The Hindu Business Line : Going global

Data on outward foreign direct investments illuminate just how effective monetary and fiscal policies have become in fostering the Indian transnational. Early this year the Unctad World Investment Report for 2007 highlighted the growth of outward FDI from such emerging economies as Russia, China, India and Brazil. The story the Reserve Bank of India data reveal is impressive, to say the least, with outward FDI rising from $1.5 billion in 2003-04 to $12.9 billion in 2006-07. In 2007 between April and December, Indian companies invested $10 billion in acquisitions abroad, with nearly 90 per cent in equity and the balance in loans. Significantly, there was a 25 per cent increase in the number of approvals for acquisitions and joint ventures in this period. Independent sources reveal just how important the year gone by was in the evolution of the multinational Indian. In all, there were 223 deals totalling $33 billion. Tata Steel bought out UK’s Corus, three times its size, and Hindalco acquired Novelis of Atlanta, one-and-a-half times its size, while UB and Tata Motors bought up iconic brands such as Whyte and Mackay and Jaguar Land Rover respectively.

Policymakers now confronting inflation and sliding business confidence can take heart from the astounding results of sensible policies that open the economy to global challenges. Among others, it is the easing of foreign exchange controls that has enabled Indian companies to seek asset-building opportunities abroad, an exercise that was restricted to IT companies in 2003 and which has now spread across the spectrum, from pharma to oil and automobiles to hotels. What is heartening is the results have started kicking in. Apart from the intangible benefits of improved competitiveness and efficiency, technology and best practices, FDI abroad is also generating inflows through repatriated profits. Over 2006-07, inflows in the form of dividend, royalty, licence fees and technical know-how fees amounted to $295 million; between April and December of the following year alone, inflows were $337 million. Most Indian companies are thinking big; 96 per cent of the approvals were for large investments and nearly half were in manufacturing. So far, the services sector accounts for only 10 per cent of outward investments with financial services almost insignificant. But it may just be a star waiting to be born.

Early this month, the RBI upped the cap on outward investments by SEBI-registered mutual funds in exchange traded funds (ETFs) to $7 billion from $5 billion. With world equity markets falling and good stocks getting cheaper, is it time for the global Indian mutual fund?

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