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FDI

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Foreign Direct Investment

January, 2012

Introduction

India is a country that has been able to restore investor confidence in its markets, even during the toughest of times. Increase in capital inflows, foreign direct investments (FDI) and overseas entities’ participation reflect the fact that Indian markets have fared well in recent times. Moreover, foreign companies are viewing the South-Asian nation as a strategic hub for their operations and investments owing to investor-friendly policy environment, positive eco-system and huge potential for growth.

India Inc’s increasing presence over the global canvas and Indian government’s consistent support to the FDI space have facilitated remarkable developments and investments from overseas partners. Some of them are discussed hereafter:

Key Statistics

  • FDI inflows rose by 36 per cent to US$ 23.69 billion during January-October 2011, while the cumulative amount of FDI equity inflows from April 2000 to October 2011 stood at US$ 226.05 billion, according to the latest data released by the Department of Industrial Policy and Promotion (DIPP).
    The services (including financial and non-financial) sectors attracted highest FDI equity inflows during April-October 2011-12 at US$ 3.43 billion. India received maximum FDI from countries like Mauritius, Singapore, and the US at US$ 61.2 billion, US$ 15.2 billion and US$ 10 billion, respectively, during April 2000-October 2011.
  • Global consultancy firm Ernst & Young (E&Y) has stated that the value of mergers and acquisition (M&A) deals involving Indian companies aggregated to US$ 34.4 billion in 2011 involving 806 transactions. There were 177 outbound deals with an aggregate disclosed value of US$ 8.8 billion in 2011; forming 25.6 per cent of the total M&A pie.
  • Adani Enterprises’ acquisition of Abbot Point Coal Terminal in Australia (US$ 2 billion) and the GVK Group’s purchase of Australia-based Hancock Coal’s Queensland coal assets (US$ 1.3 billion) were among the biggest outbound deals recorded in 2011.
  • According to data released by auditing and consultancy firm KPMG, India Inc witnessed a 31 per cent increment in private equity (PE) investment to US$ 7.89 billion during the first three quarters of 2011. PE firms like Blackstone India and Kohlberg Kravis Roberts & Co (KKR & Co) are betting high on Indian markets. The Blackstone India chief was reported to have said that he intends to close 5-6 deals a year in India whose financial valuations would revolve around roughly US$ 100 million to US$ 120 million each.
  • According to the weekly statistical supplement of the Reserve Bank of India (RBI), India’s foreign exchange reserves (forex) stood at US$ 293.54 billion for the week ended January 6, 2012. Foreign currency assets aggregated to US$ 259.80 billion and the value of gold reserves stood at US$ 26.62 billion for the week. The value of special drawing rights (SDRs) was calculated at US$ 4.41 billion, and India's reserves with the International Monetary Fund (IMF) came out to be US$$ 2.69 billion.

Important Developments

The government of India is continuously working towards increasing FDI flows into the country. FDI rose by an impressive 56 per cent to US$ 2.53 billion in November 2011. The cumulative flows of for April-November 2011 aggregated to US$ 22.83 billion, exceeding the total FDI of US$ 19.43 billion for 2010-11 fiscal.

Recently, the Government has approved 20 FDI proposals worth Rs 1,935.24 crore (US$ 384.5 million). The approved major investments, that were consulted with Foreign Investment Promotion Board (FIPB) as well, are enlisted below:

  • Sterlite Grid had proposed to act as an investment company and invest Rs 1,150 crore (US$ 228.48 million) via FDI
  • Equitas Micro Finance would invest Rs 230.7 crore (US$ 45.83 million) for demerging its microfinance business with its wholly-owned subsidiary
  • TV Vision proposed to induce Rs 200 crore (US$ 39.81 million) of foreign investment through an issue of equity shares via an initial public offer (IPO). The deal is to undertake the business of broadcasting a non-news and current affairs TV channel