Globalization of Indian Businesses: The Significance of Singapore

Sasidaran Gopalan and Ramkishen S. Rajan


One of the noteworthy dimensions of India’s increasing integration with the world economy has been the rapid globalization of Indian businesses as they have aggressively acquired assets in a number of other countries, including Singapore.

Geographical Distribution of Outward Acquisitions

According to official data from the Indian government on “approved” outward foreign direct investment (FDI) by Indian companies for the period 2002-2008, Singapore is the single largest destination (21 percent), followed by the Netherlands (15 percent) and Mauritius and other off-shore financial centres (OFCs) in total (24 percent). Hence, over 50 percent of India’s approved FDI appears to have been flowing towards the financial centres (regional and offshore). Interestingly, developed countries such as the United Kingdom and the United States have surprisingly small shares of India’s approved outward FDI (six percent each) for recent periods. This appears to be at odds with anectodal evidence which suggests Indian companies have made large-scale acquisitions in those countries.

It is well-known that Indian businesses have been very active in overseas investments in the last few years, particularly since 2006. Anecdotal evidence and examples point to the fact that many of these investments have been in developed countries such as the United States, the United Kingdom and the rest of Europe. Notable instances would be Tata Steel’s purchase of Corus and Tata Motors purchase of Jaguar and Land Rover in the United Kingdom and Hindalco’s acquisition of the Canadian aluminium giant Novelis.

So clearly there are problems with the official data; it does not seem to reflect reality (reasons for which we do not discuss here). To try and get a better handle of actual ongoings we examine separate data on mergers & acquisitions (M&As) available from commercial entities. The M&A data, which tracks the actual ownership of purchases by Indian companies for more or less the same period (2000-07) reveals quite a different picture.

Canada emerges as the top host country for India’s outbound acquisitions with a 34 percent share, followed by the United States with a 24 percent share. While Indian companies have undertaken a number of varied purchases in the United States, the acquisitions in Canada have been concentrated in resources, including Novelis mentioned previously. Apart from these, around 16 percent of India’s acquisitions have been aimed at resource-rich countries (Russia, Egypt, Australia and South Africa) and the rest to the United Kingdom and Europe (17 percent). The Tata Motors acquisition of Jaguar and Land Rover Brands from the United Kingdom do not show up in our data as they were concluded in early 2008. It is likely that an extension of the data to 2008 would see a jump up in the United Kingdom as a source of Indian outbound M&A, as would Europe in general.

As Indian companies have become more globalized, many have chosen to establish holding companies and/or special purpose vehicles (SPVs) in OFCs or have set up overseas locally-incorporated subsidiaries in regional financial and commercial centres such as Singapore or Netherlands to invest in third countries. Apart from this so-called “transhipping”, some parts of these inflows, from Mauritius in particular, and also other OFCs, could also be round-tripping back to India to escape capital gains or other taxes or for other reasons, not unlike the investments dynamics between China and Hong Kong, although on a much smaller scale.


Relevance of Singapore

Despite not being an OFC in the conventional sense, Singapore has become an especially attractive host for Indian companies that are eager to internationalize their operations in view of the low and simple tax rates, the large number of double tax treaties between the two countries and rest of the world, working knowledge of English, human capital, excellent logistics and air and sea connections.

Indian businesses have been particularly aggressive in investing in Singapore since the coming into force of the Comprehensive Economic Comprehensive Agreement (CECA) in August 2005. The India-Singapore CECA, which covers agreements relating to trade in goods, services and investments, was the first bilateral arrangement that Singapore entered into with a South Asian country, and likewise has been India’s first such agreement with a  developed country. Amongst the several features of the agreement, one key provision which has assumed significance from the investment perspective is the renewed Double Taxation Avoidance Agreement (DTAA). The India-Singapore DTAA is broadly modelled along the lines of the existing Indian treaty with Mauritius, with exemptions for capital gains tax on profits from the sale of shares. Owing to the round-tripping concerns between India and Mauritius noted previously, the DTAA between India and Singapore has included some key provisions to minimize this problem.

It may well be that over time, there may be a greater a shift of FDI from Mauritius to Singapore by both Indian companies needing a springboard to investing globally, and vice versa for Singaporean and other foreign companies looking to enter the Indian market. Already, there has been a spurt in the establishment of Indian companies in Singapore (from 1,200 in 2002 to over 3600 by early 2009). While the FDI data clearly overstates the significance of Singapore as a destination of Indian investments for reasons discussed before, the city state still constitutes a substantial portion of India’s overall outbound M&A (six percent compared to 21 percent of FDI outflows from India).

Apart from Natsteel’s acquisition by Tata Steel in 2005, Indian educational institutions and IT companies have been prominent investors from India into Singapore, while many other Indian companies use Singapore as a regional and even international headquarters. On Singapore’s part, the Economic Development Board (EDB) has consciously tried to woo companies from India and elsewhere to use the city state as a base by offering attractive tax incentives or grants under the Regional Headquarters Award or International Headquarters Awards. One would reasonably expect all forms of Singapore-India commercial relations to continue to grow briskly over the next few years.

Ramkishen S. Rajan is a Visiting Senior Research Fellow at the Institute of South Asian Studies and an Associate Professor at George Mason University, Virginia, United States. He can be contacted at or Sasidaran Gopalan is a Research Associate at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore. He can be contacted at This is based on .

60 Responses to "Globalization of Indian Businesses: The Significance of Singapore"

  1. Darshan Desai, London   December 25, 2009 at 11:41 am

    The point has been missed. Statistics showing prominence of Singapore and Netherlands as leaders in outbound investment from India are factually correct in as much as these are the best two gateways from an international tax planning viewpoint for routing Indian investments to ultimate destinations like USA and UK. Hence there is no disconnect of the type suggested by the article