India remains an attractive investment destination

16 December 2015 Consultancy.uk

India remains an attractive destination for Foreign Direct Investments, seeing around $34.4 billion enter the economy in 2014, research by Arthur D. Little shows. Much of that money (10.5%) goes towards investments in services, followed by telecommunications (9.4%). Although the majority of investors are more positive about India's economic development of than they were last year, barriers remain, including infrastructure and government legislation.

Foreign Direct Investment (FDI) generates considerable benefits to economies towards which it flows. Externalities such as better business models, processes, technologies, training and best practises are stimulated through such investments. FDI also tends to bring with it job-led economic growth, something which emerging economies are keen to capitalise on. FDI remains critically important even in well developed economies such as the UK, which still sees considerable inflows according to a recent Grant Thornton report.

Recent research by Arthur D. Little, in collaboration with the Associated Chambers of Commerce of India (Assocham), titled ‘India - Investment Opportunity’, explores FDI entry into India, as well as the sentiment of investors in the Indian economy. The report is developed from an analysis of the Indian market as such, and is complemented with the answers of more than 100 investors and business leaders in India and internationally about their current perception of the Indian economy.

FDI heat map

Global FDI
The good news for India is that its FDI inflow has seen an increase of $9.1 billion, from $25.3 in 2007 to $34.4 billion in 2014. Other big winners have been China, where FDI increased from $83.5 billion to $129 billion, and Brazil. Particularly developed economies have seen considerable decreases in FDI. The UK is down almost $110 billion since 2007, while Japan lost 90% of its FDI over seven years.

The increase in inflow is positive for the expansion aims of India’s long term economic plans, as the country is now in need of both domestic investment as well as FDI. The country’s savings and investment rates were between 600 and 800 basis points lower in 2012 & 2013 compared to 2007 & 2008; the result of poor natural resource utilisation and labour productivity. According to the report, to bring about the much needed investment in the economy, FDI is a must.

FDI inflow and FDI projects

Indian FDI
In terms of a breakdown of FDI into India, the last three years show a relatively mixed bag. 2013 was a low year compared to 2012 when the country benefited from $29.7 billion in investments. The number of FDI projects has increased since the start of Shri Narendra Modi’s government, suggesting that investors have been more confident in the country’s direction.

FDI inflow

 

Sector investment
The research also tracked the destination of FDI in financial year 2014-15 and finds that the largest chunk, 10.5% or $3.2 billion, was invested in the services industry. Telecommunication followed, with investments of $2.8 billion, while trading saw $2.7 billion or 8.9% of the total. Services, such as computer software & hardware and auto also attracted significant FDI inflows worth $2.5 billion and $1.1 billion respectively. This, according to the researchers, showcases the positive effort of government initiatives such as ‘Make in India’ and ‘Digital India’.

The largest inflow of money came from Mauritius (35% of the total). This is largely due to India’s Double Taxation Avoidance Agreements with Mauritius. Singapore is the second largest investor source (14%) and the UK, the old colonial power, comes in third with 9% of total.

Investor survey

Investor sentiment
To find out what investors think about investing in India, Arthur D. Little asked more than 100 investors and business leaders about their current perception of the Indian economy. The majority (51%) of respondents are positive about the country’s outlook compared to a year earlier, while 34% are seeing the future to be bleaker. The qualities of the Indian economy most affecting respondents are the domestic market at 41%, technical talent at 30%, new government incentives at 17% and investor protection at 12%.

The country’s poor infrastructure is seen as the biggest barrier for FDI investors (31%), followed by tax complexity (19%) and government regulations (16%).

Investor survey - part 2

The most concerning macroeconomic features are high interest costs as cited by 39% of respondents, while real GDP growth is a concern for 19%. The biggest concerns investors have in the Indian economy is legislative delay, cited by 37% of all respondents, followed by poor infrastructure (21%) and the high cost of capital (17%).

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Late payment culture cripples productivity of SMEs

29 March 2019 Consultancy.uk

UK SMEs are seeing their efforts to grow stifled by late payments, causing thousands to enter insolvency proceedings each year. According to experts from Duff & Phelps, this also has a major impact on the UK’s economy, meaning late payment culture must be tackled if the country is to dodge yet more economic stagnation in the shadow of Brexit.

Small and mid-sized enterprises in the UK face a myriad of pressures at present. Brexit anxieties are keenly felt by SMEs, with more than nine in 10 suggesting recently that economic conditions have worsened in the last 12 months. 66% of SME leaders also expect conditions to further worsen in the coming year.

At the same time, firms are keen to see value for money from investing in external expertise. Consulting fees which weight much more heavily on smaller firms, who spend £60 billion per year on professional services, but feel that more than £12 billion of that figure is wasted on unnecessary or bad advice.

Late payment culture cripples productivity of SMEs

Above all, however, SMEs are extremely vulnerable to late payments, and, according to a new study, the situation is only getting worse at present. According to corporate rescue consultancy Duff & Phelps, small businesses in the UK are facing a collective bill of £6.7 billion per annum due to late payments by other companies, while the average value of each late payment now stands at £6,142. This has risen from £2.6 billion in 2017, illustrating the plight of SMEs, particularly with uncertain economic times ahead.

Indeed, the spike in late payments has already caused significant productivity issues for SMEs, which in turn compromises their financial stability. With staff wasting hours chasing down late payments and businesses becoming preoccupied with short-term cash flow problems, they are less able to concentrate on creating new value for the firm, which in many cases gradually slides toward insolvency.

Small businesses across the UK are facing major cash flow pressure, leading to increased financial instability as a direct result of a late payments culture. This is likely a big driver of the UK’s 20% boom in insolvencies over the last three years, especially as it has a knock-on effect on other SMEs within the supply chain of those struggling firms. Approximately 50,000 small businesses fail each year because of late payments, amounting to a shortfall of more than £2.5 billion for the UK economy. 

Commenting on the findings, Paul Williams, Managing Director, Duff & Phelps, said, “In this modern era of technology, which is designed to enable business agility, late payments are particularly galling as there are no excuses. The day of the ‘cheque is in the post’ is long over!... More can be done to avoid businesses reaching this situation in the first place. SMEs underpin the economy, so prioritising timely payments will help allow business owners to focus their time and energy on providing good quality products and services and adding value to the customer experience, rather than chasing outstanding payments.”

The UK Government currently promotes its voluntary Prompt Payment Code to encourage good practice, but late payments by larger companies remain a common pain point for many SMEs. There may be hope for an end to late payments, however, following an announcement in the Spring Statement from Chancellor Philip Hammond. The Government aims to crack down on the practice, with Hammond stating big companies should hire a Non-Executive Director to be responsible for reducing late payments to small suppliers. The statement also advises that organizations publish payment practices in their annual reports.