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

31 October 2008 3 comments

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– A UNCTAD report from 2005, “India’s outward FDI:  a giant awakening?“, though outdated and drawing on data from 2003, stated that indeed FDI outflows have risen sharply, and that the sector receiving the most Indian investment is manufacturing,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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