns benefit India’s economy. This symbiotic relationship fosters a stronger economic partnership between the two countries.

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Trade Negotiations

With a substantial economic presence in the UK, Indian companies can influence trade negotiations, potentially securing more favourable terms for both imports and exports. This can lead to increased trade

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Conclusion

The economic impacts of Indian companies’ acquisitions in the UK are multifaceted, offering significant benefits in terms of job creation, technological advancement, market access and financial gains. These investments not only strengthen India’s economic ties with the UK but also contribute to India’s growth and development. By strategically leveraging these acquisitions, Indian companies can enhance their global competitiveness and drive economic progress at home.