|A recent RBI report put outbound investment by Indian companies for the financial year in 2010-11 at a whopping $43 bn. Would this indicate that Corporate India has finally come of age?
A recent RBI report put outbound investment by Indian companies for the financial year in 2010-11 at a whopping $43 bn. While a major chunk of this financial outflow was in the form of guarantees to offshore investment companies amounting to $27.2 billion, $9.3 billion was in the form of equity and $7.3 billion in loans, revealed by the RBI.
Interestingly FDI into India fell from $18.8 billion in 2009-10 to $7.1 billion in 2010-11, an alarming 62 per cent decline. Direct investment by Indian corporates abroad, however saw a 144 per cent hike from $18 billion to $43.92 billion. As such, Indian companies sent out over six times more money than they received as FDI.
While the United States continues to top the list of favoured destinations for outward investment, the United Kingdom, Singapore, Mauritius, the Netherlands and British Virgin Islands are other popular destinations. More recently though Africa and other developing nations are increasing in interest.
So What exactly caused Indian companies to go global?
Some economists believe this trend to be a direct outcome of the policy changes set in motion over a decade ago- the liberalization of the Indian economy allowed foreign companies to invest in India. While skeptics believed this would destroy indigenous businesses, the slow pace of reforms allowed Indian businesses to face up to global competition. In time they were able to adapt better technologies, meet global standards, and even tackle the complexities of outward cross border transactions.
The increase in outward investments would therefore seem to indicate that Indian businesses have finally come of age. Instead of being adversely affected by the superior technologies afforded by multi-national giants, Indian corporates have taken on the challenge and are today making an impact on the global business scenario.
Even so there are those who would attribute this outward trend to the dismal scenario within India. With proposed reforms being continually debated and deferred and wide spread corruption surfacing, the governments liberalization policy seems to have lost steam; causing dismayed Indian corporates to look for expansion avenues outside the country.
Yet the steady growth rate, maintained by the Indian economy seems to suggest otherwise. That Indian corporates far from being disillusioned are actually exceeding their growth targets and directing their excess funds towards expansion outside the country. The reasons for outward expansion again are varied, ranging from- easy availability of loans, the need to target foreign markets, accessing natural resources or superior technologies, minimizing geographic risks, or simply an intrinsic understanding that the key to sustained growth would be the ability to acquire and integrate overseas businesses and assets..
Indian companies may have proved that they are on par with their international counterparts. The challenge for outbound Indian corporates however lies in whether or not they will be able to create and maintain a healthy business culture with the host countries, in time proving to be a profitable venture for both.