Overseas investments by Indians rose 58 per cent in the first six months of the current fiscal, data from Finance Ministry showed. However, outflow in September declined to a three-month-low.  Experts feel that despite decline, on sequential basis, there is no let down in momentum.

Overseas Direct Investment (ODI) data, tabulated by the Economic Affairs Department of Finance Ministry, showed that the six months (April-September) number rose to over $8,900 million as against over $5,600 million during corresponding period of last fiscal. However, September saw an outflow of $1,454 million compared to $1,798 million in August, and $2,472 in July this year.

Of the 155 countries that got the outflow from India, Singapore tops the destination by getting 1/4th of the total. Singapore, along with the US, UK, Netherlands and Mauritius contributed more than 2/3rd of total outflow. Among the sectors, financial, insurance and business services alone got 41 per cent of the total outflow.

Resilient ventures

Raju Kumar, Tax Partner at EY India, said Indian companies invest abroad to access new markets, pursue strategic acquisitions, benefit from cost arbitrage, access advanced technology and build global brands. However, “in September 2024, ODI faced challenges, which could possibly be due to rising global interest rates, exchange rate volatility and geopolitical tensions, leading to a cautious investment approach,” he said. However, he does not see this as a trend. He said that despite these short-term issues, the year-on-year growth in ODI reflects a positive trend, indicating that Indian firms remain focused on long-term international expansion.

Agreeing to this, Rumki Majumdar, Economist at Deloitte India, said the April to September ODI has been 58 per cent higher than the last year, despite the moderation in investment abroad over the past two months. The monthly numbers are still historically strong. “We notice guarantees issued going up strongly. It is 106 per cent higher than last year. This points to increased confidence in the ability of domestic companies to invest abroad successfully and a favourable global economic outlook,” she said.

Further, Majumdar said that there is a strategic push among Indian companies to invest abroad despite geopolitical uncertainties. “Investors are becoming more resilient to shocks, factoring in geopolitical risks while making investments abroad. India’s proactive trade and investment ties (via FTAs and partnership) is also aiding this confidence,” she said.

ODI norms

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 Liberalized Remittance Scheme i.e. $250,000 per annum.

Overseas investment is prohibited in real estate activity, gambling in any form, 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 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, significantly enhancing “Ease of Doing Business”, it said.

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