An increasing number of Indian companies are now reaching out for overseas destinations in order to access high growth markets, technology and knowledge, boost their positioning in the value chain, attain economies of size and scale of operations, to tap global natural resource banks and leverage international brand names for their own brand building.

According to the latest UNCTAD's World Investment Report 2007 (WIR '07), India's outward foreign direct investment (FDI) was the second highest at US$ 20.4 billion after Brazil at US$ 28 billion. Significantly, while China's outward FDI rose by 32 per cent, to US$ 16 billion in 2006, India's outward FDI went up by almost four times.

According to a Reserve Bank of India's (RBI) report published in July 2008, India's total outbound investments in joint ventures and wholly owned subsidiaries (WOS) abroad grew by 53.2 per cent in financial year 2008, at US$ 23.07 billion, as against US$ 15.06 billion in the previous fiscal. The overall number of proposals during financial year 2008 has totalled to 2,261, with a growth of 24.4 per cent over the 1,817 proposals registered, and 53.2 per cent in amount of investment over the previous year.

FDI Outflows

Further, according to the RBI report, actual outward FDI during 2007-08 totalled US$ 17.43 million, a rise of 29.6 per cent over US$ 13.45 million, in the previous year. Of the total investments, 81.6 per cent were in the form of equity and the remaining 18.4 per cent in the form of loans. Almost 35 per cent of the proposals for outward FDI were directed towards Singapore, around 23 per cent to Netherlands, followed by British Virgin Islands with seven per cent. Equity accounted for 61.2 per cent of the proposals for investment, loans for 11.4 per cent, and guarantees for 27.4 per cent. During 2007-08, automatic route covered 99.6 per cent of the proposals, involving 96.4 per cent of the amount of investments. The remaining was through approval route. Inflows from India's outward FDI amounted to US$ 916 million in FY 2008, registering a 76.7 per cent growth over the previous year's figure of US$ 518 million.

Actual outward FDI during the quarter January-March, 2008 stood at US$ 7.32 million, which was higher by 63.4 per cent than the figure during previous year. Of the total investments, 70 per cent were in the form of equity and the remaining 30 per cent were loans. For the quarter ended March, 2008, Singapore, Mauritius, Cyprus and UAE together received 50 per cent of the outward proposals worth US$ 5 million or above, RBI said. During the year, almost 43 per cent of the proposals came from manufacturing, followed by non-financial services with 11 per cent, and trading with four per cent.

Mergers and Acquisitions

A significant part of Indian overseas investment has gone into acquisitions abroad.

According to global audit and consultancy giant, KPMG, "With outbound deals now having outnumbered inbound deals for the each of the last three six-month periods, India seems well set to become a net 'deal exporter' in the next Emerging Markets International Acquisition Tracker (EMIAT) in 2009."

As per KPMG's EMIAT study, in an analysis of deals between developing and developed economies since 2003, it was revealed that there were 322 completed deals wherein Indian buyers had bought companies in the major developed economies. Against this, there were 340 concluded deals in which companies from developed countries acquired Indian companies.