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Outward FDI and Cross-border M&As
Although the new foreign direct investment policy and other policy packages, including “Make in India,” is expected to tap more foreign savings and better technology and transform the Indian economy into a manufacturing hub, most successful firms are investing abroad. Given this context, this paper makes an effort to understand the trends and nature of outward foreign direct Investment by Indian firms and their implications. The paper argues that though the Indian overseas acquiring manufacturing firms perform relatively better than their counterparts, its adverse impact on the trade deficit and balance of payments need to be tackled.
This is a revised version of a part of the Centre for Development Studies working paper. The author wishes to thank the anonymous referee for their substantial comments. The author also wishes to acknowledge the seminar participants at CDS, Indian labour conference, GLOBALICS at Athens, Knowledge Forum at the Indian Institute of Technology Madras, and the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi for their helpful comments. The author also thanks Meena Abraham for useful suggestions and Smruti Ranjan Sahoo for helping in computing some tables while revising this paper.
The financial and international trade liberalisation policies initiated by the Government of India since the 1990s including “Make in India” is expected to tap more foreign savings and better technology and transform the Indian economy into a manufacturing hub. This new policy regime has also encouraged Indian firms to become global torchbearers by allowing them to invest in any part of the world by mobilising financial resources through internal or external borrowings. Consequently, many of the leading firms have invested abroad through greenfield1 as well as brownfield2 or cross-border mergers and acquisitions (CBM&As) in order to access modern technology, markets, brands, patents and design, copyrights and trademarks. An attempt has been made in this paper to analyse the recent trends, implications, and nature of outward foreign direct investment (OFDI) from India through greenfield and brownfield/CBM&As. The paper first surveys the theoretical and empirical literature and highlights some of the hypotheses to be explored, and then proceeds to discuss the policy shift towards OFDI, database and methodology. It also analyses the country- and sector-wise distribution of OFDI through greenfield and brownfield investments and the economic characteristics of the sample of such Indian overseas acquiring firms (IOAF) as a whole as well as across two specific technology-intensive sectors. The paper then concludes by highlighting the major findings and policy implications.
Theoretical and Empirical Literature Survey
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