UK investors keen on India but with caution

Finance Minister P Chidambaram has been on the road selling the India story from London to Washington. Investors from India's third biggest FDI source the UK, though cautious, are looking at India again. CNBC-TV18's Ashmit Kumar spoke Richard Heald, chief executive, United Kingdom India Business Council (UKIBC), about the opportunities and uncertainties of investing in India.

After a dismal 2012, the Indian economy seems to be showing signs of a turnaround aided by a fall in inflation and a drop in commodity prices like oil and gold. The government's efforts to restart stalled infrastructure projects have also given investors hope. While FII flows have been strong, strategic money has been waiting on the sidelines for more clarity on the state of the economy and certainty on the tax regime. However, investors are beginning to nibble again.

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Richard Heald says "India is in transition. From the period of 90s into a mature growth period. Different aspect of the economy are in focus, including areas like e-commerce, media, creative fields, retail."

An area of opportunity that the UKIBC intends to focus is the Indian SME sector which has seen strong growth and a fair amount of interest from global private equity players. As the companies look beyond India, UKIBC wants to be the first port of call.

A bulk of the big ticket investments from the UK have come into the oil and gas sector. For instance, the RIL -BP deal and the multi-crore deal between British gas and Gujarat State Petroleum Corporation (GSPC) for supply of LNG. However, investors continue to worry about the infrastructure deficit and the slow pace of decision making.

Heald adds, "There is a pressing need for infrastructure. It is not being built at the speed or with the purpose that is desirable. There is a lot of bureaucracy. These are fundamental issues that need to be addressed. It's disappointing that the seriousness and the urgency is not shown."

The Vodafone tax dispute continues to be a cause for concern with no breakthrough in the conciliation process so far. With election looming large and with the BJP threatening to reverse the UPA's decision to allow FDI in multi-brand retail if it came to power. apprehensions remain on investing in retail as well. So, for now it continues to be wait and watch but with cautious optimism.

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