Indian Investment Abroad - Overseas Direct Investment by Indian Companies

Go Back

Last updated: Sep, 2016

Introduction

Outbound investments 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 investments 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.

Outward Foreign Direct Investment (OFDI) from India stood at US$ 1.86 billion in the month of June 2016 as against US$ 2.69 billion in May 2016 and US$ 1.92 billion in June 2015.

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 Acquisition (M&A) transactions. 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

India has emerged as one of the strongest performers in the deal-street across the world in mergers and acquisitions.

India’s Outward Foreign Direct Investment (OFDI) dropped to US$ 1.86 billion in July 2016, as against US$ 2.3 billion in July 2015. According to the data provided by the Reserve Bank of India (RBI), outward investments in equity, loan and guaranteed issue stood at US$ 610.87 million, US$246.51 million and US$ 1 billion in the given month.

Investments

In a recent development, UK announced that India has become the third largest source of FDI for them as investments increased by 65 per cent in 2015 leading to over 9,000 new and safeguarded jobs.

Some of the major overseas investments by Indian companies were:

  • Cipla Limited, one of India's leading pharmaceutical firms, plans to invest around Rs 600 crore (US$ 89 million) to set up a biosimilar manufacturing facility in South Africa for making affordable cancer drugs and growing its presence in the market.
  • Apollo Hospitals Group and Hainan Ecological Smart City Group, a Chinese industrial park developer, have signed a Memorandum of Understanding (MoU) to jointly develop a highly integrated modern health care service facility and systems in the Hainan province, China.
  • Reliance Industrial Investments and Holdings, a wholly-owned subsidiary of Reliance Industries Limited (RIL), has invested Rs 108 crores (US$ 16 million) in compulsorily convertible preferred shares of US-based technology start-up NetraDyne.
  • Tech Mahindra, one of the largest IT (information technology) firm in India, has agreed to acquire UK-based Target Group, a business process outsourcing and software solutions provider, through a deal worth Rs 1,100 crore (US$ 163 million).
  • The India Ports Global Pvt Ltd plans to set up a Special Purpose Vehicle (SPV) in Iran with participation from private Iranian and Indian firms to develop and operate the Chabahar port project, which is expected to give India a sea-land access route into Afghanistan through Iran’s eastern borders.
  • Pune-based Persistent Systems has acquired Australia's PRM Cloud Solutions, a certified Salesforce partner and cloud application development firm, which will help the company to further strengthen their ability to offer digitised solutions to their client.
  • Indian pharmaceutical major Lupin has completed the acquisition of US-based GAVIS Pharmaceuticals in a deal worth US$ 880 million, which is expected to enhance its product pipeline in dermatology, controlled substances and high-value speciality products.
  • Ashok Leyland Limited, India's second largest commercial vehicle manufacturer, has announced to expand its unit in Ras Al Khaimah (RAK) in the United Arab Emirates (UAE) by investing US$ 10 million which will help the company nearly double its bus production capacity at the unit.
  • Piramal Enterprises US-based database and consulting services subsidiary Decision Resources Group (DRG) has acquired Adaptive Software LLC, software solutions provider, for US$ 24.5 million, which will offer DRG a direct entry into the healthcare payer ecosystem, thereby expanding its addressable market opportunity.
  • Cipla Ltd, one of the major pharmaceutical and biotechnology companies in India, has acquired two US-based generic drug makers, InvaGen Pharmaceuticals Inc. and Exelan Pharmaceuticals Inc., for US$ 550 million, which is expected to strengthen Cipla's US business.

Government initiatives

The Reserve Bank of India, encouraged by adequate forex reserves, has relaxed the norms for domestic companies investing abroad by doing away with the ceiling for raising funds through pledge of shares, domestic and overseas assets. In addition to joint ventures (JVs) and wholly owned subsidiaries (WOSs), the central bank has announced similar concessions for pledging of shares in case of step down subsidiary.

The Reserve Bank of India (RBI) also liberalised/ rationalised guidelines for foreign investments abroad by Indian companies. It raised the annual overseas investment ceiling to US$ 125,000 from US$ 75,000 to establish joint ventures (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 outward foreign direct investment (FDI) in future.

The Union Cabinet has approved a proposal to provide US$ 150 million credit from Export Import Bank of India (EXIM Bank) for the development of Chabahar Port in Iran, which will also help India to facilitate the growing trade and investment with Iran and other countries in the region.

The Union Cabinet chaired by the Prime Minister, Mr Narendra Modi, has given its approval for the framework of inter-governmental memorandum of understanding (MoU) which will be finalised by the Government of India and Iran.

The RBI has relaxed norms for foreign investment by Indian corporates by raising the borrowing limit. The financial commitment to be undertaken by an Indian party will be limited to within 400 per cent compared to the earlier 100 per cent of the company's net worth.

The RBI has also allowed limited liability partnership (LLP) firms to undertake financial commitment to/ on behalf of JV or wholly owned subsidiaries of Indian companies abroad.

The Indian government is making efforts to integrate the country's economy with the rest of the world. To help the country's firms raise capital abroad, the government will facilitate unlisted Indian companies to list on foreign markets without having to be publicly traded on domestic exchanges.

India and South Africa are considering prospect of setting up a joint venture (JV) for mining and owning coal blocks in South Africa.

Prime Minister Mr Narendra Modi has promised Africa a concessional credit of US$ 10 billion over the next five years, in order to further strengthen ties with the African countries.

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. Investment outlook in some of the overseas market looks positive. For instance, the Indian industry is projected to increase its revenue from Africa. Information technology (IT) services, infrastructure, agriculture, pharmaceuticals and consumer goods are vital to India boosting Africa revenues 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.

Exchange Rate Used: INR 1 = US$ 0.0149 as on September 02, 2016

 References: Department of Industrial Policy and Promotion (DIPP), Media Reports and Press Releases, Press Information Bureau (PIB), Reserve Bank of India (RBI), Directorate General of Foreign Trade

x IBEF : India Brand Equity Foundation