India Inc reluctant to invest locally, doubles overseas investment

NEW DELHI: The reluctance of Indian companies to invest locally stands in sharp contrast to the millions they are sending overseas to build factories, buy resources, build infrastructure and start financial services ventures.

Corporate investments overseas into joint ventures and wholly-owned subsidiaries almost doubled to $5.5 billion in the April-June quarter this fiscal from $2.96 billion in the corresponding quarter a year ago, the government informed Parliament on Tuesday.

In the same period, individuals invested $64 million overseas, up marginally from $62 million invested a year ago, Finance Minister Pranab Mukherjee said in the Rajya Sabha.

Despite sitting on ample cash, Indian companies have been reluctant to invest locally because of uncertain economic environment, lack of policy impetus, high inflation and the rising interest rates.

The Reserve Bank of India (RBI) has already raised interest rates by a cumulative 325 basis points since March 2010. It is widely expected to raise interest rates again in its next monetary policy review on September 16.

This has forced companies to look overseas for investment opportunities with Mauritius being the most-favoured destination.

" Outward investment flows have been growing at a robust pace this year," said DK Joshi, chief economist, Crisil.

India's power and steel companies have been on the hunt overseas looking for coal, ore and other resources in a race to secure supplies to feed their projects.

Others may be looking for technology and brands or merely to diversify their business lines in order to mitigate risk as global uncertainty increases.

The current investments policy allows companies to invest up to 400 times their networth overseas.

Reversing the trend, debt flows exceeded equity flows by almost three times. The equity investment overseas was $1.4 billion against $4.1 billion in debt investments.

Experts say big companies can take loans on their balance sheets and channel the funds abroad in the form of loans, which would also explain the jump in the loans being given out.

The overseas investments include those made by companies, trusts, registered partnership firms and proprietary concerns into their joint ventures and wholly-owned subsidiaries.

This does not include investment by Indian companies in foreign companies overseas, which is captured in the outbound FDI.

The outward FDI in the first quarter was $10.6 billion, down from $18.3 billion in the year-ago period.