Indian overseas investments hit by slowdown

By siliconindia   |   Wednesday, 19 August 2009, 00:10 IST   |    5 Comments
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Indian overseas investments hit by slowdown
Bangalore: Thanks to the global economic slowdown, there are has been a drop in Indian investments in the overseas market. According to the "Indian FDI falls in global economic crisis: Indian multinationals tread cautiously" report, Indian investments abroad declined in 2008 and will decline further in 2009 in an uneven pattern. The report by the Columbia Law School and The Earth Institute at the Columbia University shows that Indian companies have become cautious in their approach while acquiring companies overseas. According to the report, the global economic crisis has made Indian firms wary of further expansion abroad. Consequently, actual Indian FDI outflows, which rose to a historic level of nearly $18 billion in 2007, fell by six percent in 2008 to under $17 billion. This is the first absolute decline in OFDI (Overseas FDI) since 1999. The Indian overseas acquisitions in January-June 2009 compared to the same period in 2008 have declined. The value of such acquisitions fell by 65 percent, from $8 billion to under $3 billion and their number fell from 140 to 28. According to PTI, the drop in Indian OFDI is similar to the worldwide decline of OFDI to 15 percent in 2008, although, it contrasts with China's doubling of its OFDI in 2008. The contraction in Indian OFDI is continuing in 2009 falling to $4.7 billion in the first quarter of the current year, a 14 percent decline over the same quarter in 2008. The Indian banking sector did not suffer as much as the banks in some major economies, but it adopted a cautious lending policy in 2008. This led to several domestic and overseas projects being postponed, the report said. In addition, the global financial crisis had a negative impact on other financial sub-sectors like the Indian equity, money and foreign-exchange markets. The sudden depreciation of the Indian rupee against the U.S. dollar in 2008 also led to heavy losses for many export-oriented Indian firms that had acquired long-term foreign exchange derivatives, the report said. A recovery in the Indian OFDI will depend on the revival of global and domestic growth, improvements in corporate profitability and easing of financing from banks and the equity market. The first quarter of 2009 registered stronger GDP growth in India than expected, even though global growth went down. If domestic growth turns out to be unsustainable, however, OFDI may not recover, the report concluded.

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