FDI outflows from India decreases to $8.6 bn

Chennai:

The Foreign Direct Investment outflows from India decreased to $8.6 billion due to a shrinking in the value of cross-border mergers and acquisitions by Indian companies, according to the UNCTAD’s World Investment Report.

The report states that FDI outflows from South Asia dropped by 29 per cent in 2012, to $9.2 billion.

The report states that during the past decade or so, Indian multinationals have been active players in global mergers and acquisition markets, particularly in the developed world.

The report notes that among the 18 cross-border M&A deals with an investment value of above $1 billion that were undertaken by Indian companies in the 2005–2011 period, 13 were in developed countries, most notably the United States, the United Kingdom and Australia.

However, none of these deals took place in 2012; Indian companies seemed to be much less active in international M&A markets than in previous years, and were increasingly focused on their domestic operations, the report says.

As a result, the total value of cross-border M&As undertaken by Indian companies dropped by nearly three fifths in 2012, to about $2.6 billion.

The Indian economy experienced its slowest growth in a decade in 2012, and also struggled with risks related to high inflation, the report says. As a result, investor confidence was affected, and FDI inflows to India declined significantly.

But the study contends that the country’s FDI prospects are improving. Inflows to the services sector are likely to grow, thanks to ongoing efforts to open up key economic areas such as retailing, the report says. “And flows to manufacturing are expected to increase as a number of countries, including Japan and the Republic of Korea, establish country or industry-specific industrial zones in the Delhi-Mumbai industrial corridor. Leveraging public funds from foreign countries, these bilateral efforts may result in an increasing amount of FDI targeting industries such as electronics in India in the years to come,” the report adds.