Home > Uncategorized > India’s FDI Outflows Exceed Inflows: The Role of ICT

India’s FDI Outflows Exceed Inflows: The Role of ICT

http://creativecommons.org/licenses/by-nc-nd/2.0/Last week, I attended a presentation at the International Development Research Centre (IDRC) by Dr. Pratap Bhanu Mehta speaking on India‘s great economic transformation.  It was an excellent talk, but he had raised one point in particular which caught my specific interest, which nagged at me to investigate further — that India’s FDI (foreign direct investment) outflows had exceeded inflows and that the primary recipients of this investment were North America and Europe.  This was presented as a key favourable indication of India’s strong economic development, but the question which nagged at me was what part the ICT sector had to play in this important statistic.

Non-exhaustively investigating this statistic, I’ve found pieces of information:

– India’s FDI inflows were USD 24.6 billion in fiscal year 07-08, with ‘Computer Software and Hardware’ and ‘Telecommunications’ ranking second and third respectively as sectors attracting the highest FDI inflows (source:  Fact Sheet on India’s FDI March 2008 from India’s Department of Industrial Policy and Promotion).

– A number of online news articles, including this one from the Asia Times in March 2007 and this one from India PR Wire released at the same time, cite a report from India’s Associated Chambers of Commerce and Industry (Assocham), ‘Study on FDI Outflow and Role of Manufacturing in the Mergers and Acquisitions Front, 2007’.  This report states that for 2007-08, FDI outflow was predicted to be USD 15 billion while inflows were exptected to be USD 12 billion.  (Searches to find Assocham’s report did not end successfully.)  However, Asia Times has this information from the report:

“Preferred investment destinations are Europe, the United States and Africa, in the last case taking advantage of that continent’s cost-competitiveness. Sectors such as pharmaceuticals and automobiles will give a major push to the FDI outflow, though information technology will continue to dominate the scene, said the report.”

– A UNCTAD report from 2005, “India’s outward FDI:  a giant awakening?“, though outdated and drawing on data from 2003, stated that indeed FDI outflows have risen sharply, and that the sector receiving the most Indian investment is manufacturing, although “Indian IT companies are actively establishing operations abroad to expand markets and to service clients better”.  The top 15 Indian ICT software and services companies had all invested abroad, and primarily in developed countries.

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  1. Richard Heeks
    31 October 2008 at 12:20 am

    This is really interesting data that you’ve dug up.

    You don’t comment on whether you agree or not that this is a sign of India’s economic strength, but I think it certainly reflects the strength of the ICT sector – that it is now back-investing in the very places that first invested in it. In particular, ICT sector investment has been put into buying up firms in Silicon Valley and the like, which can increase the connectivity between the industrialised country IT hubs, and offshoring in India (itself now a global IT hub).

    The fact that India’s IT FDI outflows exceed its inflows does not, of course, mean India is losing money. The FDI inflows are associated with lots of (separately-accounted) contract income flowing into India, and so are the FDI outflows.

    As I write, one particularly interesting question is what the impact will be of the US Presidential Election. It is possible that Obama might slow or even reverse IT offshoring in a way that McCain would not.

  2. sckerr
    31 October 2008 at 1:04 am

    Richard,

    I’m not clear on what exactly this means in a wider context for India, but on the surface I do consider it as a sign of India’s much increased economic strength. Increased FDI outflow is great – but is FDI inflow decreasing, and what does that mean?

    The World Bank produced ‘India and the Knowledge Economy: Leveraging Strengths and Opportunities’ in 2005 (complete version can only be bought, the overview is available: http://info.worldbank.org/etools/library/latestversion.asp?145261) and made the recommendation (from the overview):
    “India also needs to boost foreign direct investment (FDI), which can be a facilitator of rapid and efficient transfer and cross-border adoption of new knowledge and technology.” This logically holds for FDI flowing in either direction.

    Therefore, the importance of overall flows to achieve ICT and knowledge transfer is important, but stronger outflows than inflows do place India in the stronger position.

    Indeed, much is at stake with the US election, but to that question, we can only hypothesize.

  3. Adhiraj
    17 September 2010 at 9:51 am

    Table 11 (In Facts Sheet cited) shows total FDI inwards for April 07/March 08 is nearly US$30 billion not $24 billion – 35% up on previous year. Also the authors conclusion comes from a prediction for 2007 of US$15 b out vs US$12 b in. This estimate of $12 b is way short of actual $30 b inwards FDI. Need to get actual $b FDI outflow for April 07-March 08.

    The $16 b doesnt match Table II Total FDI inwards in the Fact Sheet cited in the original article above. the andhracafe url refers to the prediction at March 07. That is irrelevant. Need the actual figures for 07/08. Maybe outflow exceeds inflow but these figures don’t show it.

    http://andhracafe.com/index.php?m=show&id=20293

    Some clarifications are needed here whether the figures cited ( of $15bn outflow and $12bn inflow ) are just *predicted* figures or whether they are the actual figures of FDI flowing in and out of the country.

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