Amid Indian equity market seeing massive outflows, Overseas Direct Investments (ODI) by Indian institutions and individuals in April-January period of the current fiscal has exceeded the total of the last fiscal by 15 per cent. Experts feel that besides displaying India Inc’s strategic ambitions, it shows that the next cycle of growth may not be led by emerging economies.
Data from Finance Ministry shows ODI in April-January touched $16364 million as against $14234 million of full fiscal last fiscal. The growth was led by financial, insurance, and business services sectors (39 per cent of total outflows), followed by manufacturing (23 per cent) and wholesale trade. Among the recipient countries, Singapore led the race followed by Mauritius and the US.
Raju Kumar, Tax Partner with EY, said that the rise reflects growing investor confidence, sectoral diversification and a favourable domestic macroeconomic backdrop. While destinations like Singapore and the US continue to dominate, the emergence of GIFT City as a financial hub, albeit with a small share, signals policy-driven facilitation.
“Increasing participation of Indian firms in cross-border M&A and expansion efforts indicates a maturing approach to globalisation, supported by rising domestic capital availability and evolving strategic ambitions,” he said.
Some experts had a different opinion.
According to Mayank Arora, Director- Regulatory with Nangia Andersen LLP, given the hawkish interest rate stance of monetary authorities for most of FY25, investors, both foreign and domestic were attracted to safer investment options with decent return potential. “Additionally, growing expectations of ever-increasing nativist tendencies in the United States has led investors to believe that the next growth spurt may no longer be led by Emerging Economies,” he said.
A similar trend was witnessed in China when, after decades of heady growth, domestic Chinese investors looked to diversify their portfolios by looking overseas. Given very strict overseas investment norms in China, Hong Kong was used as a medium to spread Chinese investment abroad.
“A similar route has now been opened through the operationalisation of GIFT City in Gujarat, which is likely to act as a two-way door – facilitating both inbound and outbound investment,” said Arora.
Under the ODI mechanism, a company, body corporate, LLP, partnership firms or individuals can invest abroad. Financial commitment (comprising of equity, loan and guarantee issued) shall not exceed 400 per cent of the net worth or $1 billion in a financial year, whichever is lower. Any resident individual may make ODI by way of investment in equity capital or OPI (Overseas Portfolio Investment) subject to the overall ceiling under the Liberalised Remittance Scheme i.e. $250,000 per annum.
Overseas investment is prohibited in real estate activity, gambling in any form or dealing with financial products linked to the Indian Rupee without having specific approval of the Reserve Bank of India. In addition to these, resident individuals are not allowed to invest in financial sectors and set up any Step-Down Subsidiary (SDS).
In August 2022, the government liberalised ODI norms and provided simplification of the existing framework. Clarity on Overseas Direct Investment and Overseas Portfolio Investment has been brought in and various overseas investment related transactions that were earlier under approval route are now under automatic route.