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Indian Investment Abroad - Overseas Direct Investment by Indian Companies

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Last updated: Jul, 2021

Introduction

Outbound investment 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 investment 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.

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 channelled 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). 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

According to the Reserve Bank of India (RBI), India’s outward foreign direct investments (OFDI) in equity, loan and guaranteed issue stood at US$ 3.77 billion in May 2021 vs. US$ 3.43 billion in April 2021.

Investments/Developments

Some of the major overseas investments by Indian companies were:

  • In June 2021, foreign portfolio investors (FPIs) turned net buyers by investing a net Rs. 12,714 crore (US$ 1.71 billion) in Indian markets.
  • In April 2021, India Inc.'s foreign investments stood at US$ 2.51 billion, registering a 2X YoY growth. Of the total investments, loans accounted for US$ 1.75 billion, equity capital accounted for US$ 421.42 million and issuance of guarantees stood at US$ 333.11 million.
  • In March 2021, Indian companies made an investment of >US$ 1.99 billion in their overseas projects.
  • The major investments are as follows:
    • Tata Steel invested US$ 1 billion in a wholly owned subsidiary in Singapore.
    • Interglobe Enterprises Pvt. Ltd. invested US$ 145.61 million in a joint venture based in the UK.
    • Reliance Industrial Investments & Holdings Ltd. invested US$ 78.52 million in a wholly owned unit in the UK. Reliance Industries, along with Reliance Brands, invested funds worth US$ 91.56 million in various joint ventures and wholly owned subsidiaries based in the UK, the UAE, Singapore and the US.
    • Varroc Engineering invested US$ 65.5 million in a wholly owned unit in the Netherlands
    • Motherson Sumi Systems invested US$ 41.70 million in a wholly owned company in the UAE.
  • In May 2021, the Serum Institute of India announced plan to invest GBP 240 million (US$ 332.38 million) in the UK to expand its vaccine business and open a new sales office.
  • In May 2021, Reliance Jio Infocomm (Jio) announced that it is deploying submarine cable systems, connecting India to Singapore and beyond, to meet the rising data demand.
  • According to depositories data, between June 1, 2021 and June 25, 2021, FPIs invested Rs. 15,282 crore (US$ 2.06 billion) in equities. From the debt segment, FPIs withdrew Rs. 2,568 crore (US$ 346.15 million) at the same time.

Government Initiatives

  • 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.
    • Other amendment proposes that the majority of board members and key management personnel would be resident Indians, with at least 50% 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.
  • In June 2021, Export-Import Bank of India (Exim Bank) announced that it extended a line of credit (LOC) worth US$ 100 million to the Sri Lankan government to fund projects pertaining to solar energy.
  • In June 2021, India launched a new trilateral partnership with Italy and Japan for Indo-Pacific stability.
  • In November 2020, the Securities and Exchange Board of India (Sebi) expanded the foreign investment cap for mutual funds to US$ 600 million from US$ 300 million, thus capping the total industry limit to US$ 7 billion.
  • To boost domestic investments and reduce outflows, in August 2020, Mr. Piyush Goyal, Commerce and Industry Minister, asked auto manufacturers to find solutions to reduce royalty payments to foreign parent companies for use of technology or brand names
  • 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 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 case of 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 an upward trend in OFDI in future.

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. 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 UK government’s new data published in June 2020, India has maintained its spot as the second-largest source of foreign direct investment (FDI) 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 India companies is expected to increase, backed by stable market conditions and considerable impact of the investment on local economies.

Note: Conversion rate used for June 2021 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)