India to top in venture capital investments: Study

The supremacy of western economies in the venture capital investment space is facing challenges from emerging economies with India expected to overtake global leader UK by 2009 if the current trend persists, a latest UBS-sponsored report said.

As per data analysed by the 'UBS UK Venture Backed Report - 2007' western leadership in innovation is being increasingly threatened by emerging economies like India and China.

According to the report, "India's VC market with a growth rate of approximately 90 per cent is likely to overtake the UK by 2009."

The Chinese VC market has already surpassed UK in terms of absolute size in 2006 and is growing at a much faster pace.

If the current growth rate persists, China's VC market would overtake the European market as a whole within two to three years. India would follow suit in the next four years, said the UBS sponsored report by Library House titled 'Funding Growth in a Changing World'.

The prime factor behind this stupendous growth by the emerging economies is that these countries have carved out a niche for themselves in the field of innovation as VC funds are utilised to support new ideas.

Venture capital forms a major component of a country's ability to innovate. The US is the acknowledged leader in technological innovation, while India and China pose an increasing challenge to the western economies.

India and China are at the cutting edge of innovation and strongly accelerating against the sluggish growth in Europe and the US, the report added.

The report says policy makers in the UK, Europe and the US must focus on how to maintain their lead in innovation amid the high competition. It cautioned that the rise of China and India should not be seen as a threat' to the West and vice-a-versa.

The reason being that for economic growth the utilisation of innovative products and services are perceived to be more important than their generation, analysts said.

"The consumption of innovation by an economy is just as important, as the generation of that innovation. UK companies need to become more willing to procure from innovative, but inexperienced, young companies," Professor of Business at Columbia University Amar Bhide said.

The global VC market has risen in recent years. Over 1.4 billion pounds of institutional capital was invested during 2006 through 556 deals in UK. The venture capital investments in 2006 shows a 27 per cent hike compared to 1.1 billion pound that was raised through 539 deals in 2005.

UK is the leader in Europe for VC but it still lags significantly behind the US in terms of absolute size.