FDI OUTFLOW DOUBLES TO $18 B DURING APR-DEC

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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 country’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 through guarantees.

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 bank’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 countries’ 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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