Indian Investment Abroad - Overseas Direct Investment by Indian Companies

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 data provided by Reserve Bank of India (RBI), India’s outward Foreign Direct Investment (OFDI) in equity, loan and guaranteed issue stood at US$ 12.91 billion in 2019-20.

Foreign investment of Indian companies grew 18 per cent y-o-y to US$ 2.69 billion in March 2019. In January 2020, domestic companies invested US$ 2.23 billion in their foreign arms.

Investments/Developments

Some of the major overseas investments by Indian companies were:

• In February 2020, Bharti Airtel invested US$ 978.92 million in its wholly owned subsidiary in Mauritius.
• In January 2020, Calleis Infrastructure invested US$ 81.12 million in its wholly owned subsidiary in the UK.
• In December 2019, Indian Oil Corporation Limited’s (IOCL’s) INDMAX refining technology was licensed to Naftna Industrija Srbije (NIS) of Serbia for production of higher value products.
• In December 2019, memorandum of understanding (MoU) was signed between National Small Industries Corporation (NSIC) and Aramco Asia for developing the MSME Ecosystem in India in the Oil and Gas sector.
• In December 2019, Panacea Biotec bagged orders worth nearly Rs 170 crore (US$ 24.32 million) from UN agencies, including UNICEF, for supply of Pentavalent vaccine.
• In December 2019, supply chain focussed fintech firm, LivFin, raised US$ 5 million of equity capital from German development finance institution DEG.
• In November 2019, PVR Cinemas, a leading multiplex chain, launched its first property in Sri Lanka, marking its first international venture.
• In September 2019, Liquefied Natural Gas (LNG) importer Petronet entered into an agreement with US LNG developer Tellurian Inc. and invested US$ 2.5 billion.
• In September 2019, Reliance Power announced joint venture (JV) with Japanese energy major JERA to jointly set up a 750-Megawatt (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 marked the fast-growing lodging start-up to expand its business in Europe.
• In August 2019, Sun Pharma entered into a licensing agreement with China System Medical Holdings (CMS) to develop and commercialise seven generic products in Mainland China.
• In March 2019, Sun Pharmaceuticals raised its stake Russia’s PJSC Biosintez to 96.96 per cent.

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 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.
• 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 revenue 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 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 on April 2020, Rs 1 = US$ 0.013123

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)