Introduction
India's outbound investments have evolved dramatically, not only in terms of volume but also in terms of geographic distribution and sectoral makeup. Direct investment trends over the past ten years have been analysed, and it is clear that while inward and outward investment flows were rather slow in the early half of the decade, they picked up steam in the latter half. In the last decade or so, there has been a noticeable perceptible shift in Overseas Investment Destination (OID). In the first half, overseas investments were focused on resource-rich nations like Australia, UAE, and Sudan. In the latter half, OID was directed toward nations offering greater tax advantages, including Mauritius, Singapore, the British Virgin Islands, and the Netherlands. Indian firms invest in foreign shores primarily through mergers and acquisitions (M&A). A developing nation like India constantly looks for opportunities to invest extensively outside India as it helps the economy as a whole. Overseas investments by Indian companies also help in improving the performance of the country's service and manufacturing sectors and aid in the battle against rising unemployment rates. With rising M&A activity, companies will get direct access to newer and more extensive markets and better technologies, enabling them to increase their customer base and achieve a global reach.
Market Size
According to the Department of Economic Affairs, India’s overseas direct investment (ODI) stood at US$ 33.45 billion in FY23, US$ 51.06 billion in FY22, and US$ 50.71 billion in FY21. In FY24 (April 2022-June 2023), ODI stood at US$ 4.48 billion. Of the total amount invested in FY23, US$ 20.34 billion was in the form of issuance of a guarantee, US$ 8.39 billion was as a loan, and US$ 4.71 billion was infused in the form of equity. Additionally, the UK was the top investment destination for Indian companies accounting for US$ 2.82 billion of the total overseas investments in FY23. This was followed by Singapore with US$ 2.17 billion investments and the USA with US$ 2.03 billion investments. 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 around 4,800 jobs, according to data released by the UK government.
Investments/Developments
India is primarily a domestic demand-driven economy, with consumption and investments contributing to 70% of the economic activity. With an improvement in the economic scenario and the Indian economy recovering from the Covid-19 pandemic shock, India is relatively well placed than the rest of the world. Despite major headwinds that continue to pose risks in the short term, the Indian economy has remained strong owing to robust policy measures in place. This gives Indian businesses an advantage to make investments abroad and broaden their operational footprint in such nations. New innovations from abroad would be brought to India with the help of knowledge spill-over, and India itself would contribute to the growth of other nations. In this manner, a mutual benefit is achieved. In this context, there have been several overseas investments made by Indian companies. Some of the key overseas investments and developments that have taken place in the recent past are mentioned as follows:
- According to data released by the Reserve Bank of India (RBI), overseas direct investment stood at US$ 973.9 billion in June 2023.
- The critical investments are as follows:
- In July 2023, Tata Sons Pvt. Ltd. announced plans to establish a global battery cell gigafactory in the UK with a capacity to produce 40GW of cells annually, with an investment of over US$ 4.38 billion (£4 billion).
- As reported in June 2023, Reliance New Energy Ltd., a unit of Reliance Industries Ltd, has topped up its investment in German climate technology company NexWafe GmbH. The announcement came more than a year after NexWafe received a US$ 29 million investment from Reliance New Energy as part of its US$ 45 million Series C funding round.
- Indian conglomerate Essar is eyeing investment in Australia’s Galilee Energy to evaluate potential collaboration on coal seam gas (CSG)-coalbed methane projects in both countries.
- In February 2023, Oil and gas producer, Oil and Natural Gas Corporation (ONGC) informed that it will put in over US$ 2 billion in drilling 103 wells in the Arabian Sea as it is working on a turnaround plan which is aimed at adding 100 million tonnes to production.
- In June 2022, Tata Steel announced plans to invest US$ 837.95 billion (7 million pounds) in its Hartlepool Tube Mill in North-East England.
- 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 Brands Asia 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.
- 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$ 55.88 million in a JV and wholly-owned unit in Myanmar.
- ONGC Videsh Ltd. invested US$ 54.49 million during the month in various countries in 7 different ventures.
- Shilpa Medicare Limited invested US$ 0.17 million a WOS within four countries wherein the major activity is related to manufacturing.
- Jubilant Food Works Limited invested US$ 1.79 million in restaurants and hotels in a WOS in Bangladesh.
- In July 2022, Infosys committed to hiring 300 Singaporean workers over the next three years across a variety of roles
- Infosys has partnered with the Infocomm Media Development Authority of Singapore (IMDA), a statutory board under the Ministry of Communications and Information, to support the Singapore Government's ongoing programmes to create employment opportunities for recent graduates and mid-career professionals.
- In July 2022, Reliance Brands Ltd. signed a distribution agreement with Maison Valentino, an Italian luxury fashion house, to open its first boutique in Delhi, followed by a flagship store in Mumbai.
- In July 2022, Reliance Retail Limited entered a long-term partnership with Gap Inc. to bring the iconic American fashion brand Gap to India.
- In July 2022, Tata Steel signed a Memorandum of Understanding (MoU) with BHP, a leading global resources company, to jointly study and explore low-carbon iron and steelmaking technology.
- 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 five years.
- In January 2022, Essar Group of India announced that it had created a joint venture with Progressive Energy of the UK to invest US$ 1.34 billion in a hydrogen manufacturing plant at its Essar Stanlow refinery complex.
- In January 2022, 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.
- In August 2022, Mahindra & Mahindra opened Mahindra Advanced Design Europe (M.A.D.E), a new design centre of excellence that will act as the company's EV product portfolio's conceptual hub. M.A.D.E is located at the global automotive and EV hub of Banbury, Oxfordshire.
- In November 2022, Biocon Biologics completed the acquisition of its partner Viatris Inc.'s global biosimilars business for over US$ 3 billion in cash and stock.
- ITC Limited is investing in a US$ 300-million project under WelcomHotels Lanka (Private) Limited (WLPL), a wholly-owned subsidiary of ITC, which comprises a luxury hotel and a super-premium residential apartment complex on 5.86 acres of prime sea-facing land in Colombo.
Government Initiatives
The government has reduced the restrictions on Indian companies investing overseas by removing the cap on raising funding through the pledge of shares, local assets, and foreign assets in order to encourage international investment. In addition, improving the nation's social and economic stability enables RBI to support foreign investments and other international collaborations. One of the key elements of economic progress in every nation is its robust foreign investments. It demonstrates the confidence and trusts that one country has in another and also aids domestic companies to explore better worldwide networks, markets, technology, talents, and resources while enhancing their brand image. In this view, the government has undertaken several steps to support Indian investments abroad. Some of the initiatives are mentioned below:
- The Reserve Bank of India (RBI) issued new guidelines on August 22, 2022, to make foreign investment in shares, immovable properties, etc. easier for Indian retail investors. The new framework/guidelines comprise of Rules (framed by Central Government), Regulations, and Directions (issued by RBI)
- New definition of Overseas Direct Investment (ODI) and Overseas Portfolio Investment (OPI)
- Overseas Portfolio Investment (OPI) and Overseas Direct Investment (ODI) are two different types of investment routes used by Indian investors to make foreign investments. Under the old regulations/directions, there was no clear distinction between OPI and ODI. Further, OPI was not defined, and under ODI, there was no specific mention of the percentage of equity holding proposed to be bought to qualify as ODI/OPI. Retail Investors faced difficulty in determining whether their investment in foreign entities constituted ODI requiring ODI compliance or OPI.
- In August 2022, Mr. Narendra Singh Tomar, Minister of Agriculture and Farmers Welfare inaugurated four new facilities at the Central Arid Zone Research Institute (CAZRI), which has been rendering excellent services for more than 60 years under the Indian Council of Agricultural Research (ICAR).
- In July 2022, Deendayal Port Authority (DPA) announced plans to develop two Mega Cargo Handling Terminals on a Build-Operate-Transfer (BOT) basis under Public-Private Partnership (PPP) Mode at an estimated cost of US$ 747.64 million (Rs. 5,963 crore).
- In July 2022, India and UK conclude the fifth round of talks for the India-UK Free Trade Agreement. Indian and UK officials will continue to work intensively throughout the summer towards the target to conclude the majority of talks on a comprehensive and balanced Free Trade Agreement by the end of October 2022.
- In July 2022, the Union Cabinet chaired by Prime Minister Mr. Narendra Modi, approved the signing of the Memorandum of Understanding (MoU) between India & Maldives. This MoU will provide a platform to tap the benefits of information technology for court digitization and can be a potential growth area for IT companies and start-ups in both countries.
- The Indian Institute of Spices Research (IISR) under the Indian Council for Agricultural Research (ICAR) inked a Memorandum of Understanding (MoU) with Lysterra LLC, a Russia-based company for the commercialization of biocapsule, an encapsulation technology for bio-fertilization on 30 June 2022.
- India’s bilateral trade with European Union (EU) stood at US$ 116.36 billion in FY22, an increase of 43.5% YoY. The trade agreement with the EU would help India further expand and diversify its exports of goods and services, including securing the value chains.
- In May 2022, India extended the US$ 200 million credit line to Sri Lanka 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 Union Cabinet approved the signing of a Memorandum of Understanding (MoU) between India and Turkmenistan on Disaster Management Cooperation. 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 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 the future.
Road Ahead
One of the most important steps to enter the global marketplace is through overseas investment, and recently, India has taken the necessary actions to establish its presence felt in the global arena. India has been instrumental in signing various memorandum of understanding (MOUs), free trade agreements (FTAs), and Bilateral talks with other nations. As of April 6, 2022, India signed 13 Free Trade Agreements (FTAs) with its trading partners, including the three agreements, namely India-Mauritius Comprehensive Economic Cooperation and Partnership Agreement (CECPA), India-UAE Comprehensive Partnership Agreement (CEPA) and India-Australia Economic Cooperation and Trade Agreement (IndAus ECTA) This gives India the chance to increase its economy's competitiveness on a global scale and allows Indian corporates to increase their overseas direct investments. In some international markets, the prospects for overseas markets look promising. For instance, the Indian industry is expected to grow its revenue from Africa. According to McKinsey & Company, India will play a key role in expanding Africa's revenue to US$ 160 billion by 2025 through IT services, infrastructure, agriculture, pharmaceuticals, and consumer products. According to the Ministry of External Affairs, India 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: The conversion rate used for July 2023 is Rs. 1 = US$ 0.012
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), Economic Times, Financial Express, Department of Economic Affairs
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