Introduction
Financial investments are often regarded as key instruments of foreign policy. Financial investments usually help preserve long-term relationships with different countries and strengthen old relations with many countries. India has conventionally extended financial investments to various countries. India’s outward foreign direct investments have seen substantial growth in the last few years. Between April 2000-June 2022, India's cumulative amount of actual Outward Direct Investment (ODI) was close to US$ 263.3 billion in equity, loans and guarantees.
Indian foreign investment growth - Cumulative amount of actual ODI outflows (April 2000 - June 2022 in US$ million)
Source: Department of Economic Affairs
Indian investments abroad have surged dramatically with respect to sector investments, geographic distribution and volume. India is continuously exploring opportunities to invest extensively in foreign countries as it strengthens the overall economy. Overseas investments by Indian firms help develop the country's GDP performance and assist in eradicating unemployment. A significant increase in investment activities will aid Indian companies to access the required technology and skills, further expanding the geographic reach and enhancing the customer base. According to the Department of Economic Affairs (DEA), India's ODI stood at US$ 17.5 billion in FY 2021-22 versus US$ 12.1 billion in FY 2020-21. Furthermore, outbound investments from India have created significant employment and development opportunities in different countries. According to the UK government, inward investments in the UK created 57,000 new jobs in FY 2018-19, and India is one of the leading overseas investors in the UK.
Leading ODI Destinations
In FY 2021-22, India's investments in Singapore were almost US$ 4.5 billion, making it the leading ODI destination country receiving investments from India. Singapore is also one of India's largest Asian trading partners. Trade relationship between the two countries strengthened after they inked a Comprehensive Economic Cooperation Agreement (CECA) in 2005. Mauritius, the US, the Netherlands, the UK, the UAE, Russia, Cyprus, and Switzerland were among India's top 10 ODI destinations.
Leading ODI destination countries in FY 2021-22 (in US$ Million)
Source: Department of Economic Affairs
Sectors Attracting Overseas Investments
India made the highest ODI outflow in insurance, financial and banking services in 2021-22. Growth in foreign direct investments overseas have been exponential over the past few years. Between April 2000-June 2022, India's cumulative ODI outflow in these services was nearly 40% of the total ODI outflow. Sectors such as manufacturing and retail, wholesale trade, hotels and restaurants have also attracted Indian investments. Nine sectors attracting significant ODI outflows in 2020-21 and 2021-22 are listed below:
Sector |
Outflows (US$ million) |
Cumulative Outflows |
||
2021-22 |
2020-21 |
US$ million |
% of Total ODI (April 2020-June 2022) |
|
Financial, Business and Insurance |
7,858 |
4,322 |
562 |
40% |
Manufacturing |
4,343 |
3,561 |
712 |
27% |
Retail, Wholesale, Hotels and Restaurants |
4,343 |
2,345 |
429 |
16% |
Mining and Agriculture |
965 |
842 |
105 |
6% |
Construction |
654 |
496 |
153 |
4% |
Social, Community and Personal |
1,032 |
166 |
53 |
4% |
Storage, Transport and Communication Services |
300 |
143 |
79 |
2% |
Gas, Electricity and Water |
89 |
164 |
26 |
1% |
Miscellaneous |
23 |
64 |
17 |
0% |
Total Outflows |
17,526 |
12,103 |
2,136 |
100% |
Indian firms Investment in Foreign Countries
India is a domestic demand-centric economy, which has recovered phenomenally after the COVID-19 pandemic. According to the projections made by the IMF, World Bank and Asian Development Bank, India will be the fastest growing economy in the world during 2021-24. India's GDP is estimated to grow at 8.0-8.5% over 2022-23, backed by extensive vaccine coverage, benefits from supply-side modifications and easing of policies, strong export expansion, and accessibility of fiscal space to increase capital expenditure. The robust growth in the Indian economy will be advantageous for bolstering businesses in India, and companies will be encouraged to exploit overseas opportunities and broaden their geographic footprint.
Some of the biggest investments by Indian companies in foreign countries are listed below:
Government Initiatives
One of the core components of economic progress is a country's ability to make robust foreign investments. Such investments develop trust and confidence among different countries and also help domestic companies in exploring enhanced networking opportunities, technology, markets, resources and talent. Keeping this agenda in mind, the government has taken several steps to ramp up overseas investments by Indian companies. As of April 2022, India inked 13 Free Trade Agreements (FTAs) with Sri Lanka, Maldives, Nepal, Bangladesh, Bhutan, Thailand, Singapore and so on, to expand overseas investments and enhance close corporation with its counterparts. Some of the initiatives are listed below:
Road Ahead
At present, there are nine Fortune 500 companies in India, of which four are from the private sector and five are from the public sector. Indian companies have the potential to enhance their overseas investments, which will help in scaling up their global footprint and enhance their income. One of the most crucial methods of creating a dent in the global markets is through investments in foreign countries. The Government of India has taken necessary steps to ease overseas investments. Bilateral trade agreements, economic corporations and investment partnerships, among others, will help India improve its economic competitiveness on a global scale and permit Indian firms to boost their ODIs.