Importance of outward FDI to the Indian economy

Trade liberalization in India post-1991 has transformed the scenario of capital influx in the country and has triggered the growth of secondary and tertiary sectors significantly. The growth dynamics of the Indian economy especially the service sector propelled forward. Due to increased revenues, outward Foreign Direct Investment (FDI) (i.e. FDI outflow) of India has also been significant (Someshu., 2010). Given the fact that FDI inflow and its impact in India is a major area of discussion and interest, similarly outward FDI can be also contemplated as an important subject of discussion. Outward FDI is a mechanism through which a domestic firm expands its operations to other countries. Outward FDI in India mainly occurred after the year 2003. During the economic crisis in the year 2008-09. Due to this the outward FDI flow increased significantly. The following graph depicts the trend of the flow during the past 15 years.

Fig. 1 Outward FDI of India from 2003 to 2017 (Source: Reserve Bank of India)
Fig. 1 Outward FDI of India from 2003 to 2017 (Source: Reserve Bank of India)

Growth in the domestic corporate sector is one of the reasons of the rise in outward FDI

After 1991, when the FDI inflow increased in the country, the corporate sector realized that opening of trade barriers and free flow of funds is a two-way process. The domestic corporate houses readily recognized that outward FDI has several benefits including:

  • Seamless access to global networks & markets.
  • Easy engagement in the process of successful technology transfer.
  • Participating in the process of productive research and development (R & D).

Outward FDI has mainly been for resource-seeking as well as technology-seeking. For example, in terms of resource seeking, India focused on oil and petroleum products and the manufacturing trajectory. In terms of technology seeking, India concentrated on leveraging technologies, especially in the area of computing and information technology (Varma, & Nayyar, 2014).

Promotion of indigenous business through Joint Ventures (JVs) gave rise to outward FDI

Indian entrepreneurs making good fortune domestically recognized that it would be judicious to join hands with corporate houses overseas through Joint Ventures (JVs) and Wholly Owned Subsidiaries (WOS) and promote Indian businesses outside India. In the second half of the year 2000, there was a steady rise in capital strengthening the foreign exchange position of the nation. With the simplification of government policies on outward FDI, opportunities opened up in front of Indian companies to invest in resource-rich (oil and petroleum) countries. Indulgence was given to form JVs. For example, India Linoleum entered a JV with  Diesel Locomotive Works (DLW) of Germany and the Haloi plant of Hind Motors entered a JV with General Motors of USA in the year 2006.

The benefits reaped by the Indian counterparts were in the form of cheaper petroleum and the import of automobile parts at comparatively feasible rates (Paarlberg and Perry, 2007).

Global economic Crisis

The global economic crisis of 2008-09 can be also regarded as a major impetus for outward FDI from India. The economic crisis put forward significant risks to domestic companies overseas. However, a sizeable portion of the Indian companies exploited the opportunities brought by the crisis. In the years 2009 and 2010, a large amount of investments were in acquisitions. More than half of the acquisitions done by the Indian companies in the USA were in distressed assets. The parent companies which had been adversely affected by the global crisis got sold to Indian companies at very cheap prices (Khan, 2012). Below are a few examples of such deals:

  • Indian IT/ITeS company HCL EAS purchased Axon Group in the UK for $800 million.
  • Technology giant Wipro acquired Infocrossing in the United States for $600 million.
  • Tata Steel purchased Arcelor in Luxembourg for $47440 million.
  • Videocon purchased Thompson Multimedia in France for $300 million (Paarlberg and Perry, 2007).

The above reasons are some important and significant reasons for outward FDI flow. There are many other reasons such as tapping the opportunity of depreciating foreign currency abroad, reaping a return on re-invested earnings, grabbing the opportunity of foraying into emerging and less developed economies and so on (Exim Bank, 2014).

Major destinations

Some major destinations of outward FDI flow from India apart from the USA in the last ten years can be seen in a two-fold manner i.e. in the first half (2005 – 2010) and the latter half (2011 – 2016). The left column of the table below consists of mainly resource-rich countries whereas the right column comprises of countries that provided larger tax benefits (Ibef, 2018).

Outward FDI in 2005 – 2010Outward FDI in 2011-16
USA (United States of America)Mauritius
UAE (United Arab Emirates)Singapore
SudanBritish Virgin Islands
Table 1: Outward FDI in some major countries in the last decade (Ibef, 2018).

Market size

With respect to market size, India is one of the strongest performers in terms of mergers and acquisitions (M&A). As reported by Ibef (2018), M&A amounted to US $ 46.8 billion in 2017 which translated to a 14% increase in the volume of the deals compared to 2016. Also as reported by the Reserve Bank of India (RBI), the outward FDI from India in February 2018 was US $ 784.28 million as compared to $ 866 million in January 2018 (RBI, 2018).

Impact of outward FDI on Indian economy

The impact of outward FDI on the Indian economy is quite significant. The returns on investments outside the country in the form of foreign exchange inflow are very much necessary for economic growth. The areas where the positive impact of outward FDI  has been highest are IT/ITeS, infrastructure, agriculture, consumer goods and pharmaceuticals. One of the major positive impacts of outward FDI is that India has been able to bring newer technologies from abroad and implement them domestically at cheaper prices (due to monopolistic advantages) to lure the IT/ITeS segment. For instance, machine learning techniques, artificial intelligence and big data analytics have been a boon to the IT/ITeS industry. In the pharmaceutical industry, technologies to cure cancer have been taken from outside.

Outward FDI has largely benefitted the manufacturing sector through easy access to natural resources. There have been also large-scale amplification in skill formation and institutional capacity building. In the current scenario, the Government of India is relaxing policies to channel investments outside for further growth amplifications. With the waves of globalization and encouragement given to start-ups and venture capital initiatives, the Government of India will roll out hybrid instruments like optionally or partially convertible debentures (The Hindu, 2018).


  • Baig. MM, Kiran.S, Bilal., M. (2016) ‘Relationship between FDI and GDP: A Case Study of South Asian Countries’, Journal of Business & Financial Affairs, 5(3), pp. 3–6. doi: 10.4172/2167-0234.1000199.
  • Exim Bank (2014) ‘Outward Direct Investment from India: Trends, Objectives and Policy Perspectives’, (165).
  • Ibef (2018) Indian Investment Abroad – Overseas Direct Investment by Indian Companies.
  • Khan, H., R. (2012) ‘Outward Indian FDI – recent trends & emerging issues’, BIS central bankers’ speeches, pp. 1–15.
  • Paarlberg, L. E. and Perry, J. L. (2007) ‘Organization Goals’, The American Review of Public Administration, 37(1981), pp. 387–408.
  • RBI (2018) Reserve Bank of India – Data on Overseas Investment, 2018. Available at: (Accessed: 12 April 2018).
  • Someshu., P. (2010) ‘Impact of FDI on the manufacturing sector in India’, 81(78), pp. 1–2.
  • The Hindu (2018) Union Budget 2018: ‘Separate policies soon on outward direct investment, hybrid instruments’ – The Hindu.
  • Varma, S & Nayyar, R. (2014) ‘OFDI between India and the LAC Region : A firm level motive analysis’, (21465).

Priya is the co-founder and Managing Partner of Project Guru, a research and analytics firm based in Gurgaon. She is responsible for the human resource planning and operations functions. Her expertise in analytics has been used in a number of service-based industries like education and financial services.

Her foundational educational is from St. Xaviers High School (Mumbai). She also holds MBA degree in Marketing and Finance from the Indian Institute of Planning and Management, Delhi (2008).

Some of the notable projects she has worked on include:

  • Using systems thinking to improve sustainability in operations: A study carried out in Malaysia in partnership with Universiti Kuala Lumpur.
  • Assessing customer satisfaction with in-house doctors of Jiva Ayurveda (a project executed for the company)
  • Predicting the potential impact of green hydrogen microgirds (A project executed for the Government of South Africa)

She is a key contributor to the in-house research platform Knowledge Tank.

She currently holds over 300 citations from her contributions to the platform.

She has also been a guest speaker at various institutes such as JIMS (Delhi), BPIT (Delhi), and SVU (Tirupati).