In recent times, Indian companies have increasingly used Singapore as a springboard to enter the world market. The number of Indian companies operating from Singapore has doubled during the last five years from 1,200 in 2002 to 2,800 by the end of 2007. The Indian companies investing there include big corporate houses, such as Tata Consultancy Services, Tata Steel, NIIT, Satyam Computers, Tech Mahindra, GATI, and Godrej. Such a trend is also evident from the increasing outflow of FDI from India. According to the Reserve bank of India (RBI), much of the FDI was directed towards Singapore, the Netherlands and British Virgin islands (BVI). The obvious question is what makes Singapore a hot destination for Indian companies? Some of the key factors behind this trend can be identified.

First, Singapore is one of the most globalized economies in the world. Currently Singapore has a Free Trade Agreement (FTA) with 13 countries and negotiations are on with 10 more. Leading economies such as the United States, Japan, Australia and New Zealand are among the FTA partners of Singapore. In fact, the FTA partner countries of Singapore together constitute more than 48 per cent of world GDP. As a member of ASEAN, Singapore also benefits from trade agreements between ASEAN and the ASEAN plus Three countries of China, Japan and South Korea. Further, as a member state of ASEAN it is also a party to the trade agreements between ASEAN countries within the framework of ASEAN institutions. Singapore-based companies thus get preferential access to the markets of partner FTA countries, and enhanced protection for their intellectual property rights.

Second, even as these FTAs have helped project Singapore as an attractive operational base, the bilateral Comprehensive Economic Cooperation Agreement (CECA) between India and Singapore, signed in June 2005, has further facilitated the movement of Indian companies to Singapore. The CECA is an integrated package containing a free trade agreement, a bilateral agreement on investment promotion and protection and an improved double taxation avoidance agreement. The major benefit for Indian companies accrue from the fact that all goods from India can enter into Singapore at zero duty. Further to facilitate the movement of business persons there are special provisions regarding their stay and visa rules. After the agreement, bilateral trade went up from US$ 4.21 billion in 2003-04 to US$11.54 billion in 2006-07.

Third, the image of Singapore as an important operational base used by leading companies of US, EU and Japan has further drawn the attention of Indian companies. More than 12,000 American and European and Japanese companies are based there. Companies interested in investing in East Asia use Singapore as a platform. Besides, the strategic location of Singapore, situated as it is on an important trade junction provides it an extra edge over other possible destinations. Being well connected with the world by sea and air routes has always been an important facilitating factor for European and American companies entering Asian markets.

Fourth, Singapore is recognized the world over for its excellent infrastructure and business environment. A well-established stable political setup and an efficient judiciary further lowers the political risks for companies investing in Singapore. In terms of infrastructure, Singapore has an excellent physical connectivity and energy support. It is also emerging as one of the best locations for research and development (R& D) activities. It attracts highly skilled talents from all over and this provides a readily available pool of human resource to companies. Among Indian companies, Godrej, Bahar Industries and Tata have set up their R&D operations in Singapore.

Fifth, being a business-friendly nation, Singapore has the minimum possible bureaucratic hassle for setting up a company. In the reports of the Heritage Foundation and The Wall Street Journal, Singapore has been identified as one of the freest economies of the world. The country's liberal immigration policy also attracts people who want to live and do business in Singapore. Moreover, it also offers various administrative and fiscal benefits, such as fewer regulations, a high level of transparency, and lower personal and corporate tax rates.

In their efforts to internationalize operations, Indian companies are following a similar strategy to the ones followed for many years by Western and Japanese companies - to operate from Singapore and take the strategic benefits of its location, policies, milieu and most importantly, the FTAs. With these factors in mind, Indian companies already present are expanding their operations and new ones are keen to enter Singapore. Indian companies are today, the fourth largest group in Singapore. This influx of Indian companies in Singapore has not only extended their economic reach but also boosted bilateral economic relations between the two countries.