PM Narendra Modi looking to score boundaries inside out

Written by Arun S | New Delhi | Updated: Aug 25 2014, 06:30am hrs
ModiDomestic firms have complained of difficulties in getting international financing for their overseas expansion plans.
In what could mark a paradigm shift in Indias foreign investment policy, the government is chalking out a new strategy to bolster overseas direct investments (ODI) by Indian firms. While Prime Minister Narendra Modi stressed on the Make in India slogan in his I-Day speech, in tune with the ruling dispensations nationalistic pride, ODI would be promoted as much as FDI inflows, official sources told FE.

The plan, according to the sources, includes ensuring easier access to credit from Indian banks, financial institutions (FI) and Exim Bank of India for local companies aiming to branch out abroad.

Domestic firms have complained of difficulties in getting international financing for their overseas expansion plans.

A proposal for an Overseas Investment Promotion and Protection Council, on the lines of the Foreign Investment Promotion Board, was also being considered, the sources added.

Besides, the ongoing review of Comprehensive Economic Partnership/Cooperation Agreements and Bilateral Investment Promotion and Protection Agreements will address companies concerns about protecting their investments overseas.

With the lessons learnt from the experience with the extant CECA/BIPPAs, similar arrangements in future, particularly with Latin American and African countries, would be structured in a way that Indian overseas investments are protected.

To back the latest initiative, the Prime Ministers Office recently asked the commerce ministry to write to all the 125 Indian missions and 38 honorary consuls overseas starting with the big economies and Indias major trading partners to inform them that they must monitor key economic and political developments in the respective countries and notify the departments concerned in India whether such events or change in policies will positively or negatively impact Indian industries. The missions will also be asked to update the government on the business opportunities, fiscal incentives, important exhibitions/fairs as well as the trade barriers (tariff and non-tariff) in the respective countries.

The strategy is to ensure that missions set ambitious internal targets such as how much annual exports from India do they foresee to the country where they are stationed in and the amount of two-way investment flow (from India to the country where they are placed an vice-versa). The performance appraisal of the staff also will be based on their ability to meet these targets.

The move, sources said, would not only benefit leading Indian companies such as the Tatas, Adanis, Mittals and Mahindras, but also small and medium enterprises, in turn transforming themselves into transnational giants possessing the latest technology, highly skilled professionals and having access to international finance, global markets and strategic assets the world over.

Catering to the international ambitions of Indian companies will also help Indian banks and FIs expand globally.

This fresh approach follows demands from several Indian companies, with global expansion plans, that the government should facilitate their efforts to be closer to their customers overseas especially in relatively new markets like Latin America, Africa and Asia so that they can deliver goods on time and considerably cut freight and other transaction costs.

These companies want to either assemble components or manufacture in the vicinity of their markets abroad, while sourcing labour, raw materials and even technology from India. Some agro-based companies are seeking help to purchase or get land on lease in Latin America and Africa while others are looking to acquire natural resources like coal and oil. Many others, like TCS and Infosys, are looking to make inroads into the services markets by stationing themselves overseas.

A recent Exim Bank study based on RBI data showed that the share of the manufacturing sector in Indias ODI declined from 59.8% in 2003-04 to 31.5% in 2011-12. It added that the major sectors attracting Indian overseas investment were finance, insurance, real estate and business services, and wholesale, retail trade, restaurants and hotels. While the former groups share increased from 12.6% in 2003-04 to 19.7% in 2011-12, the latters share has remained stable at 9-11% range during this period, the study said.

However, it added that, While FDI inflows recorded a CAGR of 28.2%, increasing from $3.9 billion in 2001-02 to $46.6 billion in 2011-12, FDI outflows registered a higher growth, increasing at a compounded annual rate of 40.9% from $1.0 billion to $30.9 billion during this period.

India indigenous on the anvil

* Easier access to credit from Indian banks and financial institutions for local companies aiming to branch out abroad

* CECA/BIPPAs with LatAm and African countries to protect Indian overseas investments

* An Overseas Investment Promotion and Protection Council

* Indian missions abroad to update government on policy changes, trade barriers and investment opportunities

* Performance appraisal of staff in Missions to be based on whether targets of investment and exports achieved