Kamal Nath, the Indian Commerce and Industry Minister, said yesterday that his country had become a net investor in Britain for the first time, after Indian investment in the UK exceeded the reciprocal flow from its former motherland in the year to March 31, 2005.

Buoyed by his country’s new-found confidence, based on 15 years of sustained economic growth, Mr Nath told The Times: "There is going to be a paradigm shift and companies in the UK and Europe are going to have to restructure in this decade and the next."

British companies will need to merge with Indian competitors to achieve the synergies needed to survive in an increasingly competitive, globalised world in which India is a major force, he said.

Saroj Poddar, president of the Federation of Indian Chambers of Commerce and Industry, said: "The UK is one country where Indian investment exceeds the UK’s in India."

Indian companies invested $1 billion (£566 million) in new British developments, or "greenfield" projects, in the year to March 31, 2005, with "slightly less going the other way", Mr Poddar said.

Indian companies have continued the trend this year as Mahindra & Mahindra, the Indian utility vehicle maker, bought Stokes Forgings, a components manufacturer with factories in Dudley and Walsall, in the West Midlands.

Ian Pearson, the Trade Minister, who is leading a trade delegation to India this week, said that the Indian investment figures were "not entirely accurate" since they ignored reinvestment, the process where British-owned companies already running in India reinvested their profits to develop the business. He added that the $10 billion of goods and services traded between the two countries last year was split evenly and was about 25 per cent higher than in 2004.

Mr Pearson said that Britain needed to step up its investment into India, which in recent years has recorded an average 7.5 per cent growth in gross domestic product.

He said: "Our long-term future prosperity depends on us getting this right and it is important that we strengthen our partnership with India.

"At the moment, only 1 per cent of our trade is with India and we have got to increase that over the next few years. We want to encourage more UK companies to take a serious look at India."

Mr Pearson welcomed the surge in investment in Britain by India, saying that it injected new money into the economy.

INDIAN INVESTMENT IN BRITAIN

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