India largest recipient of manufacturing investments : KPMG

BANGALORE: INDIA: India is likely to see the largest growth in its share of foreign investment overall, and should become the world leader for investment in manufacturing.

“As investments go global, the smart money is increasingly finding its way from the traditional investment destinations of US and Europe to the BRIC countries. The more recently recognised India opportunity is reflected in the fact that a significant amount of investment into India in the next five years is expected from first time investors. The expected increase of Indian investment in the Middle East reflects the proximity and the opportunity created from the oil price led wealth effect. India must continue to build on its investment climate to monetise this sentiment.” said Russell Parera, CEO, KPMG in India.

The results showed a move away from investments in the US, Japan, Singapore and the UAE, and a big increase in flows to Brazil, Russia, China and India (BRIC).

Commenting on the findings of the survey, Sudhir Kapadia, Head of Tax and Regulatory Services, KPMG in India, said "This trend-setting KPMG survey validates anecdotal evidence suggesting a major shift of capital flows from the USA, Japan and other European countries to the BRIC countries, in the next five years. It is significant to note while 10 percent of the companies surveyed expect to invest in India currently that number will go up to 18 percent in five years-the biggest gain amongst all other BRIC countries. Further, an increasing proportion of investments will flow into industrial products and manufacturing in India. Interestingly, 64 percent of the investment into India is expected to come from new entrants to the country.”

He further adds: “It is clear that India has the potential to play an even more influential role in flow of capital and it’s a great opportunity for India to further improve the economic and fiscal climate and proactively attract and retain investments in its growing economy. Indeed, India Rising is all set to fulfill its tryst with destiny that Nehru spoke about in his historic 1947 Independence speech and occupy its rightful place in the comity of nations"

These conclusions come from a global survey of corporate investment plans carried out by KPMG International. Corporate investment strategists from over 300 of the largest multinational companies in 15 major economies were asked where they plan to invest in the next 12 months and in five years’ time.

They were also asked which countries they saw as dominant in their sector today, and which they expected to be dominant in 2013/14.

China likely to overtake US

China is expected to overtake the US as the world’s leading recipient of corporate investment in the next five years, and should become the most influential country in IT and telecoms, industrial products and mining, a new study of future global capital flows has found. However, the European economies are expected to keep their attraction for investors, with the UK maintaining a very strong position, especially in financial services.

China should receive significant investments from 24 percent of corporates surveyed in 2013/14, up from 17 percent this year. Russia can expect investments from 19 percent in five years, up from 12 percent this year, and Brazil can expect investments from 14 percent, up from 10 percent during the same period.

By contrast, the US share of investments is expected to fall by 4 percent to 23 percent, still a very high proportion of global investment, but placing it marginally behind China. The US is also expected to give up its dominance of the mining, industrial products and IT/telecoms sectors, with China taking first place in each case.

Speaking at KPMG’s 2008 EMEA (Europe, Middle East and Africa) Tax Summit in Barcelona, where the survey was launched, Sue Bonney, Head of Tax for KPMG’s EMA region  and a partner in the UK firm said: “The majority of the people surveyed saw the next five years as a return to more normal patterns of investment, after a period when the US has had a disproportionately high share of global investment funds.”

“But a return to the market conditions of say, 2003 does not explain the shift in influence that these strategists expect towards the BRIC economies. This does look like the beginning of a fundamental change in the balance of economic power.”

Although the major European economies can expect to be overtaken by the BRIC economies in their share of investment, this is only because the BRICs are doing particularly well. The UK, Spain, and Italy can all expect an increase in foreign investment, and Germany can expect to maintain its current share.

The UK should remain the most popular developed economy outside the US, increasing its share of investment by 3 percent to 17 percent. In financial services, a traditionally strong sector for the UK, the country is expected move from second place to equal first with the U.S. in terms of global investment.

“Our survey shows that corporate investors are already planning their responses to a shift in global economic power that has been happening for some time” said Sue Bonney.

“They help confirm the rise of the BRIC economies as viable alternative places to invest, taking away funds primarily from the U.S. economy. The continued strength of the European economies may come as a surprise to some, but the fact that they hold up so well suggests that we may be developing a roughly equal balance of economic power between the Americas, Europe and Asia Pacific. That would indeed herald the start of an entirely new global economic regime.”