INDIA’S OVERSEAS INVESTMENTSA Case Study

Ketaki BhirdikarPushkar BorseNupur KhannaShantala Samant

INDIA – A STEP ANALYSIS

POLITICAL ENVIRONMENT

Stable democracy Deregulation of most sectors Dominant role of Congress (UPA) Internal party dynamics Combating effects of slowing economic growth Measures targeting rural sector Budget 09-10 high on spending Corruption

ECONOMIC ENVIRONMENT

Industry and service economy Indian overseas investment policies liberalized Large public sector Sizeable, diversified private sector Trade deficit US$129.1bn in 2008 Imports jumped by 31.9% to US$305.5bn Real GDP growth forecast to slow to 5.5% Consumer price inflation forecast 6%

SOCIAL ENVIRONMENT

Population 1.1 billion Age structure: 0-14 years – 31.8%, 15-64 years

– 63.1% and 65 years and above – 5.1% 52% literacy rate Domestic demand - mainstay of economy 16 national languages but English speaking Country of two speeds: urban vs. rural New middle class with purchasing power

TECHNOLOGIC ENVIRONMENT R&D expenditure less than 1% of GDP Number of international patents Infrastructure, energy, power Manual skill and knowledge based sectors Technically qualified low cost workforce Low cost of operations Coping with globalization and time compression Second-rate technology investment

What has prompted Indian firms to operate abroad? Events:

Post 1947 : Socialist Policy Regulations were dubbed by License Raj Central government controlled foreign exchange

transactions FERA rarely allowed Foreign Exchange holdings There was slow growth rate -> Hindu Growth Rate 1985 : India in great debts -> Balance of Payment

problem 1990 : Economic Crisis

What has prompted Indian firms to operate abroad? 1991 break through reform started:

Opening up of International trade & Investment

Deregulation Initialization of Privalization Automatic approval of FDI Foreign investment in form of cash was raised.

What has prompted Indian firms to operate abroad? Access to high-growth markets Technology and knowledge Economies of size and scale of operations Tapping global natural resource banks Leverage of international brands MnAs and direct investments Favourable policy changes Introduction of FEMA

Areas showing liberalization in policy towards overseas investment? Till 1991- low integration with the world Export promotion with restrictions to conserve forex In 1992 – Economy liberalized ‘Automatic Route’ for overseas investment 1995- further liberalization Single window for approval Leads to access to :1. Technology sourcing2. Resource seeking3. Market seeking

How have Indian firms helped improve the country’s balance of payment? Globalization Leveraging competences Expansion of markets Capital outflow returns Capital a/c surplus Increased foreign exchange inflows

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