Source: IBEF
“Introduction
Outbound investment from India have undergone a considerable change, not only in terms of magnitude but also in terms of geographical spread and sectorial composition. Analysis of the trends in direct investment over the last decade reveals that while investment flows, both inward and outward, were rather muted during the early part of the decade, they gained momentum during the latter half.
There has been a perceptible shift in Overseas Investment Destination (OID) in last decade or so. While in the first half, overseas investments were directed to resource-rich countries such as Australia, UAE, and Sudan, in the latter half, OID was channeled into countries providing higher tax benefits such as Mauritius, Singapore, British Virgin Islands, and the Netherlands.
Indian firms invest in foreign shores primarily through mergers and acquisitions (M&A). With rising M&A activity, companies will get direct access to newer and more extensive markets and better technologies, which would enable them to increase their customer base and achieve a global reach.
Market size
According to the data provided by the Reserve Bank of India (RBI), India’s outward Foreign Direct Investment (OFDI) in equity, loan, and guaranteed issue stood at ~US$ 806.6 million in August 2020 against US$ 2.6 billion in July 2020.
2019-20 witnessed an expansion in overseas investments by Indian entities in the form of equity and loans to subsidiaries/affiliated enterprises. Countries such as Singapore, the US, the UK, Mauritius, Switzerland, and the Netherlands accounted for 75% of the total overseas investments in 2019-20. Most of these investments were made in sectors such as business services, manufacturing, and restaurants & hotels.
Investments/Developments
Some of the major overseas investments by Indian companies were:
India Inc.’s outward FDI declined to at US$ 5.72 billion in the first four months of FY21.
In 2019-20, India invested in 120 projects and created 5,429 new jobs in the UK to become the second-largest source of foreign direct investment (FDI).
In 2020, Zerodha announced to introduce an option to invest in US stocks on its platform.
In August 2020, Axis Securities launched a new platform to invest in US stocks to meet the increasing interest of the Indian retail investors in the US stock markets.
In February 2020, Bharti Airtel invested US$ 978.92 million in its wholly-owned subsidiary in Mauritius.
In January 2020, Callies Infrastructure invested US$ 81.12 million in its wholly-owned subsidiary in the UK.
In December 2019, Indian Oil Corporation Limited’s (IOCL’s) INDMAX refining technology was licensed to Naftna Industrija Srbije (NIS) of Serbia for the production of higher-value products.
In December 2019, a memorandum of understanding (MoU) was signed between National Small Industries Corporation (NSIC) and Aramco Asia for developing the MSME Ecosystem in India in the Oil and Gas sector.
In December 2019, Panacea Biotec bagged orders worth nearly Rs 1.7 billion (US$ 24.32 million) from UN agencies, including UNICEF, for the supply of the Pentavalent vaccine.
In December 2019, supply chain focused fintech firm, LivFin, raised US$ 5 million of equity capital from German development finance institution DEG.
In November 2019, PVR Cinemas, a leading multiplex chain, launched its first property in Sri Lanka, marking its first international venture.
In September 2019, Liquefied Natural Gas (LNG) importer Petronet entered into an agreement with US LNG developer Tellurian Inc. and invested US$ 2.5 billion.
In September 2019, Reliance Power announced a joint venture (JV) with Japanese energy major JERA to jointly set up a 750-Megawatt (MW) gas-based combined cycle power project (phase-1) at Meghnaghat in Bangladesh.
In September 2019, Oyo acquired Copenhagen-based data science firm Dynamic. This marked the fast-growing lodging start-up to expand its business in Europe.
Government Initiatives
To boost domestic investments and reduce outflows, in August 2020, Mr. Piyush Goyal, Commerce and Industry Minister, asked auto manufacturers to find solutions to reduce royalty payments to foreign parent companies for use of technology or brand names
The government of India’s Public Sector Undertakings (PSUs) have invested over US$ 15 billion in Russia’s oil and gas projects and are planning to undertake more investments in the country’s oil and gas fields.
The RBI, encouraged by adequate forex reserves, has relaxed the norms for domestic companies investing abroad by doing away with the ceiling for raising funds through pledges of shares, domestic and overseas assets. In addition to JVs and wholly-owned subsidiaries, the central bank has announced similar concessions for pledging of shares in case of a step-down subsidiary.
The RBI also liberalized/rationalized guidelines for foreign investment by Indian companies. It raised the annual overseas investment ceiling to US$ 125,000 from US$ 75,000 to establish JV and wholly-owned subsidiaries. The Government’s supportive policy regime complemented by India Inc.’s experimental outlook could lead to an upward trend in OFDI in the future.
The Union Cabinet has permitted ONGC Videsh to acquire an 11% stake in Russian oil company JSC Vankorneft from Rosneft Oil Co. for US$ 930 million.
Road ahead
Overseas investment is one of the foremost steps to enter the global marketplace and in recent times, India has taken necessary steps to make its presence felt in the global arena. The investment outlook in some of the overseas market looks positive. For instance, the Indian industry is projected to increase its revenue from Africa. IT services, infrastructure, agriculture, pharmaceuticals, and consumer goods are vital to India boosting Africa revenue to US$ 160 billion by 2025 as per McKinsey & Co.
In another development, the Ministry of External Affairs has initiated a move to set up a direct sea and air link between India and the Latin American region as Indian corporates plan significant investments in the mining, oil, IT, and pharmaceutical sectors in that region.
Overseas investment by Indian companies is expected to increase, backed by stable market conditions and considerable impact of the investment on local economies.”