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.
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.
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:
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:
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