Report Presentation of GOM

8/4/2019 Report Presentation of GOM

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Report PresentationOutflow Of FDI from India inother Countries


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Introduction Foreign direct investment (FDI) or foreign investment refers to the

net inflows of investment to acquire a lasting management interest(10 percent or more of voting stock) in an enterprise operating in an

economy other than that of the investor.

It is the sum of equity capital, reinvestment of earnings, other long-term capital, and short-term capital as shown in the balance ofpayments.

It usually involves participation in management, joint-venture,

transfer of technology and expertise


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Major Sectors for FDI Outflow IT Sector

Pharmaceuticals Industry

Emerging Services and Product

Metal

Industrial Goods

Automotive Components

Beverages

Cosmetics Industry

Energy Sector

Mobile Communications

Software Industry

Financial Services


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Major factors for outflow

Access to the Global Markets

Huge Cash Reserves Natural Resources

Distribution Networks of Foreign Companies

Foreign Technologies

StrategicAssets like Brand Names


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Other Factors

Strong Financial System

Good Credit Rating

Stronger Balance Sheets

Confidence shown byGlobal Business

Communication

Competitive Business Environment

Larger Fund Supply Favorable RegulatoryEnvironment

Higher Margins, profits and revenues


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Some Big ticket Deals

Tata Motors & J-LR

Tata Steel & Corus Hindalco Industries & Novelis

Tata Tea & Energy Brand of US

Suzlon Energy & RE Power of Germany

Subex Azure & Syndesis of Canada Ranbaxy & Merck ( Deal did not strike )


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Drivers for FDI abroad

The increasing number of home-grown Indian

firms. Indian firms are investing abroad to accessforeign markets, production facilities andinternational brand names.

Access to technology and knowledge has beena strategic consideration forIndian firms.

Securing natural resources is becoming animportant driver forIndian outward FDI.


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Drivers for FDI abroad

Favorable Economic Conditions

Large foreign exchange reserveLiberal policies

India Corporate Advantage

Understanding of global environment:Consolidated domestic presence:

Large free cash reserves


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Pros and ConsPros

Diversification of investments

Hedge against currency movements of the local

currency vis-a-vis other currencies Tax advantages

Cons

Exchange rate fluctuation risk especially in the short run

Higher transaction costs


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Pros and Cons Exit risk like exchange control restrictions (repatriation of

capital and income), lack of liquidity, low market depth,settlement delays

Handling and complying with the special regulatory andtax norms

Communication gaps

Need to keeping abreast with international and company

specific developments Minimum portfolio size


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Determinants of Indian FDI in Developing

Countries Historical perspective

Drivers of outward FDI quite different for the pre-1990 period compared to post-1990 period

Pre-1990

Size of investment was small Policy-led barriers (MRTP, FERA) and slow

economic growth main reasons Low firm-level specific capabilities & modest

intangible advantages reasons for foray intodeveloping nations


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Determinants of Indian FDI in Developing

Countries Historical perspective

Lack of SME participation due to inward looking

development policies Strong FDI bias towards developing countries

Cordial attitude of host countries helped matters

Post-1990Natural resource based companies forayed

Liberalization lifted ceilings


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Reasons for FDI

GrowthLarge- Scale Overseas Expansion

Change RBIs Guidelines

Business operations

Secure Strategic resource for enhancing their learningcapabilities

Increased Competition

MarketAccess for exports


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Reasons For FDI decline: Since 2008

Gl l estic Sl

Cre it Cru ch

epreci ti f the I i rupee g i stUS ll r i 2008


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Favorable policy changes

Hiked the overseas investment limit from 200 per cent ofthe net worth to 300 per cent of the net worth;

Hiked the limit on overseas portfolio investment from 25

per cent of their net worth to 35 per cent of their networth;

Allowed Indian residents to remit up to US$ 1,00,000 perfinancial year, from US$ 50,000 previously, for anycurrent or capital account transaction or a combination of

both. Allowed mutual funds to invest funds to the tune of US$

4 billion in overseas avenues, from an earlier cap of US$3 billion


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Prospects Revival of global and domestic growth

Improvements in Corporate Profitability

Ease of Financing

Cash-rich Indian firms, including SMEs

Cheap valuations of Foreign Assets


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Sagar ShuklaPG/SS/10-12

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Report Presentation of GOM

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