Singapore's Investment In India: Strategic Economic Alliance

Singapore has been the top source of foreign direct investment (FDI) into India for two of the last four years, including in 2018-19 and 2019-20. In the 2018-19 financial year, Singapore's FDI into India stood at $16.2 billion, while in 2019-20, it was $14.67 billion. Singapore's emergence as a leading source of FDI into India reflects the growing strength of the business relationship between the two countries. This relationship is underpinned by cultural ties, a large Indian diaspora in Singapore, and mutually beneficial economic agreements such as the India-Singapore Comprehensive Economic Cooperation Agreement (CECA). Singapore's business-friendly environment, talented workforce, and strong infrastructure also make it an attractive destination for companies looking to expand into India.

Singapore is a top source of FDI for India

Singapore has been the top source of foreign direct investment (FDI) into India for two of the last four years. In the 2018-19 financial year, Singapore was the largest source of FDI into India, with USD 16.2 billion of foreign investment. In the 2019-20 financial year, Singapore was again the top FDI source, with investments totalling USD 14.67 billion.

Singapore's status as a leading source of FDI for India is significant, given that traditionally, Mauritius has always topped the FDI chart. The cumulative amount of investment from Mauritius stands at USD 134.5 billion, compared to Singapore's USD 83 billion. However, in recent years, the Indian government has cracked down on tax havens, negotiating amendments to tax treaties with Mauritius and Singapore to tax capital gains on investments. This, along with Singapore's favourable business environment and status as a financial hub, has made it a more attractive destination for companies investing in India.

Singapore's strong ties with India have also contributed to its position as a top FDI source. Nearly 10% of Singapore's population is ethnically Indian, and Tamil is an official language. Singapore has actively built its trade and investment activities with India, including infrastructure development, and the two countries signed the India-Singapore Comprehensive Economic Cooperation Agreement (CECA) in 2005, which eliminated tariff barriers and improved collaboration in various sectors. Singapore's total trade with India has increased significantly over the past decade, and many Indian companies have established a presence in Singapore, taking advantage of its flexible funding opportunities and user-friendly business ecosystem.

Additionally, Singapore's regulatory framework, talented workforce, good governance, solid infrastructure, and attractive government business incentives make it a favourable location for companies looking to invest in India. Singapore's proximity to India, cultural familiarity, and similar time zone also play a role in its attractiveness as a gateway to the Indian market.

The two countries have a strong historical and cultural connection

The Republic of India and the Republic of Singapore have traditionally shared strong and friendly bilateral relations, with the two countries enjoying extensive cultural and commercial ties. Singapore is part of the "Greater India" cultural and commercial region, and the two nations have a long history of collaboration and cooperation.

Singapore derives its name from the Sanskrit words "Simha", meaning lion, and "Pura", meaning city. The country has a significant population of Indian origin, with nearly 10% of its citizens and permanent residents being ethnically Indian. People of Indian and Sri Lankan origin were one of the constituting communities of the Republic of Singapore. Tamil is an official language in Singapore, and Indian food and languages are commonplace. The Little India neighbourhood in Singapore is often fondly regarded as "India outside of India".

The historical connection between the two countries goes back to the foundation of modern Singapore in 1819. In 1826, Singapore, Malacca, and Penang were joined together in the Straits Settlements, a Presidency of India. The Settlements were under the direct control of the Governor-General of India from 1851 until 1867, when the direct link with India was broken and the Straits Settlements became a Crown Colony. During this time, Singapore was an important strategic trading post, giving India trade access to the Far East.

In the early 1990s, Singapore actively built its trade and investment activities with India, helping Singaporean enterprises to establish an active presence in the country. This connection was further strengthened by the signing of the India-Singapore Comprehensive Economic Cooperation Agreement (CECA) in 2005, which created a platform for both nations to explore mutually beneficial economic opportunities and enhance collaboration in various sectors.

Singapore and India have also had a long-standing strategic relationship. Following Singapore's independence in 1965, the country sought a close strategic partnership with India to counterbalance Chinese influence and achieve regional security. Singapore was one of the first countries to respond to India's "Look East" Policy in 1992, positioning itself as India's de facto regional sponsor. The two countries have signed agreements to expand military cooperation, conduct joint military training, and develop military technology. They also regularly engage in joint naval exercises and have collaborated in fighting terrorism.

In summary, the Republic of India and the Republic of Singapore share a strong historical and cultural connection, with extensive bilateral relations and cooperation in various fields, including economics, trade, and security.

Singapore has a good business environment and is a financial hub

Singapore has consistently been recognised as one of the world's best business environments. It has been ranked highly for its economic and political stability, ease of doing business, and competitive tax system. Singapore's business environment is so attractive that it has overtaken Hong Kong as the top financial hub in Asia and is now third in the world, behind only London and New York.

Singapore's rise as a financial hub is remarkable, having achieved this status in just fifty years. This is due to a range of factors, including its strategic location along trade lines, its manageable size, and its historical role as a major port between Britain and India. Singapore's use of English as a major language also makes it an ideal location for foreign direct investment and companies looking to set up operations in the country.

Singapore's financial sector is thriving, with over 120 banks operating there, including some of the top banks in the world. The country is also a major hub for cryptocurrency trading in Asia, embracing new technologies like fintech and blockchain. Singapore's stock exchange has around 800 companies registered and actively trading, and its currency is regarded as one of the most stable in the world.

The country's taxation policies also contribute to its status as a financial hub. Singapore has a progressive tax system for individuals, with income tax rates ranging from 0 to 22%. Additionally, its corporate income tax is also competitive, attracting businesses and investors alike.

Singapore's business environment is further enhanced by its trusted regulatory framework, good governance, solid infrastructure, and vibrant investor community. The country's efficient planning, implementation, and execution of projects have led to success in securing mandates to support Indian states in developing smart cities. Singapore's ability to offer asset-light companies access to funding and ancillary services makes it an attractive location for India's entrepreneurial sector.

Overall, Singapore's position as a financial hub and its conducive business environment make it an ideal location for companies investing in India, providing a stable, transparent, and accessible gateway to the Indian market.

India has been attracting more manufacturers, creating opportunities for investment

The "Make in India" campaign has proven effective, with India's manufacturing exports reaching $418 billion in the 2022 fiscal year, a 15% compound annual growth rate. This growth has been propelled by six megatrends: supply chain diversification, advantages in specific manufacturing sectors, government initiatives to bolster manufacturing, capital expenditure infusion, heightened merger and acquisition activity, and private equity/venture capital-led investment in manufacturing.

India's low production costs and the government's focus on building the manufacturing sector have also caught the attention of major aerospace defence manufacturers. The country's cost advantage, skilled workforce, and government incentives have made it an attractive destination for foreign investment.

To further attract foreign investment, the Indian government has taken steps to simplify the operating environment for foreign companies. These efforts are reflected in India's improved ranking in the World Bank's Ease of Doing Business Index, climbing from 130th to 63rd position between 2016 and 2019. The government aims to continue these reforms, with plans to reduce the time for registering a business from 27 days to one day and streamline labour laws and tax systems.

The positive developments in the manufacturing sector, supported by production capacity expansion, government policy, and investment, are creating a robust pipeline for India's sustained economic growth. With its large market, favourable business environment, and strong relationships with countries like Singapore, India is poised to continue attracting manufacturers and investments from around the world.

Singapore has a large Indian diaspora

The mass settlement of Indians in Singapore began with the founding of modern Singapore by the British Empire in 1819. Initially, the Indian population was transient, mainly comprising young men who came as workers, soldiers, and convicts. By the mid-20th century, a settled community had emerged, with a more balanced gender ratio and a better spread of age groups.

The Indian diaspora in Singapore has a history of class stratification, with a large elite and lower-income groups. This has become more visible in recent years with an influx of both well-educated and unskilled migrants from India. Indians in Singapore are well-represented in areas such as politics, education, diplomacy, and the law. They have also made significant contributions to the country's culture, including food, language, and religion.

The connection between India and Singapore is further strengthened by their shared history. Singapore's name is derived from the Sanskrit "Simha", meaning lion, and "Pura", meaning city. Tamil is an official language in Singapore, and Indian food and languages are commonplace. Little India, a neighbourhood in Singapore, is often fondly regarded as "India outside of India".

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