Giant awakening of India's outward foreign investment

Thursday, 21 October 2004, 07:00 Hrs
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NEW DELHI: Even as India aggressively woos foreign investment, its domestic firms have started expanding their overseas presence heavily and the value of such stock grew to $5.1 billion in 2003, says a UN study.

The country's average outward foreign direct investment (FDI) flows reached $1.1 billion during 2001-03, comparable to Malaysia's and double those of Greece, according to the UN Conference on Trade and Development (Unctad).

"The increasing competitiveness of Indian firms and their interest to expand globally, particularly in IT-related services and pharmaceuticals, are driving its outward FDI growth," Unctad director Karl P. Sauvant said.

"Access to markets, natural resources, distribution networks, foreign technologies and strategic assets like brand names are the main motivations," Sauvant said in a report titled "India's Outward FDI: A Giant Awakening".

The report says the US was the most important destination for Indian outward FDI, which accounted for 19 percent of the cumulative outflows during fiscal years 1996-2003, followed by Russia with 18 percent.

The share of Russia, it says, included the $1.6-billion acquisition of a 20-percent stake in the Sakhalin Oil and Natural Gas Field by India's state-owned Oil and Natural Gas Corp in 2001.

While two tax havens of Bermuda and British Virgin Islands together accounted for 11 percent of the cumulative outward FDI, the double tax avoidance treaty with Mauritius had also encouraged India Inc.

Nine percent of India's outward FDI was routed through Mauritius for investments in third countries, it says.

Interestingly, India is also becoming an important investor in Britain and France. In Britain, India ranked seventh in terms of jobs created and number of FDI projects, chiefly in IT, biotech, food and beverages, and film production.

In France, India ranked 30th in terms of number of projects - a three-fold increase over 2002. "France is now trying to woo actively such Indian trans-national corporations as Tata, Reliance, Godrej and Mahindra & Mahindra."

Sector wise, most of India's outward FDI has been in manufacturing, especially pharmaceuticals, with a 54.9 percent share. Non-financial services account for a sizeable 36.1 percent share.

The report said mergers and acquisitions had become an important mode of overseas market entry for Indian companies, particularly in the services sector such as IT and software services.

In 2000-03, Indian companies were involved in 182 overseas mergers and acquisitions, as compared to 60 during 1996-99. Most deals were in the US (43) and Britain (21).

Giving an outlook for the future, Unctad said that India's outward FDI, especially in IT and software services, was expected to grow rapidly.

"Countries such as Belgium, Canada, China, Japan and United Kingdom have been courting Indian IT companies to invest in their shores," it said.

"The growing competitiveness of Indian firms and their increasing desire to venture abroad to expand markets, operate near to clients and acquire technology and brand names are key drivers pushing more Indian firms to go abroad.

"Not least, the encouragement and the significant liberalisation of policies by the government of India will continue to play an instrumental role in the rapid expansion of Indian firms abroad."

Source: IANS
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