The Gist of Yojana: February 2015
Why Do Indian Firms Go Abroad ?
In recent years, India and China have not only liberalised
their FDI regimes, but also emerged as investors abroad. Although, the volume of
India’s investments is much lower than that of China, the composition of India’s
FDI, centered on manufactures and services, its heavy presence in the developed
countries, its method of entry into foreign markets based on acquisitions
principally the UK and the US, sets it apart from the other emerging economy
investors.
Size and Pattern of India’s Investments Abroad
The total stock of India’s FDI increased from a meagre $124
million in the year 1990 to $ 111,257 million in 2011 with a share of 3 per cent
in the total Overseas Direct Investment (ODI) stock of the developing countries.
India’s ODI is significantly different from that of China in its
composition-whereas a large proportion of China’s investments is in oil and raw
materials, India’s investments are in manufacturing and services.
Third, more than 50 per cent of India’s ODI is in the developed economies while
more than 75 per cent of China’s ODI is in the developing economies.
By the end of the year 2008, India was the second largest investor in the UK,
next only to the US.
Fourthly, the growth of India’s ODI is mostly through
acquisitions. In the year ending in August 2010, India was second in the list of
the ten most acquisitive nations, with a share of 24 per cent of cross-border
M&A transactions originating from emerging economies.
The latest tests of the OLI theory relate to ODI from India
and China (Pradhan 2011, Buckley et.al, 2007; Kumar, 2007 & Nunnenkamp et.al,
2010). The pioneering studies relating to India are those by Jayaprakash Pradhan
who has (2008,2011, 2004). painstakingly put together a set of data from a
number of sources including the media and unpublished data from government
sources.
