FDI: Its Importance

Foreign Direct Investment eludes definition owing to the

presence of many authorities: Organization for Economic Co-operation and
Development (OCED), International Monetary Fund (IMF), International Bank for
Reconstruction and Development (IBRD) and United Nations Conference on
Trade and Development (UNCTAD). All these bodies attempt to illustrate the
nature of FDI with certain measuring methodology.

However , the third edition of the OECD Benchmark

Definition of Foreign Direct Investment defines FDI as a category of international
investment that reflects the objective of obtaining a lasting interest by a resident
in one economy (the direct investor) in an entity resident in an economy other
than that of the investor (the direct investment enterprise).

Foreign Direct Investment (FDI) is an important

component of every nation's efforts toward economic development and also is an
integral part of the globalization of the world economy. All nations eagerly try to
attract FDI. The success of any nation in attracting foreign investment is directly
proportional to that nation's resources and the existence lucrative investment
opportunities. Foreign Direct Investment is an important component of every
nation's efforts toward economic development and also is an integral part of the
globalization of the world economy. All nations eagerly try to attract FDI. The
success of any nation in attracting foreign investment is directly proportional to
that nation's resources and the existence lucrative investment opportunities.

Generally speaking, FDI refers to capital inflows from abroad

that invest in the production capacity of the economy and are usually preferred
over other forms of external finance because they are non-debt creating, non-
volatile and their returns depend on the performance of the projects financed by
the investors. FDI also facilitates international trade and transfer of knowledge,
skills and technology.

“It is furthermore described as a source of economic

development, modernization, and employment generation, whereby the overall
benefits (dependant on the policies of the host government) triggers technology
spillovers, assists human capital formation, contributes to international trade
integration and particularly exports, helps create a more competitive business
environment, enhances enterprise development, increases total factor
productivity and, more generally, improves the efficiency of resource use.

HISTORY OF FDI - A Look back

The expansion in FDI was more pronounced during 1985-2000,
when many host countries began to relax regulations to attract FDI, and during
1995-2000, when companies underwent mergers and acquisitions in the wake of
the Asian financial crisis and Privatization Programmes in Latin America. In fact,
FDI flows grew from only USD55.3 billion in 1985 to a record high of USD1.4
trillion in 2000 (Chart 1). The world FDI flows increased fivefold between 1993
and 2000 before starting to fall in 2001. The growing Internationalization of both
investment and trade has prompted some countries to call for increased
cooperation through the establishment of international rules and commitments
under the WTO.

FDI IN INDIA – An Overview

Election of AB Vajpayee as Prime Minister of India in 1998 and
his agenda was a welcome change. His prescription to speed up economic
progress included solution of all outstanding problems with the West (Cold War
related) and then opening gates for FDI investment. In three years, the West was
developing a bit of a fascination to India’s brainpower, powered by IT and
BPO.  By 2004, the West would consider investment in India, should the
conditions permit. By the end of Vajpayee’s term as Prime Minister, a framework
for the foreign investment had been established. The new incoming government
of Professor Minoan Singh in 2004 is further strengthening the required
infrastructure to welcome the FDI. 

Today, fascination with India is translating into active

consideration of India as a destination for FDI. The A T Kearney study is putting
India second most likely destination for FDI in 2005 behind China. It has displaced
US to the third position. This is a great leap forward. India was at the
15th position, only a few years back. Thanks to the hard work of the politicians in
control in Delhi for the last five years. To quote the A T Kearney Study “India's
strong performance among manufacturing and telecom & utility firms was driven
largely by their desire to make productivity-enhancing investments in IT, business
process outsourcing, research and development, and knowledge management
activities”. 

The last two decades of the 20th century witnessed a dramatic

world-wide increase in foreign direct investment (FDI), accompanied by a marked
change in the attitude of most developing countries towards inward FDI. The
initial policy stimulus to foreign direct investment in India came in July 1991
when the new industrial policy provided, inter alia, automatic approval for
projects with foreign equity participation up to 51 per cent in high priority areas.
In recent years, the Government has initiated the second generation reforms
under which measures have been taken to further facilitate in India.

The Policy for FDI allows freedom of location, choice of technology,

repatriation of Capital and dividends. As a result of these measures, there has
been a strong surge of international interest in the Indian economy. The rate at
which foreign direct investment has grown during the post- Liberalization period
is a clear indication that India is fast emerging as an attractive destination for
overseas investors. Though India has one of the most transparent and liberal FDI
regimes among the developing countries with strong macro-economic
fundamentals, it share in FDI inflows is dismally low. The country still suffers from
weaknesses and constraints, in terms of policy and regulatory framework, which
restricts the inflow of FDI.

2008 List by the CIA World Fact book

This Table includes a  list of countries of the world sorted by

received foreign direct investment (FDI) stock, the level of accumulated FDI in a
country. The US dollar estimates presented here are calculated at market or
government official exchange rates.

S.NO Flag Name Status FDI INFLOW Rank

1. United States Developed 2,220,000,000,000 1

2. United Developed 2
Kingdom 1,409,000,000,000

3. China (PRC) Developing 758,900,000,000 5

4. Switzerland Developed 333,800,000,000 12

5. Brazil Developing 280,900,000,000 14

 6. Austria Developed 276,900,000,000 16

7. Sweden Developed 225,900,000,000 17

8.  India Developing 142,900,000,000 22

9. South Africa Developing 99,610,000,000 30

10. Malaysia Developing 32

92,760,000,000

FDI Inflows in India

I ndia has been a host to Foreign Direct
Investment (FDI) for over a hundred years now. However, it has drawn special
attention in the one and half last decades and Globalization in India has been
seen as a phenomenon of post Industrial Licensing Policy of India, 1991. Despite
the long history of FDI in India, the literature on FDI in India does not fully explain
the processes and the dynamics by which the present ‘Liberalized Economy’ and
‘Globalized Structure’ of FDI in India has evolved.

Period Studies:
FDI in India, 1900s-2009
Each of the period studies focuses on three issues viz., overall
socio-economic and political situation in India, industrial policy and FDI policy in
the country and nature and pattern of direct investments by foreign firms in
India.

FDI in India, 1900s-1918:-

India was an agricultural based economy during this period . People
in the country largely depended on agriculture. The domestic business had begun
in some measure as the number of joint stock companies increased from 1550 in
the year 1904-05 to 2668 in the year 1917-1918 (Department of Commercial
Intelligence & Statistics, India, Report on Joint Stock Companies, 1924). India was
a colony of United Kingdom during this period and India was rather a stable
colony with abundant natural and mineral resources. On the policy of FDI in India,
there was little barrier to foreign investments in India during this period as was
the case in the rest of the world.
The United Kingdom dominated the foreign trade and
investment in India during this time. A rough estimate shows that about 14% of
British investments came to India and other Asian countries during 1865-1914
(Bagchi, 1972). India ranked eighth as a host to foreign investments in 1914
(Wilkins, 1994). There were about 204 British Managing Agents and a few
manufacturing companies from U.K, Switzerland, Netherlands, Germany, USA,
and Japan engaged in trading and manufacturing activities during this period.
FDI in India, 1919-1942
Under the pressure of Indians to share power, the British
Government enacted the Government of India Act 1919, whereby Indians had
greater say in the governance of India. With the weakening of U.K. and the
emergence of alternate world powers, the freedom movement in India got
further support from the world community. These political developments had
some amount of bearing on the pattern of foreign investments in India from 1919
onwards. Following the Government of India Act, 1919 that allowed Indian
legislator to share power with British officials, Rowlatt Act came into force in
India. M.K. Gandhi, for the first time applied his non-violent movement on a
national scale in India to resists this legislation of the British Government. There
were many small and large mass scales uprising and resistance to British rule in
India during this period. The local manufacturing companies were also on the
rise. The number of registered manufacturing companies grew from 111 in the
year 1923 to 365 by the year 1940 (Department of Commercial Intelligence &
Statistics, India, Report on Joint Stock Companies, 1929, 1931, 1939, 1941, and
1951).

Nonetheless, British business interests remained as strong as

ever. India was still a hot spot for investments by British companies during this
period. Between 1930 and 1945, as many as 28 new manufacturing British
subsidiaries started their operations in India, Tomlinson (1975). With the
continued interest of British investments and the additional interest of American,
Japanese and other European countries, the total inward stock of foreign direct
investment was about 1.0 billion USD by 1929. India ranked third among the
favorable hosts to foreign direct investments in 1929, Wilkins (1994).

Further, under local and international pressures, the British

Government in India passed the Government of India Act, 1935. This Act allowed
the Indian legislators to voice their concern and to lobby on behalf of Indian
businesses. The local businessmen and politicians strongly pushed the British
Government in India to introduce import duties on goods imported to India in
order to protect the local industries. This seems to have activated the foreign
companies to make direct investments in manufacturing their products in India.
As many as 30 foreign companies registered in India during this period as
compared to only 7 during the previous period, 1901-1918 (Centre for
Monitoring Indian Economy, September 2003).
FDI in India, 1943-1961
The year 1943 marked the beginning of a new period in the history
of FDI in India. Direct Investment by foreign companies, activated in the 1930s
was enhanced and encouraged by both the Indian business houses and by the
newly formed Government of India (GOI) during this period. Local industries had
felt the need for foreign technology and foreign capital by 1942.
Within five years that is from 1943 to 1945, 14 foreign companies
registered themselves in India and this trend continued in the subsequent years
until 1961. As many as 27 foreign companies were registered in India from 1948
to 1961. GOI promoted public sector companies in areas like steel, oil, power,
defense, telecommunications and the private sector investments were
encouraged in areas like chemicals, light industries, personal care and consumer
goods.

The (Government of India) GOI had also understood the need for getting both
foreign technology and foreign capital for its industrial growth. It also needed
foreign exchange to meet the burgeoning imports of essential commodities. In
addition, GOI faced severe foreign exchange problem in 1957-58 and hence
encouraged foreign investment in the late 1950s to attract larger foreign
exchange. All these factors compelled the Government to invite foreign capital
and technology to India during this period. This is reflected by the liberal policies
on foreign investments in the First Five-Year Plan (1951-1955) and the Second
Five-Year Plan (1956-1961).

To enhance its developmental activities, the GOI also informally

started asking the large foreign and domestic companies in India to take up some
of the development work of the Government by investing in industries that it
could not undertake. Foreign companies like Glico, Unilever, ICI, General Motors,
Ford Motors, Pepsi Drinks, etc were informally asked to invest in new ventures
and at the same time to include local equity in their businesses in India (Field
house, 1978, Davenport, 1992). While some foreign companies undertook the
developmental role in India, many others quit India during this period.
FDI to India during this period actually rose and reached a peak
in the year 1961. From 1948 to 1961, the amount of FDI stock grew from 2558
million INR (Indian Rupee) to 5285 million INR, an increase of nearly 143 %.
Similarly, the number of foreign collaborations with Indian companies grew
significantly. The number of joint ventures increased from 34 in 1951 to 464 in
1961, an increase of nearly 14 times in a period of 11 years.

It is interesting to observe that the British investments grew

during this period due to the deeper commitment of British companies in India
prior to 1947. Companies like Cadbury Chocolates, Tube Investments, Reckitt &
Coleman, Horlicks, Pfizer, Parke Davis, Otis Elevator, Coke, Pepsi, Vicks Products,
Asahi Glass, Shimada Glass, Nippon Chemicals, Hitachi, and Nichimen came to
India in this period.

FDI in India, 1962-1977

The year 1962 is the beginning of another important phase in the
history of FDI in India. This year marks a shift in the trends of FDI in India. In the
previous period, the Government of India had begun to informally suggest the
foreign companies to include Indian equity in their companies. However, during
this period, these issues were formalized through the legislation of Foreign
Exchange Regulation Act (FERA) in 1973. Foreign companies also came under the
Monopolies and Restrictive Policy (MRTP)15, 1969 Act during this period. MRTP
(1969) Act restricted companies on the size of operation and the pricing of
products and services.
As a result, many companies that did not want to increase equity
participation of Indians as per section (2) of FERA, 1973 decided to cease their
operations in India. As many as 54 companies applied to wind up their operations
by 1977-78 since the implementation of the above Act in 1974 and 9 companies
applied to wind up their operations in 1980-81 (Annual Reports, Reserve Bank of
India, 1977, 1978, 1981).

When the Government informally suggested companies to invest in

businesses like oil mills, fertilizers, and chemicals, industries in which the
Government could not invest, many companies objected to the policy of the
Government. However, some companies like Unilever invested in oil mills and ICI
invested in fertilizer. ICI emerged as the biggest manufacturer of fertilizer by
1969.
The amount of FDI and the number of foreign joint ventures from all
the foreign countries declined drastically from 1962 to 1968 and had an erratic
trend from 1969 till 1977. The number of foreign collaborations reduced from
464 in the year 1961 to 131 in the year 1968. Although, the number of new
collaborations drastically reduced and many of the foreign companies disinvested
from India during this period, some of the existing large foreign companies
continued their operations in India. In fact, some of the companies consolidated
their market positions in India during this period.

FDI in India, 1978-1990

The year 1978 marked another new phase in the liberalization
and globalization process of FDI in India. The Industrial Policy Statement, 1977 of
GOI announced the relaxation in remittances of profits, royalties, dividends and
repatriation of capital of foreign companies. Further, the Industrial Policy, 1980
of GOI set the tone of liberalization in India in a slow but steady pace. Industrial
Licensing was streamlined and made easier. Provisions in MRTP Act (1969) were
modified to simplify business transactions. Export and Import norms were also
changed to encourage FDI in India.
The government also reduced import restrictions and tariffs. Since
1980, the tariffs in general have come down to nearly 25% and in some cases up
to 5% - 10%. Further, to boost the exports from India, GOI provided special
facilities and tax privileges to foreign companies to set up 100% export oriented
units. GOI set up four more export processing zones (EPZ) in addition to the two
that were already set up in the previous period. All these policy changes led to
greater liberalization on the exports and imports of India.

The total number of joint ventures increased steadily from 1978-

79 until 1984-85, then decreased and showed signs of recovery during 1989-90.
USA emerged to be the biggest contributor to the number of joint ventures in
India during this period. Germany was the second largest contributor. The share
of British companies in the total number of joint ventures clearly declined in this
period as compared to their overwhelming dominance in the previous years. The
share of other countries including those from Europe increased gradually.
The number of foreign companies that registered in India during this period more
than doubled to 128 from only 62 during the previous period, 1962-1977. The
total number of joint ventures also increased from 307 in 1978 to 703 in 1990.
Similarly, the amount of FDI rose from 89 million INR to 1238 million INR, an
increase of over 13 times.

FDI in India, 1991-2000

The year 1991 marks a new growth phase of FDI in India with
an all time high flow of FDI. Following the Industrial Policy (1991), a large number
of foreign companies from different parts of the world rushed into India. In this
period, in addition to thousands of foreign collaborations in India, as many as 145
foreign companies registered in India within a span of 10 years from 1991-2000.
Companies like General Motors, Ford Motors, and IBM that
divested from India in the 1950s and 1970s re-entered India during this period. A
large number of Asian companies like Daewoo Motors, Hyundai Motors and LG
Electronics from S. Korea, Matsushita Television and Honda Motors from Japan
invested in India during this period.

With the legislation of the Industrial Licensing Policy, 1991,

industrial licensing was abolished except for 18 industries. FDI up to 51% equity
was allowed in 34 formerly high priority industries and the concept of phased
manufacturing requirement on foreign companies was removed. Further, the
tariffs on imports have been steadily reduced in every budget since 1991.
Subsequently, GOI replaced FERA, 1973 that regulated all foreign exchange
transactions with Foreign Exchange Management Act (FEMA), 1999.

The total number of foreign collaborations increased from 976 in

the year 1991 to 2144 in the year 2000. Similarly, the amount of FDI increased
from 5156 million INR to 373722 million INR during this period. It is also observed
that there has been a significant shift in the share of FDI from different countries
that have been investing in India. The share of FDI from the United Kingdom
reduced to almost 10% and the share of FDI from UK & USA also decreased
during this period. Interestingly the share of other countries including S. Korea,
Malaysia, Australia, and countries from Asia and European Union increased to
over 65% of the total FDI during this period.
FDI in India since 2000:-
Year Wise FDI inflows into Infrastructure sector during April 2000 to
December 2007
(In US$ million)
YEAR AMOUNT
2000-01 292.37
2001-02 1902.26
2002-03 347.33
2003-04 388.37
2004-05 456.00
2005-06 914.04
2006-07 2179.39
2007-08 (Up to December 2007) 4095.80
TOTAL 10575.56
SOURCE: Federal Ministry of Commerce and Industry, Government of
India

In FDI equity investments Mauritius tops the list of first ten

investing countries followed by US, UK, Singapore, Netherlands, Japan,
Germany, france, Cyprus and Switzerland.  Between April 2000 and July 2008
FDI inflows from Mauritius stood at $ 30.18 billion followed by $5.80 billion
from Singapore; $ 5.47 billion from the US; $ 4.83 billion from the UK; $ 3.12
billion from the Netherlands; $ 2.26 billion from Japan; $1.83 billion from
Germany; $ 1.41 billion from Cyprus; and $1.02 billion from France.

Top ten investing (FDI Equity) countries (In Rs. crore)

COUNTRY 2005- 2006- 2007- 2008- Cumulativ % with
06 07 08  09 e (From total
 (from April 2000 (inflows 
April- to Jan in terms
Jan, 2009) of rupees)
2009)
1144
44483
1 28759 42394 152768
Mauritius (11096 43%
(2570 (6363) (9545) (35180)
)
)
2210 3861 4377 7192 27149
USA 8%
(502) (856) (1089) (1639) (6172)
1164 8389 4690 3478 22542
UK 6%
(266) (1878) (1176) (791) (5154)
1218 2662 12319 14636 32761
Singapore 9%
(275) (578) (3073) (3237) (7594)
Netherland 340 2905 2780 3636 15557
4%
s (76) (644) (695) (826) (3531)
925 382 3336 1171 10507
Japan 3%
(208) (85) (815) (264) (2390)
1345 540 2075 2623 9361
Germany 3%
(303) (120) (514) (604) (2148)
82 528 583 1885 5269
France 2%
(18) (117) (145) (425) (1186)
310 266 3385 4738 8805
Cyprus 3%
(70) (58) (834) (1040) (2025)
219 1174 1039 947 3820
UAE 1%
(49) (260) (258) (220) (883)
2461 10567
70630 98664
Total FDI 3 3 375773
(15726 (24579 -
inflows* (5546 (23885 (86396)
) )
) )

SOURCE: DIPP, Federal Ministry of Commerce and Industry, Government

of India
Figures in bracket are in US$ million
 The average FDI inflow per year during the 9th Plan was $
3.2 billion and during the 10th Plan it increased manifold to stand at $ 16.33
billion the annual average being $ 6.16 billion. The top five sectors attracting FDI
in fiscal 2007-08 included Services sector; Housing and Real Estate; Construction
activities; Computer Software & hardware; and Telecommunications. The
infrastructure sector that offers massive potential to attract FDI witnessed
marked increase in FDI inflows during this period. Fiscal 2007-08 witnessed
significant increase in the FDI inflows in the infrastructure. In first nine months till
December 2007 of fiscal 2007-08 stood at $ 4095 million. From 2000-01 to
December 2007, total FDI in India's infrastructure sector stood at $ 10575 million.

Sectors attracting highest FDI Equity Inflows (In Rs crore) 

2008-
09 Cumulative % of
2005- 2006- 2007-
SECTOR (April- (Apr.2000- total
06 07 08
Jan Jan 2009) inflows*
'09)
Services (Financial & 2399 21047 26589 23045 78742
22%
non-financial) (543) (4664) (6615) (5061) (181189)
Computer Software 6172 11786 5623 6944 39111
11%
& Hardware (1375) (2614) (1410) (1599) (8876)
2776 2155 5103 10797 27544
Telecommunications 8%
(624) (478) (1261) (2374) (6216)
667 4424 6989 6224 19606
Construction 6%
(151) (985) (1743) (1483) (4646)
630 1254 2697 1792 11648
Automobile 4%
(143) (276) (675) (441) (2678)
Housing and Real 171 2121 8749 10632 21794
6%
estate (38) (467) (2179) (2408) (5119)
386 713 3875 4079 13709
Power 4%
(87) (157) (967) (924) (3130)
6540 7866 4686 3608 10956
Metallurgical 3%
(147) (173) (1177) (850) (2613)
 Chemicals (Other 1731 930 920 2561 9442
2%
than fertilizers) (390) (205) (229) (579) (2244)
Petroleum & Natural 64 401 5729 1196 8509
3%
Gas (14) (89) (1427) (263) (2043)

Figures in bracket are in US$ million

* In terms of Rs.

SOURCE: DIPP, Federal Ministry of Commerce and Industry, Government

of India
 

FOREIGN TECHNOLOGY TRANSFER

With rise in Indian industries and change in the whole structural

pattern of economy, Indian Companies demanded sophisticated foreign
technology.
COUNTRY WISE FOREIGN TECHNOLOGY TRANSFER APPROVALS (August
1991-February 2008)
% with total technical
COUNTRY No. of FTA
approvals
USA 1772 22.31
Germany 1106 13.93
Japan 868 10.93
UK 860 10.83
Italy 484 6.09
Other countries 2851 35.91
All Countries 7941 100.00
SOURCE: DIPP, Federal Ministry of Commerce and Industry, Government
of India

SECTOR WISE TECHNOLOGY TRANSFER APPROVALS (August 1991-

February 2008) 
SECTOR No. Technical % of total Technical
 Collaborations Collaborations
approved approved
Electrical Equipments
(Incl. computer
1255 15.80
software &
electronics)
Chemicals (other than
886 11.16
fertilizers)
Industrial Machinery 869 10.94
Transportation
742 9.34
Industry
Misc. Mach.
442 5.57
Engineering Industry
Other sectors 3747 47.19
Total all sectors 7941 100.00
SOURCE: DIPP, Federal Ministry of Commerce and Industry, Government
of India

FDI Outflow
Even as India's inflows of foreign direct investment since
1991 till 2003 amounted to $29 billion, India's outward FDI stock has grown from
$0.6 billion in 1996 to $5.1 billion in 2003, catapulting the country to 14th slot in
terms of outward FDI stock among developing economies.

For Indian corporate sector, 2006 was a watershed year in

terms of mergers and acquisitions as Indian companies went shopping across the
globe. The total outbound deals, which were valued at $4.3 billion in 2005,
crossed $15 billion-mark in the following year and it breached the $35-billion
level in 2007 Globalization, which exposed the Indian markets to foreign shores,
had led the domestic companies to transcend geographical barriers and find a
foothold in developed markets.
 The increasing number of home-grown Indian firms such as
Tata Group, Infosys, Ranbaxy and their improving ownership-specific advantages
including financial capability are among the key drivers. Indian firms are investing
abroad to access foreign markets, production facilities and international brand
name. Access to technology and knowledge has been a strategic factor for Indian
firms seeking to strengthen their competitiveness and to move up their
production value chain.
The acquisitions by domestic firms abroad is part of a strategy to
establish Brand India across the globe and are not limited to a few sectors but
spread across a wide array of industries ranging from pharmaceuticals, telecom,
automobiles and ancillaries to IT. Indian firms are now keen on seeking the
cheapest resource mix and locate operations where these are available.
The acceleration in outbound investments by corporate India has not
been a sudden spurt but a culmination of a long-term trend towards the creation
of the Indian MNCs, which has gathered momentum over the last few years.
The acceleration in investment activity abroad by Indian firms has given steam to
FDI outflows, which have exceeded the total foreign inflows into the country in
2008.
A number of foreign acquisitions by India Inc, especially that of Corus
Group by the Tata’s for over $8 billion, resulted in FDI outflows exceeding
inflows.
Overseas acquisitions by few major domestic companies alone amounted to over
$10 billion in 2008.
Indian outward FDI in information technology (IT) and software
service are likely to grow rapidly with countries such as Belgium, Canada, China,
Japan and the UK courting Indian IT companies to invest in their shores. Two tax
havens, Bermuda and British Virgin Islands, together accounted for 11 per cent of
cumulative outward FDI followed by Mauritius (9 per cent). The double taxation
avoidance treaty between India and Mauritius appears to have encouraged
Indian firms to "round trip" investment through Mauritius and other tax haven
countries to take advantage of the tax benefits enjoyed by overseas investors.
Sri Lanka and Malaysia took the lion's share of outward FDI in-services from India
during 1975-90. However, by the 1990s, most Indian FDI in services was
concentrated in developed countries, the United Kingdom and the United States.
The top 15 Indian IT software and related service companies have all invested
abroad, mostly in developed countries.
The report on ‘Direct investments in the US by Indian enterprises’
also revealed that Indian companies invested over $2 billion in 2006-07 in 48
deals with the US counterparts. “IT and ITS have emerged as the front-runners in
outbound investment from India to the US, accounting for 48% of the total 48
deals worth over $2 billion in 2006-07.

Favorable Policy Changes by Indian govt to increase Investments

Abroad
In a bid to give further impetus to overseas investments, the Reserve
Bank of India (RBI) has further liberalised overseas investment norms for both
direct and portfolio investment with the following steps:
• Raising the overall limit for overseas investment by domestic mutual
funds from US$ 5 billion to US$ 7 billion.
• Hiking the overseas investment limit from 300 per cent of the net worth
to 400 per cent of the net worth in the energy and natural resources sectors,
such as oil, gas, coal and mineral ores.
• Hiking the limit on overseas portfolio investment by Indian companies
from 35 per cent of their net worth to 50 per cent of their net worth.
• Allowing Indian residents to remit up to US$ 200,000 per financial year,
from US$ 100,000 previously, for any current or capital account transaction or a
combination of both.
• Allowing mutual funds to make an aggregate investment to the tune of
US$ 5 billion in overseas avenues, from an earlier cap of US$ 4 billion.
• RBI has exempted Indian corporates from seeking prior permission of the
Central Government for international competitive bidding (ICB) in fore.

Mergers Acquisition n Investment by Indian Abroad

 Tata Tea's acquisition of US-based Energy Brands Inc for $677 million,
 Videocon planning to acquire South Korean Daewoo Electronics for $700
million.
 Tata Steel's buyout of Singapore's Natsteel for $486 million
 Tata Coffee's buyout of Eight O’clock Coffee for $220 million. Romanian
pharma firm Terapia was acquired by Ranbaxy for $324 million.
 Aditya Birla group wrapping-up the aluminium major Novelist Inc.
 K.S. Oils, a large edible oil manufacturer, has invested in oil palm
plantations in Indonesia, the world’s largest producer of palm oil. This is
sure to allow the company to access palm oil on a continuous basis and to
an extent, de-risk its refining operations from the possible vagaries of
supplies in future.
 Aban Lloyd Chiles Off shore’s buy of 33.76 per cent in Norway's Invest ASA
 Dr. Reddy's buyout of Beta-pharm and Ranbaxy-Terapia
 United Phosphorus' acquiring stakes in Advanta Netherlands and Cerexagri
 Ballarpur Industries acquisition of Sabah Forest Industries Ltd, Malaysia,
that operates an integrated paper and pulp mill
 Indian Hotels purchase of the Ritz-Carlton, Boston hotel, USA
 Zydus Cadila acquisition of Japan's Nippon Universal
 ONGC has been making investments in the energy sector abroad.ONGC's
(through ONGC Videsh) acquired 50 stake in Ominex de Columbia.
 Reliance ADAG is acquiring 51per cent stake in UK-based currency
exchange and money transfer firm No 1 Currency to foray into the
international forex business and to tap into the 1.6 million non-resident
Indians (NRI) population.
 HBL Power Systems Ltd is in the process of setting up a joint venture
company in the Kingdom of Saudi Arabia (SA) with Advance Electronics
Company Ltd (a government partner) and Abdullah H. Al Shuwayer & Sons
T&C Company Ltd as local partners. The joint venture, named Gulf
Batteries Company Ltd, will set up a unit to manufacture industrial
batteries in the eastern province of KSA at an estimated cost of $28
million. HBL Power Company will have 40 per cent of joint venture equity.
 Tata Communications has bought the 30 per cent stake in Neotel that was
previously held by Eskom and Transnet. Oil and Natural Gas Corporation
(ONGC) has taken control of Imperial Energy Plc for £1.3 billion ($1.9
billion) after 96.8 per cent of the London-listed firm's shareholders
accepted the takeover offer made by the state-owned explorer's overseas
arm.
 Ranbaxy Fine Chemicals (RFCL) has bought the US-based speciality
chemicals major Mallinckrodt Baker, which is a part of the US$ 10 billion
healthcare giant Conidian, in a deal estimated at US$ 340 million.
 Indian apparel sourcing company Techno Life style has bought German
retailer Wehmeyer for an undisclosed amount. Wehmeyer has a
consolidated turnover of US$ 187.71 million and 43 retail outlets.
 DTH company, Spice TV, has acquired France Telecom's European DTH
operations called WorldTV Europe. An investment of US$ 15 million would
be made to amalgamate the operations of Spize TV and WorldTV. An
overall investment worth US$ 50 million would be made, over the next 2–
3 years, for its European DTH operations.
 Pharma major, Lupin, has bought a majority stake in Pharma Dynamics
(PD), which is the sixth largest generic drug company in South Africa.
Though the amount of the deal was not revealed, sources said the deal
amounted to about US$ 24 million. Earlier, Lupin Limited had acquired
over 30 per cent stake in Generic Health Pty Ltd of Australia, after
acquiring Hormosan Pharma, a Germany-based company and Kyowa
Pharmaceuticals, a Japanese firm, in 2007.
 Zydus Cadila has bought Etna Biotech, which is a subsidiary of the Dutch
biopharma company, Crucell, in its sixth overseas acquisition during the
last five years. The company has not divulged the details of the deal. The
new acquisition will help the company in its efforts at vaccine research and
development.
 Reliance-ADAG is picking up 26 per cent stake with management control in
a full-fledged financial services company in Saudi Arabia.
 Quatrro BPO Solutions has acquired UK-based Babel Media. This is
Quatrro's sixth acquisition and industry experts peg the deal in the range
of US$ 25-30 million.
 Reliance Industries USA has acquired a polyester manufacturing facility in
North Carolina for about US$ 12.2 million from Unifi Kinston. It plans to
invest US$ 215 million in that company.
 The Essar group-owned, Aegis BPO, plans to acquire Philippines-based
BPO, PeopleSupport, for US$ 250 million.
 Ruia-owned, Dunlop India, has bought Schlegel, UK's second largest auto
component manufacturing company.
 Tanti group of companies, jointly with Bahrain-based Arcapita Bank, has
acquired Honiton Energy Holdings, a Chinese wind energy firm. The joint
venture partners will invest US$ 2 billion by 2012.
  Systems integrator, Allied Digital Services, has acquired 80.5 per cent stake
in EnPointe Global Services, a subsidiary of the Nasdaq-listed Enpointe
Technologies, for US$ 24 million.

 Punjab National Bank plans to expand its operation in the UK, besides
eyeing a US$ 5-million profit from the country's operations. The bank
already has three branches in the UK and will open one in Birmingham
next month. Over the next financial year, it plans to open additional
branches in Manchester, Wolver Hampton and London.

 Tata Steel plans to build a plant in Vietnam, and the proposed 4.5-million
tonne, US$ 5 billion steel plant would be built through a joint venture with
Vietnam Steel and Vietnam Cement Industries. The first phase of the
complex is scheduled to be commissioned by the end of 2010.

APPROVED PROPOSALS (In US$ Million) 

No. of
proposal Amount of approved proposals
s
Year
Guarante
  Equity Loan Total
e
2003-04 1214 822.40 229.90 413.83 1466.13
2004-05 1281 2010.03 384.39 409.91 2804.33
2005-06 1395 1887.78 629.74 337.32 2854.84
11244.9
2006-07 1817 1475.28 2339.76 15060.00
6
Apr.-Dec. 11324.9
1595 1331.77 5780.50 18437.26
2007 9
Apr.-Dec.
1268 4594.09 1270.70 2079.75 7944.54
2006
SOURCE: Reserve bank of India report, April 2008

The sectoral pattern of outward FDI is led by manufacturing during

first nine months of fiscal 2007-08 with $ 7634 million followed by non-
 financial services' $ 1677.71 million and $ 620.48 million. Of the total
investments 96 percent were of large investments (4 5 million and above).
Sector wise 43 percent were bin manufacturing followed by non-financial
services (10 percent) and trading (4 percent).

SECTORAL PATTERN OF OUTWARD FDI DURING APRIL-DECEMBER 2007

(In US$ Million)

Total
Month Appro
Sector vals
Apr Aug Sept
May June July Oct. Nov. Dec  
il . .
54. 28.2 46.7 40. 24.1 114. 311. 620.4
Trading - -
22 5 4 57 7 98 55 8
Manufac 149 549. 412 495 219 133 256. 345. 157. 7634.
turing .10 00 2.00 .40 .52 9.11 93 09 78 00
Non
66. 234. 61.2 23. 364 420. 139. 248. 118. 1677.
Financial
79 20 0 63 .91 61 50 07 78 71
Services
52. 396. 883. 172 67. 77.6 455 596. 879. 7681.
Others
47 90 30 .60 20 7 4.26 99 84 09
25.4
Financial - - - - - - 7.00 - 32.46
6
322 120 511 732 651 186 507 152 115 17645
Total
.60 8.00 3.00 .20 .63 1.56 2.67 7.16 6.40 .74
Note
SOURCE : Reserve Bank of India