FDI flows into China, out of India
June 24, 2011

Foreign investors are pumping more money into China than India; while Indian companies are investing more abroad than Chinese firms. According to global deal tracking firm Dealogic, India inbound M&A volume surged to US$24 billion in 2011 so far, from US$19.4 billion in 2010/11 while China targeted M&A volume reached US$84.3 billion in the same period from US$ 74.6 billion announced in the same period last year. Meanwhile, FDI by Indian firms jumped more than two-folds in financial year 2010-11 to US$43.9 billion from about US$18 billion in the previous year, according to statistic released by the Reserve Bank of India. FDI by Indian corporates was US$5.1 billion in the first two months of the current financial year beginning April.

Relaxing policies by the RBI, enabling corporate entities and registered partnerships to invest in bonafide businesses abroad, currently to the extent of 400 percent of their net worth, under the automatic route has encouraged many Indian firms to invest in American and European companies. Indian firms have invested in software, banking, pharmaceuticals and steel sectors overseas in recent years and made major acquisitions across the world. India has invested US$80 billion in the past decade (years 2000 to 2010), with the most favoured destinations being the United States and Britain, according to the India Brand Equity Foundation, a joint government-industry firm.

According to analysts, a dampened foreign investor confidence, spate of corruption scandals, and regulatory hurdles are yet keeping foreign investors from parking their money in India. Foreign institutional investment in the country has also been falling due to global risk aversion, with foreign funds selling nearly US$213 million of local shares so far in June, after offloading US$1.16 billion in May. While inbound investments have currently been into the services, construction and the automobile sectors, India is expecting a lot more FDI and FII inflow in the coming months.

India’s largest inbound investment this year, and second on record so far is BP’s US$9 billion acquisition of Reliance Industries’ oil & gas assets in February this year. The UK is the top acquirer into India with US$ 15 billion – much more than the value seen in the comparable period last year (US$ 157 million) and accounts for 62.6 percent of India inbound M&A volume in 2011 so far. Other leading acquirer nations into India this year so far were the United States (18 percent), Germany (6 percent), Japan (4 percent) and Denmark (3 percent).

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