foreign investment by indian companies

7/27/2019 Foreign Investment by Indian Companies

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INSTITUTE OF PROFESSIONAL EDUCATION ANDRESEARCH, BHOPAL

BUSINESS ENVIRONMENT

Foreign Investment by Indian Companies

Submitted To: Submitted By:

Prof. (Dr.) Priya Dwivedi Anurag Thakur

(IPER, Bhopal) Anukriti Chaturvedi

Ishita Sharma(Group1)


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Indian Companies Overseas ExpansionDuring the last decade internationalization of Indian businesses has become one of the most

prominent features of the Indian corporate sector and has accelerated particularly in the last

2-3 years. Indian firms are increasing their global presence by extending their business activity

in foreign countries by the way of acquisition of foreign companies, setting up manufacturing

units abroad, signing joint venture agreements with foreign firms and by buying out coal

mines, oil fields etc.

United Kingdom

As per the report of the Northwest Regional Development Agency (NWDA), at least 50

Indian companies have identified potential business opportunities in the northwest region ofthe UK. Of which, six Indian companies have already set up facilities in the region in the

current financial year and four more are expected to sign up before April. Pharmaceuticals,

auto ancillary, IT and chemical companies are seeing greater opportunities in the region.

At present, around 40 Indian companies are operating in the northwest region. However, this

number is very small considering that there are 2,500 companies of foreign origin in the

region. The northwest region of UK, which includes cities such as Manchester and Liverpool, is

known for its strong manufacturing base, chemical companies. It has already attracted bigIndian business groups such as the Tatas, Sterlite, SBI an ICICI Bank.

However, the new trend is that it is not only big Indian corporate, but also smaller ones are

keen on investing in the region. For instance, Folk, a Kolkatta-based jute bag selling company,

have recently set up its marketing office in Liverpool. The jute bags manufactured by the

women self help groups (SHG) of West Bengal state have found their way to the European

customers who want to do away with plastic carry bags, perceived to be an environmental

menace.

Likewise, a Chennai-based medical transcription company was offered soft-landing options (a

rent-free desk space for a year) by NWDA. The agency facilitated the companys

correspondence with the UKs National Health Services.


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Sri Lanka

A host of Indian companies are planning to develop projects across sectors in the island nation

of Sri Lanka. Some of the companies have already identified land and have received approval

from the Sri Lanka government for their projects.

Larsen & Toubro (L&T) is constructing a commercial complex worth $50 million. Similarly,

Indias largest mobile operator, Bharti Airtel, has already launched its cellular services in Sri

Lanka under the Airtel brand. Likewise, NTPC is building a 1,000 MW thermal power plant

along with Sri Lankas electricity board with an investment of $500 million. Companies like

ICICI Bank, Aditya Birla Group, Tata Group, Indian Oil Corporation and Ashok Leyland among

others, are already present in Sri Lanka.

Some of the m ajor overseas deals announced by the Indian companies are listed below.

Indian Companies Overseas Deals:

Thermax, an energy & environment engineering company, has entered into a 51:49manufacturing joint venture (JV) with US-based $5.9 billion SPX Corporation. The JV

will provide solutions for large power plants (above 300 mw range) to help generate

electricity efficiently and with reduce demission.

L&T is in talks to buy a thermal coal mine in Australia for about $300 million. Thermalcoal is used for generating power. L&T has shown interest in the mine at Queensland in

northeast Australia. The mine has estimated coal reserves of 250 million tonne (MT)

that can generate enough electricity to meet the countrys needs for about seven

months. The acquisition of the thermal coal mine will help L&T in bidding for ultra

mega power projects.

ONGC Videsh Ltd (OVL) and its partners Indian Oil Corp and Oil India Ltd would investaround $5 billion in developing a massive gas field discovery in offshore Iran. OVL, the

lead partner in the three-way joint venture, submitted a master development plan for

the gas discovery in the Farsi offshore block in April. The discovery, which was

subsequently named Farzad-B gas field, has emplace reserves of up to 21.68 trillion

cubic feet (tcf) of which recoverable reserves may be 12.8 tcf.


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Bharti Airtel committed USD 3.35 billion in its joint venture in the Netherlands that is

into the business of transport, storage and communication services.

ONGC Videsh Limited invested USD 813.52 million in its joint venture in Azerbaijanand USD 70.08 million in its wholly-owned unit in Cayman Island.

Suzlon Energy made an investment of USD 674.79 million in its wholly ownedsubsidiary in The Netherlands.

GMR Infrastructure invested USD 306.93 million in its wholly-owned unit in Mauritiusand Amtek Auto made an investment of USD 286.72 million in two separate projects in

Germany and Singapore.

Tractors and Farm Equipment made an investment of USD 89.8 million in two separateentities in China and the US.

Key Statistics Overseas direct investment by Indian corporate stood at US$ 1.88 billion for March

2013, higher from US$ 1.65 billion invested in February 2013, according to a statement

released by the Reserve Bank of India (RBI).

The majority of funds were invested in the form of guarantees. Companies issued

guarantees worth US$ 1.46 billion, while they had equity contribution of US$ 217

million and facilitated loans of US$ 201 million. Major companies that invested in

foreign countries include Escorts Ltd, Videocon Industries Ltd, ILF&S Group and

Glenmark Pharmaceuticals Ltd.

Meanwhile, accounting and consulting firm Grant Thornton India has stated that thetotal merger and acquisitions (M&A) and private equity (PE) deals in the month of April2013 were valued at US$ 2.92 billion (87 deals) as compared to US$ 2.58 billion (97

deals) in the corresponding month of 2012.

Moreover, the total value of outbound deals (Indian companies acquiring businesses

outside India) in April 2013 was US$ 0.49 billion (11 deals) as compared to US$ 0.38

billion (7 deals) during the corresponding month in 2012.


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Recent Developments & Investments Hexaware Technologies, a mid-size information technology (IT) solutions company, has

set up an on-shore delivery centre in Texas, US. The centre, with a capacity of 150

engineers, is the companys third onshore delivery centre in the US (the companyalready operates two centers in New Jersey). It will support clients in all major services

lines offered by the company. Hexaware has started its operations with two anchor

customers in the banking and financial services domain.

Eureka Forbes, the makers of Aquaguard water purifier and Euroclean vacuum cleaner,is all set to acquire Lux International, a Swiss company having business in the line of

home appliances from past 100 years. The Shapoorji Pallonji Group-company has

clinched its first overseas acquisition deal wherein it bought a majority stake in a firm

which developed the world's first household canister vacuum cleaner.

Eureka Forbes expects to become the world's largest home products direct sales

company through this deal.

Jaguar Land Rover has expanded its West Asia test programmed by setting-up a newengineering test centre in Dubai, UAE, to conduct extreme hot weather vehicle research,

development and testing. The new facility in the Al Brash area of Dubai is four times the

size of the previous test centre and would offer a comprehensive range of tests

including durability, calibration and hot weather testing for heat and humidity. It is to

enable the company to enhance its testing of future products and technologies.

State-owned general insurer New India Assurance is all set to make the best of itsinternational presence. The company that currently operates in 22 countries is planning

to enter Qatar, Myanmar and Canada in 2013-14, said G. Srinivasan, Chairman-cum-

Managing Director. The company has huge set-up in countries like London, Australia

and Japan and has ventures in Kenya, Singapore and other African countries.

New India Assurance recorded Rs 2, 500 crore (US$ 443.86 million) as its premium

income from overseas operations in 2012-13.


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Governm ent InitiativesIndian Government is making all efforts to integrate Indian economy with rest of the world in

the every possible way. India showed a consistent performance even in the toughest of the

times and hence is looked upon as a strategic international player and an important source offunds for other economies.

Recently, the Ministry of External Affairs has initiated a move to establish a direct sea and air

link between India and the Latin American region, as Indian corporate plans significant

investments in the oil, mining, IT and pharmaceutical sectors there. The initiative has been

discussed with the Ministries of Shipping and Civil Aviation as well. One of the officials has

revealed that Air India will be starting a direct twice-a-week service between India and

Panama by 2014. This will open up entire Latin American region for Indians.

India aims to double the trade between India and the region from the current level of US$ 30

billion by 2018.

Meanwhile, Mauritius has invited a lot of Indian companies for setting up businesses in the

island nation as well as in other African countries. Mauritius, which is home to a host of Indian

firms and a vast Indian-origin population, positions itself as a 'tax-free gateway to Africa'. The

country is promising many benefits to Indian companies for channelizing their investments to

various African nations through it.

The major sectors for which African countries are looking for Indian investment include

agriculture, consumer durables, infrastructure, energy, transport, mining, finance and telecom.

Road AheadThe Government, RBI, and Indian Corporate entities are constantly reviewing the policies and

regulations including Home Country Measures (HCMs) to boost globalization efforts through

outward FDI without having any adverse effects on our domestic economy and its macro-

economic stability.

India is expected to be the largest source of emerging market multination enterprises (MNEs)

by 2024, according to a recent report by PricewaterhouseCoopers (PwC). By that time, India

would be having 20 per cent more MNEs than China, and more than 2, 200 Indian firms are


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anticipated to invest overseas in the next fifteen years. In a nutshell, Indian MNEs are poised to

carve a niche in business services and high-profile manufacturing sectors.

The current financial year is experiencing substantial sluggishness when it comes to Indian

investments in most preferred destinations including Mauritius, Singapore and the United ArabEmirates, latest data showed.

The Indian investment in the island nation off the southeast coast of the African continent from

April to December 5, 2011 has only been $1814.1 million as against $5045.8 million in 2010-

11. The investment to the country from India, which has been at the top of the 2009-10 list of

the destinations to which Indian investment is flowing, was $3798.5 million.

Similarly, investments from India to Singapore in the current financial year till December 5

stood at $1568.6 million as against $3982.5 million in 2010-11. The country was at the top ofthe list in 2009-10 with $3798.5 million investment.

Kumkum Sen., partner, Bharucha & Partners Delhi Office, cites a reason for the change in the

dynamics: the current global economic scenario. That has made those interested in making

overseas investments become conservative, she notes. People are not taking risks. They are

adopting a wait-and-watch policy. This situation is unlikely to improve till the end of the

current financial year, she adds.

Raising resources for overseas investments is also being seen by the experts as a critical factor.

The Indian investment in Netherlands during April-December 5, 2011-12, has been $617

million, as compared to $1516.6 million in 2010-11 and $1529.9 million in 2009-10.

The investments in the the USA during April-December 5, 2011-12, stood at $614.37 million,

as against $1207 million in 2010-11 and $870.4 million in 2009-10. The pertinent figure for

the United Arab Emirates was $260 million, as compared to $849.3 million in 2010-11 and

$637.5 million in 2009-10. The investments to Cayman Island during April-December 5 have

been $141.08 million, as against $439.31 million in 2010-11.

A senior finance ministry official says no particular reason can be attributed for the slowness in

the Indian investments to these destinations. It seems that no big deals are happening this year.

We have witnessed significant interest from Indian companies abroad in the last few years, he

says. The scenario seems to be changing as growthoptions have been receding abroad too.


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Bucking the trend, however, investments to the United Kingdom and British Virgin Island have

been better this year. Indian investment in the UK till December 5 this year stood at $901.59

million, as compared to $402.45 million in 2010-11 and $344.95 million in 2009-10. As for

British Virgin Island, the figure stood at $442.80 million vis-a-vis $281.08 million in 2010-11.

The Reserve Bank of India has, since 2008, taken many steps to promote investment from India

to other countries apart from liberalization of the provisions associated with performance

guarantee, issuance of corporate guarantee and restructuring of balance sheet of the overseas

entities.

foreign investment by indian companies

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