Britain has become the biggest foreign investor in India with an investment of £560 million, according to a report on investment flows by the Commonwealth Business Council (CBC).
The report, prepared by the CBC and UK Trade and Investment, a government agency, said that when investments made by British companies through Mauritius, the British Virgin Islands and Cyprus were included, it outstripped the United States as the leading investor, with over £8 billion of investment.
"A large part of investments made by British companies is routed through Mauritius or other tax-friendly jurisdictions such as Cyprus. Including these indirect investments will make the United Kingdom the top investor in India," said the report, released on Wednesday.
Over 90 per cent of the UK's investment last year came from large companies. Vodafone made India's biggest foreign direct investment when the telecommunications group paid Hong Kong's Hutchison £5.5 billion for a 67 per cent stake in Hutchison Essar, India's third-largest mobile operator.
However, the report warned that the UK was losing its trade market share as India diversifies its trading partners.
India's growing demand for natural resources has seen the UK displaced by Saudi Arabia, Iran, Nigeria and Iraq in terms of exports. Last year, when the UK exported goods valued at £2.9 billion to India, it slipped from 11th to 17th largest exporter.
Sanmit Ahuja, director of investments at the CBC, warned that small and medium UK businesses were in danger of being squeezed out of the Indian market over the next two to three years.
He said: "The message for British industry is to shift the battleground," and added that British companies would increasingly have to seek access to the Indian market through partners in south-east Asia and Africa.