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