Nov 22, 2006,
New Delhi, Nov 22 (IANS) The US, which tops the list of countries in terms of foreign direct investment (FDI) into India, is also the recipient of the largest investment outflows from here, states a new study.
Between 1996 and 2005, the US attracted the highest share of Indian direct investments approvals ($2.16 billion), followed by Russia ($1.76 billion), Mauritius ($1.04 billion) and Sudan ($964 million), says a joint study by the Federation of Indian Chambers of Commerce and Industry (FICCI) and global consultancy firm Ernst & Young.
The report attributes the large outflow of investment to the impact of economic reforms as well as the opening up of overseas investment avenues to aid export promotion efforts and provide domestic companies access to new markets and technologies to boost their global competitiveness.
'The impact of these reforms on bilateral investments between India and the US has been far-reaching,' states the report.
Investments from the US, the largest investing country in India in terms of FDI approvals, actual inflows and portfolio investments encompass almost every sector in India open for private participation.
India's investments in the US are also picking up. Between April 2005 and January 2006, the Reserve Bank of India (RBI) approved the highest FDI outflow of $225.15 million into the US.
'However, the actual outflow may be higher as several investments may have fallen under the automatic (approval) route,' says the report.
Reasons for venturing overseas have varied across industries, with the desire to acquire assets rather than set up own facilities being the leading factor.
In the case of the software/BPO sector, the keenness to move closer to the customers has been a key motivator.
Based on publicly available data, the report highlights the fact that for the most part Indian companies go in for cash deals, with very few stock transactions. As per the analysis of the last two years (2004-06), Indian companies have invested in around 60 US-based companies.
Telecom major Videsh Sanchar Nigam Ltd's acquisition of Teleglobe International Holdings for $254 million in July 2005 marked the largest investment made in the US by any Indian company.
While software firms and BPOs have accounted for the largest number of deals in the last two years, the deal sizes have been generally small in value terms barring three cases that crossed $50 million mark.
Scandent's acquisition of 75 percent stake in Cambridge Services Holding in an $120 million deal, Patni Computer System's $68 million deal for acquiring US-based Cymbal and WNS's acquisition of Arizona-based Trinity Partners for $63 million were the three mega IT overseas investment.
The pharma sector too has witnessed a rise in outbound investment as Indian firms aim to increase their global presence and penetrate new markets through local operations to satisfy regulatory requirements.
'The foreign purchase aids in expanding the product range of the company and acquired infrastructure helps entry into new markets,' states the report.
In the case of sectors like telecom, textile and financial services, the primary motive has been the desire to acquire international assets, consolidate market and anticipation of stronger growth in the overseas market compared to the domestic market.
The industry report, which has been limited to equity investments in joint ventures and wholly owned subsidiaries, hopes that the trend of outbound investments and acquisitions will continue to surge as Indian companies pitch for larger assets overseas.
© 2006 Indo-Asian News Service