Outward Indian FDI rises to $44 billion.....shows how India has silently been capturing the world

Thank god for some space to write about non-political stories! Plodding away silently in the background over the last so many years has been the Indian economy and the Indian corporate sector. With a vibrant private sector, India and Indians have been busy capturing the world making an impact in terms of investments abroad, employment generated there as well as gaining respect internationally.

At a time when nearly everybody has been focused on inward FDI, what has escaped attention is the way in which Indian companies have been investing globally. We have heard of large ticket investments made by Indian companies.....for eg., Tata Motor’s acquisition of Corus and  Jaguar & Land Rover or Birla’s acquisition of Novelis in 2007......but we haven’t realized that as much as $44 billion could be invested internationally in just one year. In fact, RBI only recently put this number up. It even put up the outward FDI numbers for the previous three years.....$17 billion in 2009-10, another $17 billion in 2008-9 and $ 21 billion in 2007-8 in the year before the economic crisis hit the world. Also, what has missed the attention of most people is the kind of countries that we are making acquisitions in. The largest outbound investment last year was Gammon India’s investment of $ 1.8 billion in a Panama based subsidiary.....which is in the business of agriculture, fishery etc. And then just a few days back, Kumar Mangalam Birla closed the acquisition of a Columbian chemicals company for $875 million. Then there is a large land grab happening in Africa and private and government controlled companies are making an impact there. These are large investments abroad.....and its a telling and sad fact that all this exciting stuff has gone virtually unreported in the Indian media and instead. our attention has been drawn to the mindless politics being played out in the country.

To be sure, the tide for India’s economy changed in 2004 or so. Economic liberalization came around in 1991 and we just entered the third decade of reforms. But, in real terms, the benefits of the liberalization have been seen only from 2004 onwards. In the last 6-7 years, the economy has been growing at nearly 8% per annum on average. In fact, the piece by Swaminathan S Anklesaria Aiyar in the Economic Times yesterday should silence critics of the Indian economic growth. Not only has the GDP been making rapid strides, even per capital GDP – the real measure of a country’s progress – has been rising rapidly. Over the last 15 years of so, it has risen from some $350 to $1700 or so. Poverty rates have come down dramatically.....and Swami argues that the reported poverty rates are inflated since the measure of poverty doesn’t capture economic growth adequately. Today, India is the cynosure of global corporations. Today, all but one permanent members of the UN security council are willing to support India’s entry in that august body. Today, the US is bending over backwards to change the rules of the NSG (Nuclear Supplier Group) to grant India entry.....remember the NSG was set up specifically for action against India in 1974 when India exploded the nuclear bomb for the first time.

As part of the liberalization process, India joined the WTO in 1995. Since then, the Indian economy has been integrated in a big way into the world economy. Further, the rules to invest internationally were relaxed around 2004. Since then, many international investments have been made “automatic”.....not requiring the RBI’s permission. Companies can today invest up to 4 times their net worth automatically. More than this particular enabling regulation, it was the symbolic value of the move that was more important. The government was relaxing its control over forex. The strength in our forex reserves itself was a result of the measures of economic liberalization taken in 1991. From a precarious position of having just a few million dollars of reserves in 1991 (barely enough for a few weeks of imports), we today have close to $300 billion in our kitty (enough for more than a year’s imports). India has had a regular annual trade deficit (which means our exports are less than imports), but it is not as if this is a failing. This is an intended strategy.....as the RBI prefers to balance the deficit with the strong NRI remittance flows into the country. India could choose to depreciate its currency, increasing exports and reducing imports in the process.....and it could become a trade surplus country. But that would squeeze our growth rates. The RBI lets the currency fluctuate so that this balance is maintained. Many who don’t understand this well complain that India’s exports are less than its imports. The mere fact that China has a strong reserve fund and a trade surplus is not indicative of its strength (of course, it is much stronger than India.....but the measure of that is not its trade surplus). Even the US has a trade deficit as do much of the world’s biggest economies.

Much of the investments abroad are to fuel the growth within the country. Of late, a lot of acquisitions are in the domain of minerals....coal in particular....required for the expansion in the power sector. The tough environmental laws in the country – as well as easier access to mines internationally – have made it easier to import coal than to procure it locally. Since raising finances is not that big a deal (ok....its become tougher in the last two years.....but generally speaking, Indian companies don’t have much trouble raising finance given their good reputation), acquisitions abroad have become that much easier.

The Tatas today are now amongst the biggest international employers in the UK with a roster of more than 30,000 employees in that country. TCS is rated as one of the biggest employers in the UK. With Corus, Tetley and finally Jaguar and Land Rover in hand, Tatas have acquired a coveted status for themselves in the UK. Likewise, the Birlas, the Infosys’ and Wipro’s of the world are invited with open hands wherever they go.

If only we could realize our own worth and stay focused on business, we would grow much faster than we are at present. If only we realized that democracy is a luxury and we should value it rather than abuse it. If only we could remember that only if the Indian economy grows can the ills of the country be removed. If only we could manage to achieve both – economic growth and political reforms. It’s in these ifs that the future of India will get determined.

The real truth is that the biggest risk to India’s future is India itself. With irresponsible politicians and an equally irresponsible media, the country’s attention is being repeatedly drawn to useless things. A premium is being placed on removing corruption (and rightly so).....but no premium is placed on improving efficiency in work, making fast and bold decisions and thinking big. All these unnecessary fasts by Anna and his ilk has only made governance weak.....important reforms are being delayed. The government is scared to take decisions. Is this what the intention was? This is the real threat to India. Now if only Anna could fast for faster economic growth instead of what he is up to right no......