INVESTMENTS AND RELATED LINKAGES BETWEEN SINGAPORE AND INDIA

Abstract

It is noted that investment relations between Singapore and India have been a neglected area of research due to a variety of reasons, including the relatively small size of, and difficulty in getting updated information. Predictably, most of the research is focused on trade relations for which abundant data is available. This Academic Exercise attempts to fill this gap in the literature on economic relations between Singapore and India. To gain a deeper understanding of the forces determining the investment relations, it is necessary to examine various theories advanced in the literature on foreign direct investment, particularly new forms of investment. The latter is particularly relevant as the bulk of Singapore investments in India is found to be in the form of technical collaborations. The explanation which best suits Singapore's investments in India is the defensive reaction and strategic initiative hypotheses put forward by Charles Oman. With regard to traditional push and pull factors, the study finds that the main factor pushing Singapore enterprises abroad is the restructuring of the Singapore economy away from labour intensive industries towards more capital and technological intensive industries as a result of the shortage of land and labour. The pull of Singapore investments to India may be attributed partly to the recent economic liberalization steps taken by the Indian Government to encourage more foreign investments and also to the large Indian domestic market, abundant supply of land, raw materials and relatively low cost of labour. It is to be noted, however that the flow of investments between Singapore and India does not depend on the independent push and pull factors of either country, but rather the interactive nature of these factors, namely the complementarities shared by the two countries. The study also analyses India's investments in Singapore and it finds that despite Singapore's liberal policy towards foreign investments, Indian investments in Singapore are not substantial. This is not surprising given that India is a low income, capital importing country, with little foreign reserves to spare for foreign investment. There are, however, certain factors which have contributed to Indian firms investing in Singapore. These include the government constraints on capacity expansion placed on large monopoly houses, thus pushing larger business houses to go abroad to countries where there are fewer restrictions and greater manoeuvrability for expansion and growth. Interviews with executives of Indian firms with investments in Singapore reveal that the main factor drawing Indian investments to Singapore is the latter's efficient infrastructure and excellent global communication links which enable Indian investors to use Singapore as their springboard to the markets in the Asia Pacific region. The freer investment and trading environment in Singapore as compared to India is also a factor. Realising the significant role that foreign investment can play in India's development, and recognizing that their attempts to unbundle technology has been less successful than they had hoped for, the Indian authorities are now more liberal towards equity investment. The study illustrates some of the steps they have taken to further liberalize the economy to encourage more foreign investments. Nevertheless, Singapore investors in India still face many obstacles, in particular the horrendous bureaucratic red-tape. It is hoped that the Indian Government will intensify its efforts to eliminate these obstacles and bring about a more conducive environment for investments in India. Singapore on the other hand, must continue to improve her infrastructure and keep up with the latest technology. The government on its part, must increase its efforts to help local firms seek out investment opportunities in India. Through such concerted efforts, therefore, the flow of investments between the two countries can be accelerated and intensified. This study concludes that the greatest potential for further investments and related linkages between Singapore and India seem to lie in the establishment of the proposed Singapore – Madras Industrial Corridor.