Indian Investment Abroad - Overseas Direct Investment by Indian Companies
Outbound investments from India have undergone a considerable change, not only in terms of magnitude but also in terms of geographical spread and sectoral composition. Analysis of the trends in direct investment over the last decade reveals that while investment flows, both inward and outward, were relatively 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 the 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 channelled into countries providing higher tax benefits, such as Mauritius, Singapore, the 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.
According to the Department of Economic Affairs, India’s outward foreign direct investment (OFDI) stood at US$ 3,398.2 million in April 2022 vs US$ 6,714.89 million in April 2021.
Some of the significant overseas investments by Indian companies were:
- As per RBI’s (Reserve Bank of India) data, in April 2022, India Inc.’s overseas direct investment stood at US$ 3.4 billion; of the total investments, loans accounted for US$ 764.25 million, equity capital accounted for US$ 544.87 million, and issuance of guarantees stood at US$ 2.09 billion.
- The critical investments are as follows:
- Tata Communications invested US$ 690 million in its wholly-owned subsidiary in Singapore.
- Jindal Steel and Power invested US$ 366 million in its wholly owned subsidiary in Mauritius
- Wipro invested US$ 204.96 million in its wholly-owned subsidiary in Cyprus.
- Jindal Saw invested US$ 64.5 million in its wholly-owned subsidiary in the United Arab Emirates.
- Restaurant Brand Aisa and Lupin Ltd invested US$ 141.34 million and US$ 131.25 million in their JVs in Indonesia and the US, respectively.
- Reliance New Energy invested US$ 87.73 million in its wholly owned subsidiary in Norway.
- Mohalla Internet Pvt. Ltd. invested US$ 86 million in its fully owned unit in Mauritius.
- ONGC Videsh invested US$ 83.31 million in a joint-venture in Russia.
- ICICI Bank ties up with Santander in Britain in a pact aimed at facilitating the banking requirements of corporates operating across both countries.
- ANI Technologies, the promoter of OLA, invested US$ 675 million in its wholly-owned subsidiary in Singapore.
- Dr Reddy invested US$ 149.99 million in a joint- venture (JV) in the US.
- A total of US$ 168.9 million was invested by Reliance New Energy in a JV and wholly-owned subsidy in Germany and Norway.
- Gail India, energy PSU invested US$ 70.17 million in a JV and wholly-owned unit in Myanmar and the US.
- ONGC invested US$ 74.15 million during the month in various countries in 5 different ventures.
- In January 2022, Ola Electric, the ride-hailing company’s electric vehicle (EV) subsidiary, announced its plans to establish Ola Futurefoundry, a global hub for advanced engineering and vehicle design in the UK, investing US$ 100 million over the next 5 years.
- In January, Essar Group of India announced that it had created a joint venture with Progressive Energy of the UK to invest US$ 1.34 billion on a hydrogen manufacturing plant at its Essar Stanlow refinery complex.
- In January, Hindalco Ltd’s US subsidiary, Novelis, announced its plans to invest US$ 365 million in a state-of-the-art vehicle recycling facility in North America.
Some of the government initiatives that have facilitated Indian investment abroad are as follows:
- In May 2022, India extended US$ 200 million credit line to Sri Lanka in order to procure emergency fuel stocks in India.
- Mr. Jyotiraditya M. Scindia, Minister of Civil Aviation, met Canadian Transport Minister Omar Alghabra and discussed the expansion of a bilateral air service agreement, which will allow more flights between the two countries.
- The Confederation of British Industry (CBI), Britain’s largest business organisation, and its Indian counterpart, the Confederation of Indian Industry (CII), have agreed to set up a new joint commission to increase cross-industry collaboration and to push the trade deal over the line.
- In January 2022, the Union Cabinet, led by Prime Minister Mr Narendra Modi, authorised a Memorandum of Understanding (MoU) between India and Nepal for the construction of a bridge over the Mahakali River at Dharchula (India)- Dharchula (Nepal).
- On January 27 2022, Prime Minister Mr Narendra Modi hosted the first India-Central Asia Summit. The Leaders reviewed broad recommendations for expanding cooperation in sectors such as trade and connectivity, development cooperation, defence and security, and cultural and people-to-people exchanges.
- In January 2022, Prime Minister Mr Narendra Modi and Prime Minister of Mauritius Mr Pravind Kumar Jugnauth virtually inaugurated the India-assisted Social Housing Units project in Mauritius virtually. An agreement between India and Mauritius to offer a US$ 190 million line of credit (LoC) for the Metro Express Project and other infrastructure projects was entered into.
- In January 2022, the signing of a Memorandum of Understanding (MoU) between India and Turkmenistan on Disaster Management Cooperation was approved by the Union Cabinet. The MoU aims to establish a system in which both India and Turkmenistan benefit from each other’s disaster management procedures, and it will aid in the areas of preparedness, response, and capacity building in the field of disaster management.
- In January, the Union Cabinet authorised the signing of an Agreement on Cooperation and Mutual Assistance in Customs Matters between India and Spain.
- In January 2022, the Republic of India and the UK completed the first round of talks on a free trade agreement (FTA). Technical experts from both parties met in 32 distinct meetings to address 26 different policy issues.
- In the Union Budget 2021-22, the foreign direct investment (FDI) cap has been increased to 74%, and other changes to the insurance sector have been proposed to enable foreign ownership and control with safeguards.
- Another amendment proposes that the majority of board members and key management personnel would be resident Indians, with at least 50% of directors being independent directors and a defined percentage of income set aside as a general reserve under the new structure. According to experts, the proposed reforms could pave the way for private equity funds to enter the insurance sector.
- 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 the pledge 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 the case of the step-down subsidiary.
- The RBI also liberalised/ rationalised 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 future.
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 markets 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.
According to the UK government’s new data published in June 2021, India has maintained its spot as the second-largest source of foreign direct investment (FDI) projects for the UK. Indian businesses have invested in ~99 projects in the UK and generated > 4,800 jobs.
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 the considerable impact of the investment on local economies.
Note: Conversion rate used for February 2022 is Rs. 1 = US$ 0.013
References: Media Reports and Press Releases, Press Information Bureau (PIB), Reserve Bank of India (RBI), Directorate General of Foreign Trade (DGFT), ‘Indian Roots, American Soil’ by the Confederation of Indian Industry (CII)