Indian Investment Abroad - Overseas Direct Investment by Indian Companies

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.

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) 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

According to the data provided by Reserve Bank of India (RBI), India’s outward Foreign Direct Investment (OFDI) in equity, loan and guaranteed issue stood at US$ 12.59 billion in 2018-19 and US$ 2.841 million in April-June 2019.

India’s cumulative stock of Overseas Foreign Direct Investment (OFDI) stood at US$ 155 billion in 2017.

Investments/Developments

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:

• In September 2019, Liquefied Natural Gas (LNG) importer Petronet entered into agreement with US LNG developer Tellurian Inc. and invest US$ 2.5 billion.
• In September 2019, Reliance Power announced joint venture with Japanese energy major JERA, to jointly set up a 750 MW gas-based combined cycle power project (phase-1) at Meghnaghat in Bangladesh.
• In September 2019, Oyo acquired Copenhagen-based data science firm Danamica. This marks it as the fast-growing lodging start-up works to expand its business in Europe.
• In August 2019, Sun Pharma entered into licensing agreement with China System Medical Holdings (CMS) to develop and commercialise seven generic products in Mainland China.
• In March 2019, Infosys announced that it would acquire 75 per cent stake in ABN AMRO’s subsidy.
• In March 2019, Sun Pharmaceuticals raised its stake Russia’s PJSC Biosintez to 96.96 per cent.
• In February 2019, auto components major JBM Group has purchased a majority stake in Linde-Wiemann, a German structural components and assemblies producer.
• Hospitality start-up Oyo is planning to invest US$ 1.2 billion for its expansion.
• Ashok Leyland has set up a new facility in Dhaka, Bangladesh in a joint venture with IFAD Autos. The sales, service and spares facility is spread over 138,000 square feet and is going to cater to the entire range of Ashok Leyland vehicles.
• Indian IT major Infosys is going to set up a technology and innovation hub in Texas and hire 500 American workers by 2020.
• Tyre Manufacturer Balkrishna Industries is going to set up a US$ 100 million production facility in US. The plant will have an annual production capacity of 20,000 MT and will serve the entire American region.
• Pharmaceutical major Cipla’s subsidiary, Cipla Maroc, opened a manufacturing plant for metered-dose inhalers in Ain Aouda in the Rabat region in Morocco. The facility is spread over a total area of 4,000 square meters and has a capacity of 1.5 million HFA metered-dose inhalers.
• Apollo Tyres has commenced commercial production of its truck tyres at its facility in Hungaria. This is the company’s second facility in Europe and has an installed capacity of 14,000 passenger car tyres a day and 1,200 truck tyres a day.
• Pidilite Lanka Pvt Ltd, ahesives manufacturer Pidilite’s joint venture (JV) company with Macbertan Pvt Ltd, unveiled a new world class manufacturing plant in Sri Lanka. The plant is spread over an area of four acres and will help the company enhance its market share in the country.
• India’s cinema companies are planning to foray into the Middle East and North Africa (MENA) region. Carnival Cinema’s is planning to open 500 screens in Saudi Arabia over the next five years. Also, PVR Cinemas has signed a memorandum of understanding (MoU) with Dubai-based Al-Futtaim Group to explore opportunities for entering the cinema business in the MENA region.
• Thirumalai Chemicals’ subsidiary in Malaysia is going to enhance its Maleic Anhydride production capacity to 65,000 tons per year. Further, Thirumalai Chemicals is exploring the possibility of setting up a greenfield facility for production of food ingredients in US, which will serve the North American and European markets.

Government initiatives

• Government of India’s Public Sector Undertakings (PSUs) have invested over US$ 15 billion in Russia’s oil and gas projects and are planning to undertake more investments in the country’s oil and gas fields.
• 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 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 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 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.
• The Union Cabinet has permitted ONGC Videsh to acquire 11 per cent stake in Russian oil company JSC Vankorneft from Rosneft Oil Co. for US$ 930 million.

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 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.

Overseas investments by India companies are expected to increase, backed by stable market conditions and considerable impact of the investments on local economies.

Conversion rate used as on July 30, 2019: Rs 1 = US$ 0.014533

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, 'Indian Roots, American Soil' by the Confederation of Indian Industry (CII), CII EY Bertelsman Foundation