Indian investments abroad decline 15% in FY09 on lower world GDP

Hiccup comes after three years of 100 per cent annual growth.

After witnessing treble-digit annual growth for four years, the rise in Indian direct investments abroad contracted in 2008-2009.

Outward Foreign Direct Investment (FDI) in joint ventures and wholly-owned subsidiaries by Indian businesses declined by 14.9 per cent, to $15.94 billion in 2008-09, from an investment of $18.74 billion made in 2007-08, according to Reserve Bank of India data.

The decline was mainly due to global financial crisis and resultant slowdown in world GDP growth, it added.
 

INDIA'S ACTUAL OVERSEAS FDI
(in $ mn)	2007-08	2008-09
Equity	15,527.2	13,103.5
Loans	3,221.8	2,844.3
Total	18,749.0	15,947.8
Source: RBI data

The annual average growth in India’s FDI outflows from 2004-05 to 2007-08 was 100.9 per cent, much higher than the growth in global FDI outflows.

This high level of outbound FDI was an outcome of various liberalisation measures in line with progressive policies to support India’s overseas investment over these years, RBI said.

Bankers said the outflow involved a blend of investments in new projects, expansion of existing units, as well as buying assets and companies across the sector. The prominent acquisitions made during this period were of UK-based steel company Corus, and of Jaguar and Land Rover, by both by the Tata group.

The share of such direct investment in the manufacturing sector rose to 43 per cent in 2008-09 from 29 per cent in the previous year. The share trading activity also improved to six per cent from four per cent a year earlier.

On the outlook for investments broad, a senior State Bank of India official said Europe and the US are in recession and are unlikely to see any improvement (in investment climate) over the next 12 months. Some investment on a small scale may happen in high technology.

The actual outward FDI in joint ventures and subsidiaries in January-March 2009 stood at $4.6 billion, showing a decline of 14.0 per cent over the $5.4 billion during January-March 2008.

Equity was the dominant mode of financing of the investments. Singapore, the Netherlands, Mauritius and the US remained the leading recipients of India’s outward FDI in 2008-09, RBI said.

In contrast to the dip in outbound FDI, the flow of direct investments into India rose in 2008-09. However, the pace of growth slowed, due to adverse global conditions and moderation in economic activity.

Foreign companies made investments worth $35.14 billion in FY09 as against $34.36 billion a year before. The level of inward direct investment has grown multi-fold over the past four years. IT investments grew almost 2.5 times in 2006-07 to $22.82 billion from $8.96 billion in 2005-06.