The India story in the global market is for real. Despite the
turbulence in the global financial markets, India Inc has been on a
prowl. Approvals for overseas acquisitions and joint ventures have more
than doubled in value terms. According to a recent study by the Reserve
Bank of India (RBI), the countryâ€™s outward foreign direct investment
approvals through equity and loans during April-December 2007 touched
$18 billion, more than double the amount approved in the same period a
year ago which amounted to $7.9 billion. While a majority of the
proposals are funded through equity, a sizeable amount is also funded
During April-December 2007, 1,595 proposals were approved for investment in joint ventures (JV) and wholly-owned subsidiaries (WOS), 25.8% higher than approvals during the corresponding period of the previous year. In value terms, proposals worth $18.43 billion were approved during April-December 2007, higher by 132% than a year ago. Equity, loans and guarantees accounted for 61.4%, 7.2% and 31.4% of the total proposals approved, respectively.
Actual outward FDI during April-December 2007, however, amounted to $10.11 billion, 13% higher than the corresponding period during the previous year. Of the total investment, 89.9% was in the form of equity, and loans accounted for the remaining 10.1%. Returns from outward FDI are in the form of dividend, royalty, licence fee, brand fee, technical knowhow fee, and repayment of loan etc. Dur ing 2006-07, total returns amounted to $295 million. During April-December 2007-08, the returns amounted to $337 million, higher by 14.5% than returns during the corresponding period a year ago ($294 million). Direction of investment indicates that during April-December 2007, 37% of the approvals were towards Singapore, followed by the Netherlands (26%) and British Virgin Islands (8%).
The key drivers influencing the investment decision by transnational corporations in emerging economies are home country push factors and host country pull factors, according to the central bankâ€™s analysis. Factors like overdependence on the home market, rising costs of production in the home economy, especially labour costs, and competitive pressures from low-cost producers push developing countriesâ€™ firms to expand overseas. Investment in infrastructure, strong currencies, established property rights and minimal exchange-rate regulations are important pull factors.
Over the years, the number of proposals approved for outward FDI from the country in JVs and WOSs increased from 1,214 in 2003-04 to 1,817 in 2006-07. The amount of approved proposals increased from $1,466 million in 2003-04 to $15,060 million in 2006-07.
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