Emerging Issues in India- Foreign Direct Investment- An overview on Overseas Investment| | Liberalisation in overseas investment policy, in order to improve exports and strengthen economic linkages with foreign countries, has intensified India’s participation on the international arena.

Overseas InvestmentsAs per the recent RBI data, Indian companies carried out overseas investment transactions that resulted in outward FDI. Some  like SanmarGroup International committed US$ 67. 65 million to its Switzerland-based wholly-owned subsidiary (WoS) Sanmar Group AG. The WoS is engaged in financial, insurance, real estate and business services.Tata Steel infused US$ 54. 63 million in its Singapore-based WoS, Tata Steel Asia Holdings Pte.

,  Crompton Greaves invested US$ 43. 19 million in its WoS based in Mauritius. GlenmarkPharmaceuticals committed US$ 55. 47 million in its Switzerland-based manufacturing WoS, Glenmark Holdings SAApart from these players, there are many other Indian firms who are ready to venture abroad for growth and development. Other major overseas acquisitions in recent years by Tata Steel, Hindalco, Bharti Airtel, etc have also been a part of their inorganic growth strategies.Investments Abroad – Government InitiativesThe overseas investment policy has been streamlined substantially- both in terms of scope and size, and more so, after the introduction of Foreign Exchange Management Act (FEMA) in June 2000. The US, the UK, Singapore, Mauritius, the Netherlands and British Virgin Islands are the main target countries that aide outward FDI from India, with Africa becoming an increasingly viable destination. Further, the government is considering setting up a high-level panel that will approve overseas asset acquisition by state owned companies without going to the cabinet.

The Indian central bank has decided to further liberalise the overseas investment policy with a view to facilitate more operational flexibility to the corporate. Trend of outward investments during the past one decade:A trend analysis shows that the level of outward FDI from India has increased manifold since 1999-2000. The level of net outward FDI flows (on BoP basis), however, recorded a sharp uptrend at US$ 74. 3 billion during the second half of 2000s (2005-06 to 2009-10) as compared to US$ 8.

2 billion in the first half of 2000s (2000-01 to 2004-05).Even though trend in India’s outward FDI was moderately affected during crisis year of 2009-10, a sharp rebound was seen in 2010-11. Table 1: Year–wise position of actual outflows in respect of outward FDI  & guarantees issued| (in million US Dollar)| Period| Equity| Loan| Guarantee Invoked| Total| Guarantee Issued| 2000-2001| 602. 12| 70. 58| 4. 97| 677. 67| 112. 55| 2001-2002| 878.

83| 120. 82| 0. 42| 1000.

07| 155. 86| 2002-2003| 1746. 28| 102. 10| 0.

00| 1848. 38| 139. 63| 2003-2004| 1250. 01| 316. 57| 0.

00| 1566. 58| 440. 53| 2004-2005| 1481. 97| 513. 19| 0.

0| 1995. 16| 315. 96| 2005-2006| 6657. 82| 1195. 33| 3. 34| 7856.

49| 546. 78| 2006-2007| 12062. 92| 1246.

98| 0. 00| 13309. 90| 2260. 96| 2007-2008| 15431. 51| 3074. 97| 0.

00| 18506. 48| 6553. 47| 2008-2009| 12477. 14| 6101.

56| 0. 00| 18578. 70| 3322. 45| 2009-2010| 9392. 98| 4296. 91| 24. 18| 13714. 07| 7603.

04| 2010-2011| 9234. 58| 7556. 30| 52. 49| 16843. 37| 27059. 02| 2011-12*| 4031. 45| 4830.

01| 0. 00| 8861. 46| 14993. 80| Total| 75247. 61| 29425. 32| 85.

40| 104758. 30| 63504. 05| * April 2011 to February 22, 2012| Source: rbi. org. in Proposals:In recent years, outward FDI continued to be mainly financed through equity and loans. Although guarantees issued have been rising, their invocation has been negligible during 2009-10 and 2010-11. It has been observed that the number of outward FDI proposals under the Automatic Route during 2000s has also been on the rise indicating the growing appetite of the Indian corporates to establish their foot prints abroad and the liberal regulatory regime.

Table 2: Number of proposals under Approval and Automatic Route| Period| Approval Route| Automatic Route| Total| 008-09| 6| 974| 980| 2009-10| 4| 690| 694| 2010-11| 19| 1187| 1206| 2011-12*| 10| 1123| 1133| * April 2011 to February 22, 2012| Source: rbi. org. inRoad AheadInternational business has been playing pivotal roles for centuries. It has become an integral part of the present day world.

It has to depend upon the other countries to import goods which are not produced domestically or the goods which are produced inadequately for domestic consumption. Similary, some times, a country tries to export all those items that are produced over and above local requirement.There is a growing realisation that the future growth of Indian companies will be substantially driven by the share they have in the global market. Indian companies are acquiring overseas assets to establish their presence in foreign markets and to upgrade their competitive strength.

Reference:rbi. org. inUNCTAD (2009), World Investment Prospects Survey 2009-2011, United Nations Conference on Trade and Development, New York and Geneva. PricewaterhouseCoopers (2010), “Emerging Multinationals: The rise of new multinational companies from emerging economies”.

Charles Hill, International Business. |