BENGALURU: India’s outward foreign direct investment (OFDI) rose 32 percent in December 2016 to $2,488.14 million from 1,887.21 million in the same period in the previous year. This can have some implications for the economy; experts say Indian investments abroad are not picking up at the rate it should and that it is far behind China.
Even though India’s outward investments shot up, the country does not figure in the top 20 economies with FDI outflows in the United Nations Conference on Trade and Development’s World Investment Report 2016. The top five countries, according to the report, are the US, Japan, China, the Netherlands and Ireland.
Direct investments abroad mean investments either under the automatic route or the approval route, by way of contribution to the capital or subscription to the memorandum of a foreign entity.
According to the Centre for WTO Studies at the Indian Institute of Foreign Trade, the OFDI from India has surged in the recent past but has been dominated by equities and loans.
“This is possibly the highest that you see up till now with $16.4 billion FDI outflows in the past two quarters. We need to wait for another 2-3 quarters to see whether this kind of trend continues. They might also be deals, which got accumulated and executed at the same time. FDI outflows are always there when the big MNCs buy potential targets outside but we need to see whether this trend will be sustained since we also have a good amount of FDI inflows,” said Rishi Shah, Economist, Deloitte India.
According to Girish Vanvari, head of tax at KPMG, India, overseas investments are good since Indian companies can have a global footprint. However, Indian firms have been under so much stress that overseas acquisitions have slowed down.
Experts say the outflow of investment might lead to a slow amount of appreciation in the Indian rupee but if it happens over a longer period of time, the effect on the currency will be muted.
“We don’t want the rupee to appreciate too much but to move within the fundamentals of the Indian economy. We import much more than we export; so, our overall bias will be towards depreciation,” Shah added. According to WTO report, acquisition of strategic resources, expansion of markets, leveraging new technologies for local markets would facilitate long-term growth in India.