Abstract

This paper discusses the trends in India’s outward FDI over the last decade and attempts to identify the factors for the same. The main aim is to help policy makers with insights regarding levers which will help in improving FDI outflows and to stimulate further research in foreign investment from emerging economies. 287 conditions of investment from India by Indian companies in 17 sectors have been taken for the analysis. The paper elaborates on the concept of studying the impact of ownership, location and internalization variables on India’s foreign investment. An analysis of sector wise of entry strategy, reason of entry and geographical analysis has been performed. Overall, it has been found that acquisitions was the major way of entry for Indian firms who are investing abroad and seeking new markets. The paper also describes the policy changes which had impacted FDI flow from India and the relation of outward FDI with macro-economic indicators like Fischer Open Differential and GDP.

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Objective of the study

We would like to study outward FDI flows from the emerging economies, specifically to the Indian context.

• An analysis of FDI flows from different sectors of the Indian Economy will be done
• To see what is the intent of investment, the mode of entry, and the macroeconomic factors that affect FDI flow.
• To find out the impact of the Fischer Open Differential due to the FDI flow.

Introduction

The first overseas Indian venture was a textile mill set up in Ethiopia in 1959 by the Birla Group of companies, India’s second largest business conglomerate at the time (kudaisya 2003). The following year, the Birla Group set up an engineering unit in Kenya. Sustained growth in Indian overseas investment could be seen starting around the late 1970s when the industrial licensing system became much more stringent as part of the government’s move to control big businesses. By 1983, there were 140 foreign investment projects in operation and another 88 in various stages of implementation (lall 1986). The total number of approved projects had reached 229 by 1990 (kumar 2007). Most of the foreign affiliates set up during this period were small- or medium-scale ventures; total approved equity during the period 1975-1990/1991 amounted to only $220 million. The second wave of internationalization of Indian firms began from about 1995 and gathered momentum as foreign exchange restrictions on capital transfers for overseas acquisitions liberalized in successive stages from 2000 (nagaraj 2006). There was a surge in outward investment from 2005. The number of approved