[Dec 2007, Volume 4 Quarterly Issue] Pdf File size - The IIPM Think ...
[Dec 2007, Volume 4 Quarterly Issue] Pdf File size - The IIPM Think ...
[Dec 2007, Volume 4 Quarterly Issue] Pdf File size - The IIPM Think ...
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REIMAGINING INDIA<br />
2006. Besides, India has also entered<br />
into Bilateral Investment Promotion<br />
and Protection Agreements (BIPAs)<br />
with a number of countries to promote<br />
and protect foreign investment on a reciprocal<br />
basis. All these policy changes<br />
have resulted in an environment conducive<br />
to a rapid expansion of outward<br />
FDI flows from the country.<br />
3. Overseas Investment: Geographical<br />
And Sectoral Patterns<br />
India’s outward FDI has steadily increased<br />
since 1996, both in terms of<br />
number of approvals and value. Indian<br />
investment abroad has gone up from $<br />
557 million (290 approvals) in the financial<br />
year 1996-97 to $2855 million (1395<br />
approvals) in the financial year 2005-06,<br />
representing an increase of 513 percent<br />
in terms of value of investments and 380<br />
percent in terms of the number of approvals<br />
given. In the financial year<br />
2006-07 (for the period April-October<br />
2006), actual FDI outflows stood at $<br />
3320 million as compared to $ 2109 million<br />
in the corresponding period of<br />
2005-06. 9 Before we move on to a discussion<br />
of geographical and sectoral<br />
patterns of FDI outflows from India, we<br />
must pay attention to some of the limitations<br />
of the statistics on FDI outflows:<br />
these statistics relate only to approvals<br />
rather than actual FDI outflows; the<br />
FDI outflow statistics do not include investment<br />
financed by borrowing in international<br />
financial markets through<br />
special purpose vehicles (SPVs); moreover,<br />
the data on sectoral distribution of<br />
outward FDI are not disaggregated<br />
enough 10 . Nonetheless, even the currently<br />
available statistics on outward<br />
FDI from India provide valuable<br />
insights.<br />
3.1 Geographical Patterns<br />
Until mid-1980s, much of the outward<br />
Indian investment abroad has gone up from $557 million<br />
(290 approvals) in the financial year 1996-97 to $2855<br />
million (1395 approvals) in 2005-06, representing an<br />
increase of 513% in terms of value of investments and<br />
380% in terms of the no. of approvals given<br />
FDI from India was concentrated primarily<br />
in a few developing regions of<br />
Africa (Kenya and Nigeria), Southeast<br />
Asia (Malaysia, Indonesia, and Singapore)<br />
and South Asia (Sri Lanka and<br />
Nepal) 11 . In fact, in the 1980s, India had<br />
emerged as the third largest foreign direct<br />
investor among the developing<br />
countries after Hong Kong and Singapore.<br />
12 <strong>The</strong> geographical pattern of Indian<br />
outward FDI underwent noticeable<br />
changes since early 1990s, when the<br />
outward FDI flows from India (in some<br />
of the sectors, such as software and<br />
pharmaceuticals) started shifting towards<br />
the developed regions, mainly<br />
North America and European Union.<br />
Over the period from April 1996 to<br />
October 2006, the largest recipient of<br />
India’s FDI was Russia with total Indian<br />
outward FDI of $ 2831 million, which<br />
was followed by USA at $ 2768 million,<br />
Mauritius at $ 2151 million, and UK at<br />
$ 2150 million (see Table 1). More recently,<br />
in 2006-07 (during the period<br />
April-October 2006), the top three destinations<br />
of India’s outward FDI were<br />
UK, Netherlands and Mauritius. In<br />
2006-07, India became the second-biggest<br />
source of outward FDI flows to UK.<br />
While most of the investments in USA<br />
and UK have been in IT services and<br />
pharmaceuticals, those in the Russian<br />
Federation and Sudan have been mainly<br />
in oil exploration. 13 A sizable chunk<br />
of Indian outward FDI has been going<br />
to the tax havens or offshore financial<br />
centres, like Mauritius (10 percent),<br />
British Virgin Islands (4.5 percent), and<br />
Bermuda (3 percent). In fact, it has been<br />
observed that the double taxation avoidance<br />
treaty between India and Mauritius<br />
(and other such tax haven countries)<br />
has encouraged Indian firms to ‘round<br />
trip’ investment through Mauritius (and<br />
other tax haven countries) to take advantage<br />
of the tax benefits enjoyed by<br />
overseas investors. 14 Thus, the geographical<br />
spread of Indian outward FDI<br />
has expanded over the last decade,<br />
with a shift towards the developed<br />
countries.<br />
3.2 Sectoral Patterns<br />
It has been highlighted by several ob-<br />
110 THE <strong>IIPM</strong> THINK TANK