Outward Foreign Direct Investment 

Syllabus: GS3/Economy

Context

  • As per the RBI, Outward foreign direct investment (OFDI) by domestic firms has seen a jump of nearly 17% to $37.68 billion in 2024.

About

  • In 2023, total overseas direct investment stood at $32.29 billion.
  • In the last calendar year, overseas FDI by local companies in the form of equity stood at $12.69 billion, a rise of 40% over the 2023.
  • This is a positive sign that Indian companies are also going global. 

Overseas Direct Investment

  • Overseas Direct Investment (ODI) refers to an investment made by a company or individual in assets or businesses located in another country. 
  • It involves directly owning and controlling a foreign business or setting up operations such as subsidiaries, joint ventures, or branches in foreign markets.
  • Key points about ODI:
    • Control and Influence: A significant level of control or influence over the foreign business (usually at least 10% ownership).
    • Purpose: To expand their operations, access new markets, benefit from resources, or diversify risks.
    • Investment Forms: It can include investments in foreign companies, real estate, infrastructure projects, or other assets.
  • Sectors for Investment by India: Hotels, construction, manufacturing, agriculture, mining and services. 
  • Countries for Investment: Singapore, US, UK, UAE, Saudi Arabia, Oman and Malaysia, among others.

Significance

  • Transfer of technology and skill, sharing of results of research and development (R&D), 
  • access to wider global market, 
  • promotion of brand image, 
  • generation of employment and utilisation of raw materials available in India and in the host country,
  • drivers of foreign trade and also a source of foreign exchange earnings.

Conclusion

  • Joint ventures (JVs) and wholly owned subsidiaries (WOS) have become vital avenues for Indian businesses aiming to boost their global presence. 
  • The fact that Indian companies are investing in their own subsidiaries indicates that they are expanding outside. 
  • The Indian companies’ continued international reach are not only helping them expand globally but are also fostering deeper economic ties between India and other nations.

Source: IE