India’s outward foreign direct investment (OFDI) has increased in recent years especially since the policy was liberalised in 2005-06 (Goel 2017). According to the Reserve Bank of India (RBI), overseas financial commitment in September 2017 was US$ 2.65 billion as compared to US$ 4.37 billion in September 2016 and US$ 1.34 billion in August 2016.[1]

India’s OFDI is guided by policies, guidelines and activities of more than one agencies and government departments: the RBI notifies guidelines for outward investment by Indian companies, which are updated from time to time.[2] The Export-Import (Exim) Bank of India has a range of schemes to encourage Indian companies to invest, set up manufacturing units and acquire overseas companies abroad[3]. The Investment Division of Department of Economic Affairs, Ministry of Finance negotiates bilateral investment promotion and protection agreements to ensure “a congenial atmosphere for overseas Indian investments and facilitation of repatriation of profits back home”[4]. The Ministry of Commerce negotiates a host of trade agreements and investment is often a part of these agreements.[5]

A literature review reveals gaps in existing policies promoting outward investment have undesirable effects (e.g. investment flows to regions which are tax-easing (EXIM Bank of India, 2014)) and a host of economic and institutional reforms should be carried out by India to ease challenges faced by Indian companies investing abroad (Das & Banik, 2015). The existing literature has examined the determinants of Indian OFDI at length e.g. Nunnenkamp et all (2012) found market-related factors appeared to have dominated the location choices of Indian direct investors – they are not affected by motives to access raw materials or superior technologies. An important issue while examining OFDI is whether it is sustainable: Deol (2017) concluded there is a need to ensure that overseas investment by Indian companies does not dampen domestic investments. Chowdhury (2014) concluded improvement in domestic technological capabilities; rising standard of living and increased interest rates in India are deterrents to the OFDI of the country in the long run. Regarding possible impact of Indian OFDI on host countries especially developing economies, Pradhan (2013) argued since Indian companies invest in primary sector, labour-intensive industries and knowledge-based sectors in developing countries, their presence may have played a catalytic role in the development of technology-intensive industries of host countries – though it is not clear wheher Indian companies have invested in research and development, been helping to transfer technologies or contributing to exports of these countries in any significant manner.

Further analysis of OFDI data may reveal more: e.g. the direction of India’s OFDI including their destinations and sectoral break ups, the impact of India’s OFDI on communities, livelihoods, local economies, poverty situation and, economic growth and development of host countries etc.

Endnotes:

[1] https://rbi.org.in/scripts/Data_Overseas_Investment.aspx

[2] https://rbi.org.in/Scripts/FAQView.aspx?Id=32

[3] https://eximmitra.in/en/exim-banks-products/overseas-investment-finance

[4] http://dea.gov.in/divisionbranch/investment-division

[5] http://www.commerce.nic.in/trade/international_trade.asp?id=1&trade=i

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Research, writing and photo: Sanchita Chatterjee