ARTICLE

Indian Investment Abroad

in Joint Ventures and
Wholly Owned
Subsidiaries: 2008-09
(April-June)

The review on Indian investment

Indian Investment abroad in joint ventures (JVs) and wholly
Abroad in Joint Ventures owned subsidiaries (WOSs) is brought out
along with the quarterly release of India's
and Wholly Owned balance of payments (BoP) statistics. The
present review covers India's outward
Subsidiaries: 2008-09 investment in JVs and WOSs during the
(April-June)* quarter April-June, 2008.
I. India's Outward FDI Proposals1
I.1 Magnitude
During the quarter April-June, 2008,
820 proposals amounting to US $ 3,322
million were cleared for investments
abroad in JVs and WOSs, as against 597
proposals amounting to US $ 7,169
million during the corresponding period
of the previous year (Table 1). During the
quarter, the number of proposals
recorded a growth of 37.4 per cent over
the corresponding quarter of the previous
year, while the magnitude of investment
proposals showed a decline of 53.7 per
cent. Equity accounted for 74.5 per cent
of the proposals for investment, followed
by debt (17.8 per cent) and guarantees
(7.8 per cent). During the corresponding
quarter of the 2007-08, guarantees
constituted 61.9 per cent of the proposals
for investment, while equity and loans
formed 34.9 per cent and 3.2 per cent,
respectively.
During the quarter under review, 99.8
per cent of the proposals involving 98.9
per cent of the investments were through
automatic route and the rest were
1
India's outward FDI in this review refers to Indian investment
abroad in joint ventures (JVs) and wholly owned subsidiaries (WOSs)
* Prepared in the Division of International Trade, Department of by Indian public and private limited companies, registered partnership
Economic Analysis and Policy. The previous issue of the article was firms and remittances in respect of production sharing agreements
published in RBI Bulletin, July 2008. for oil exploration.

RBI
Monthly Bulletin
October 2008 1797
ARTICLE
Indian Investment
Abroad in Joint Ventures
and Wholly Owned
Subsidiaries: 2008-09
(April-June)

Table 1: India's Outward FDI: Proposals Cleared

Period/Route of Approval Number of Amount of Proposals (US $ million)
Proposals Equity Loan Guarantee Total
April-June 2007
I. Approval Route 4 36.43 - - 36.43
II. Automatic Route 593 2468.22 227.37 4436.61 7132.20
Total (I+II) 597 2504.65 227.37 4436.61 7168.63
April-June 2008
I. Approval Route 2 37.59 - - 37.59
II. Automatic Route 818 2435.63 590.52 258.09 3284.24
Total ( I+ II) 820 2473.22 590.52 258.09 3321.83
Note: Data are provisional.

through approval route 2 . Under services (12 per cent) and the balance
automatic route, equity occupied the were others (Table 2 and Chart 1). During
highest share (74.2 per cent), whereas the corresponding quarter of the previous
under approval route, 100 per cent year, 73 per cent of the proposals were
proposals were through equity only. in manufacturing followed by non-
During the corresponding quarter of the financial services (6 per cent) and trading
previous year, 99.3 per cent of the (2 per cent) and the rest were others.
proposals involving 99.5 per cent amount Within the manufacturing sector,
were through automatic route, while the proposals were in the areas like textiles,
rest were through the approval route. rubber products, steel, pharmaceuticals,
Under automatic route, guarantee had gems and gewellery, electronic
the highest share (62.2 per cent), while components, cement products, furnitures
under approval route all the proposals and telecommunication. Proposals in
were under equity only. trading covered investments in areas,
such as ores and mineral products, iron
I.2 Sectoral Pattern and and steel, metals, floriculture, electronic
Direction equipments and beverages. Investment
I.2.a Sectoral Pattern proposals in non-financial ser vices
During the quarter April-June, 2008, included activities, such as software
out of the total outward FDI proposals development, oil exploration, power
cleared, almost 92 per cent were for
Table 2: Distribution of India's Outward FDI
investments of US $ 5 million and above.
(US $ million)
Sector-wise, 37 per cent of the proposals
Sectors 2007 2008
were in manufacturing followed by April-June
trading (15 per cent) and non-financial Trading 129.2 463.8
Manufacturing 4820.2 1121.7
2
Indian residents are permitted to make investment in overseas joint Financial Services - 97.2
ventures and wholly owned subsidiaries under automatic route and
approval route. Under automatic route, all proposals are routed through
Non Financial Services 362.2 372.6
designated authorized dealer banks and these do not require prior Others 1332.6 983.6
approval from the Reserve Bank. Proposals not covered by the Total 6644.2 3039.0
conditions under the automatic route require the prior clearance of
the Reserve Bank and come under approval route. Note: Figures relate to investments of US $ 5 million and above.

RBI
Monthly Bulletin
1798 October 2008
 ARTICLE
Indian Investment Abroad
in Joint Ventures and
Wholly Owned
Subsidiaries: 2008-09
(April-June)

Chart 1(a): Distribution of India's Outward FDI Chart 1(b): Distribution of India's Outward FDI
during April-June, 2008 (per cent shares) during April-June, 2007 (per cent shares)
1.9

15.3 20.1
32.3
5.5

72.5
12.3 36.9

3.2

Trading Manufacturing Financial Services Trading Manufacturing

Non-Financial Services Others Non-Financial Services Others

generation and consultancy. The April-June, 2008 stood at US $ 1,797

category of 'others' included professional million, as compared with US $ 5,200
services, IT related services and million during the corresponding period
construction. of the previous year (Table 4). Of the total
investments, 75 per cent were in the form
I.2.b Direction of equity and the remaining 25 per cent
Direction of investment proposals were debt. During April-June, 2007, 91 per
indicates that Singapore, Netherlands cent of the outflows were in the form of
and the US together accounted for 67 per equity and the rest were debt. Thus, during
cent of the proposals for outward FDI (US the quarter under review, the share of
$ 5 million and above) during April-June, equity has gone down in the outward
2008 (Table 3 and Chart 2). As against this,
during the corresponding quarter of the Table 3: Direction of India's Outward FDI
previous year, Netherlands and Singapore (US $ million)
alone accounted for 80 per cent of the Country 2007 2008
proposals. April-June
Singapore 1362.9 1023.8
II. India's Outward FDI: Actual Netherlands 4228.5 723.4
Outflows3 USA
Mauritius
237.1
124.1
352.4
284.1
II.1 Magnitude of Outflows UAE 56.6 275.8
Saudi Arabia - 80.2
Actual outward FDI during the quarter Canada - 67.5
3
Financing of outward FDI by Indian entities is broadly in the form Malaysia 12.9 62.5
of equity, loan and guarantee. These include sources, such as drawal British Virgin Islands 15.9 49.8
of foreign exchange in India, capitalization of exports, funds raised
Switzerland 371.6 42.6
through external commercial borrowings, foreign currency convertible
bonds and ADRs/GDRs, and also through leveraged buyouts by way Others 617.4 192.7
of setting up of special purpose vehicles (SPVs). The equity data Total 7027.0 3154.8
presented in this review do not include equity of individuals and
banks, and the SPVs set up for funding overseas investment.
Note: Figures relate to investments of US $ 5 million and above.

RBI
Monthly Bulletin
October 2008 1799
ARTICLE
Indian Investment
Abroad in Joint Ventures
and Wholly Owned
Subsidiaries: 2008-09
(April-June)

Chart 2 (a): Direction of India's Outward FDI Chart 2 (b): Direction of India's Outward FDI
during April-June, 2008 (per cent shares) during April-June, 2007 (per cent shares)

15.7 15.1
22.9
5.3
9.0

11.2 19.4 60.2

8.7 32.5

Netherlands Singapore UAE Netherlands Singapore

USA Mauritius Others Switzerland Others

investments with the amount of equity up since 2006-07, facilitated largely by

showing a negative growth of 72 per cent. increased mergers and acquisitions
Following the global trend, India's (M & A) activity by Indian corporates
outward FDI has witnessed a major pick (Box).

Table 4: India's Outward FDI : Actual Outflows

US $ million
Period Equity Loan Guarantees Total
Invoked
2006-07 (April-March) 11872.74 1233.81 - 13106.55
2007-08 (April-March) 15176.76 3191.93 - 18368.69
April-June 2007 4728.18 471.47 - 5199.65
April-June 2008 1346.19 451.16 - 1797.35
Note: Data are provisional.

RBI
Monthly Bulletin
1800 October 2008
 ARTICLE
Indian Investment Abroad
in Joint Ventures and
Wholly Owned
Subsidiaries: 2008-09
(April-June)

Box: Mergers and Acquisitions

Mergers and Acquisitions (M&A) have been motives that are considered to add shareholder
occupying important portion of outward FDI. value are synergy, increased revenue/increased
The rise of globalization has exponentially market share, cross selling, economies of scale,
increased the market for cross border M & A. reducing tax liability, geographical or other
The process of mergers and acquisitions is diversification, resource transfer and vertical
extensively used for restructuring the business integration.
organizations. Mergers are commonly Global cross-border M & A purchases
voluntary and involve stock swap or cash increased from US $ 80.7 billion in 1991 to US
payment to the target company. An acquisition, $ 929.4 billion in 2005 and further to US $ 1637.1
also known as a takeover, is the buying of one billion in 2007 (Table 1). The share of developed
company (the 'target') by another. An economies has declined from 96 per cent in
acquisition may be friendly or hostile. In the 1991 to 86 per cent in 2007, while the share of
former case, the companies cooperate in developing economies has increased from 4
negotiations; in the latter case, the takeover per cent to 11 per cent during this period. Since
target is unwilling to be bought or the target's 2006, there has been remarkable pick up in
board has no prior knowledge of the offer. India's and China's shares though the shares
Mergers can be horizontal, vertical , congeneric remain moderate at 1.9 per cent and 0.3 per
or conglomerate depending upon products cent, respectively. The number of cross-border
produced by companies and industries in M & A purchases (deals) in the world increased
which they operate. Mergers are financed by from 2,854 in 1991 to 10,145 in 2007.
payments of cash or borrowed/raised capital. The major sectors of investments allocation
Acquisitions financed through debt are known by India include metals, pharmaceuticals,
as leveraged buyouts if they take the target industrial goods, automotive components,
private, and the debt will often be moved down beverages, cosmetics and energy in
onto the balance sheet of the acquired manufacturing; and mobile communications,
company. The dominant rationale used to software and financial services in services, with
explain M & A activity is that acquiring firms pharmaceuticals, IT and energy being the
seek improved financial performance. The prominent ones among these.
Table 1: Value of Cross-Border M & A Purchases by Region/Economy: Global Trends
(US $ million)
Region/Economy 1991 1995 2000 2005 2006 2007 2008
(Jan-June)
World 80 713 186 593 1143 816 929362 1118068 1637107 621282
Developed Economies 77 563 173 214 1100 453 777609 930101 1410802 504014
Europe 42 486 92 597 854 058 516887 548613 830205 305350
European
Union 39 690 81 475 803 069 486504 482214 784208 285072
Germany 6 894 18 509 58 671 41485 53376 111528 53876
United
Kingdom 8 501 29 641 382 422 133409 105390 295942 63743
North America 20 702 69 833 198 915 202089 291089 476739 149513
United States 16 596 57 343 159 269 171534 241985 396164 108786
Developing Economies 3 143 12 905 36 983 99455 156807 179969 97216
Africa 430 645 6 659 18496 24295 5501 10363
Latin America and
the Caribbean 272 3 934 7 122 11458 33820 41923 10194
Asia 2 441 8 305 22 874 69499 98484 132269 76645
China 3 249 470 9546 14906 4452 26492
India 1 29 910 4958 6586 30414 8556
Malaysia 149 1 122 761 3427 3638 4783 1898
Singapore 570 892 8 847 7581 14500 25274 6795
Note: The data in this Table cover only those deals that involve an acquisition of an equity of more than 10 per cent.
Source: UNCTAD

RBI
Monthly Bulletin
October 2008 1801
ARTICLE
Indian Investment
Abroad in Joint Ventures
and Wholly Owned
Subsidiaries: 2008-09
(April-June)
Annex: India's Overseas Investment: Major Liberalisation Measures since 2000
The introduction of FEMA in 2000 brought
about significant policy liberalization. The limit
for investment up to US $ 50 million, which
was earlier available in a block of three years,
was made available annually without any
profitability condition. Companies were
allowed to invest 100 per cent of the proceeds
of their ADR/GDR issues for acquisitions of
foreign companies and direct investments in
JVs and WOSs.
Automatic route was further liberalised in
March 2002 wherein Indian parties investing
in JVs/WOSs outside India were permitted to
invest an amount not exceeding US $ 100
million as against the earlier limit of US $ 50
million in a financial year. Also the investments
under the automatic route could be funded by
withdrawal of foreign exchange from an
authorized dealer (AD) not exceeding 50 per
cent of the net worth of the Indian party.
With a view to enabling Indian corporates
to become global players by facilitating their
overseas direct investment, permitted end-use
for ECB was enlarged to include overseas direct
investment in JVs/WOSs in February 2004. This
was designed to facilitate corporates to
undertake fresh investment or expansion of
existing JV/WOS including mergers and
acquisitions abroad by harnessing resources at
globally competitive rates.
In order to promote Indian investment
abroad and to enable Indian companies to reap
the benefits of globalization, the ceiling of
investment by Indian entities was revised from
100 per cent of the net worth to 200 per cent of
the net worth of the investing company under
the automatic route for overseas investment.
The limit of 200 per cent of the net worth of the
Indian party was enhanced to 300 per cent of
the net worth in June 2007 (200 per cent in case
of registered partnership firms). In September
2007, this was further enhanced to 400 per cent
of the net worth of the Indian party.
As a simplification of the procedure, share
certificates or any other document as an
evidence of investment in the foreign entity by
an Indian party which has acquired foreign
security should not be submitted to the Reserve
Bank. The share certificates or any other
RBI
Monthly Bulletin
1802 October 2008
document as evidence of investment where
share certificates are not issued would be
required to be submitted to and retained by
the designated AD category - I bank, who would
be required to monitor the receipt of such
documents and satisfy themselves about the
bona fides of the documents so received.
The Indian venture capital funds (VCFs),
registered with the SEBI, are permitted to
invest in equity and equity-linked instruments
of off-shore venture capital undertakings,
subject to an overall limit of US $ 500 million
and compliance with the SEBI regulations
issued in this regard.
The Liberalized Remittance Scheme (LRS)
for Resident Individuals was further
liberalized by enhancing the existing limit of
US $ 100,000 per financial year to US $ 200,000
per financial year (April-March) in September
2007.
The limit for portfolio investment by listed
Indian companies in the equity of listed foreign
companies was raised in September 2007 from
35 per cent to 50 per cent of the net worth of
the investing company as on the date of its last
audited balance sheet. Furthermore, the
requirement of reciprocal 10 per cent
shareholding in Indian companies has been
dispensed with.
The aggregate ceiling for overseas
investment by mutual funds, registered with
SEBI, was enhanced from US $ 4 billion to US $
5 billion in September 2007. This was further
raised to US $ 7 billion in April 2008. The
existing facility to allow a limited number of
qualified Indian mutual funds to invest
cumulatively up to US $ 1 billion in overseas
Exchange Traded Funds, as may be permitted
by the SEBI, would continue. The investments
would be subject to the terms and conditions
and operational guidelines as issued by SEBI.
In June 2008, Registered Trusts and Societies
engaged in manufacturing/educational sector
are allowed to make investment in the same
sector(s) in a Joint Venture or Wholly Owned
Subsidiary outside India, with the prior
approval of the Reserve Bank.