Overseas Investment Destination: Why Foreign Industries are Looking for Joint Ventures with Indian Companies Sectors where 100% FDI isn't allowed in India, a Joint Venture (JV) is the best route--giving a low-risk possibility for firms keen on entering the diverse Indian market, with multiple opportunities

By Jayant Joshi

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In recent years, there have been many incidents of foreign firms entering partnerships with Indian companies. Sectors where 100% FDI isn't allowed in India, a joint venture is the most probable medium, giving a lower risk possibility for firms wanting to enter into the diverse Indian market, with multiple opportunities. All firms registered in India, even those with up to 100% overseas equity, are considered an equivalent as local firms. A joint venture can be considered as a partnership firm, a corporation or another kind of business organization the partner companies select.

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Analysis of the trends in direct investments over the last decade reveals that despite investment flows, each inward and outward, being rather muted throughout the first part of the last decade, they gained momentum throughout the latter 0.5. There has been a distinguishable shift in Overseas Investment Destination (OID) in the last decade. Whereas within the half, overseas investments were directed to resource made countries like Australia, UAE, and Sudan, within the latter 0.5, OID was channeled into countries providing higher tax advantages like Mauritius, Singapore, British Virgin Islands, and also the Netherlands.

Indian companies invest in foreign shores primarily through Mergers and Acquisition (M&A) transactions. With rising M&A activity, firms can get direct access to newer and additional in depth markets, and higher technologies, which might alter them to extend their client base and reach a world reach. According to the data provided by the Reserve Bank of India (RBI), India's outward Foreign Direct Investment (OFDI) in equity, loan and warranted issue stood at US$ eleven.33 billion in 2017-18 and $ 1.69 billion in February 2019. In a recent development, the United Kingdom declared that India has become the third largest supply of FDI for them as investments accrued by sixty five per cent in 2015 resulting in over nine,000 new and safeguarded jobs.

Some of the major overseas investments by Indian companies were:

  • In March 2019, Sun Pharmaceuticals raised its stake Russia's PJSC Biosintez to 96.96 per cent.

  • In February 2019, auto components major JBM Group has purchased a majority stake in Linde-Wiemann, a German structural components and assemblies producer.

  • Hospitality start-up Oyo is planning to invest US$ 1.2 billion for its expansion.

  • Ashok Leyland has set up a new facility in Dhaka, Bangladesh in a joint venture with IFAD Autos. The sales, service and spares facility is spread over 138,000 square feet and is going to cater to the entire range of Ashok Leyland vehicles.

  • Indian IT major Infosys is going to set up a technology and innovation hub in Texas and hire 500 American workers by 2020.

  • Tyre Manufacturer Balkrishna Industries is going to set up a US$ 100 million production facility in the US. The plant will have an annual production capacity of 20,000 MT and will serve the entire American region.

  • Pharmaceutical major Cipla's subsidiary, Cipla Maroc, opened a manufacturing plant for metered-dose inhalers in Ain Aouda in the Rabat region in Morocco. The facility is spread over a total area of 4,000 square meters and has a capacity of 1.5 million HFA metered-dose inhalers.

  • Apollo Tyres has commenced commercial production of its truck tyres at its facility in Hungaria. This is the company's second facility in Europe and has an installed capacity of 14,000 passenger car tyres a day and 1,200 truck tyres a day.

  • Pidilite Lanka Pvt Ltd, ahesives manufacturer Pidilite's joint venture (JV) company with Macbertan Pvt Ltd, unveiled a new world class manufacturing plant in Sri Lanka. The plant is spread over an area of four acres and will help the company enhance its market share in the country.

  • SRM Technologies AG' Switzerland based company, comes with a world class manufacturing plant in Jaipur, India. The plant stretched over 12 acres with an investment of over Rs.300 Cr.

The JV's don't seem to be going just for producing industries, service or commerce trade its taking further to entertainment sector conjointly. Whereas India's cinema corporations are reaching to obtrude upon the Middle East and North Africa (MENA) region. Carnival Cinemas is planning to open five hundred screens in Saudi Arabia over the next 5 years. Also, PVR Cinemas has signed a memo of understanding (MoU) with Dubai-based Al-Futtaim cluster to explore opportunities for getting into the cinema business within the MENA region.

Overseas investment is one among the foremost steps to enter the world marketplace and in recent times, India has taken necessary steps to form its presence felt within the world arena. Investment outlook in a number of the overseas market appearance positive. For example, the Indian trade is projected to extend its revenue from Africa. IT services, infrastructure, agriculture, prescribed drugs and trade goods are important to India boosting revenues from Africa to Hundred and Sixty Billion Dollars by 2025, as per McKinsey & Co.

In another development, the Ministry of External Affairs has initiated a move to line up a right away ocean and air link between India and also the resident region, as Indian corporates arrange vital investments within the mining, oil, IT and pharmaceutical sectors in this region. Overseas investments by India corporations are expected to extend, backed by stable market conditions and tidy impact of the investments on native economies.

The Joint Ventures are not just going on in private sectors, the Government is also initiating to make market strong:

  • Government of India's Public Sector Undertakings (PSUs) have invested over US$ 15 billion in Russia's oil and gas projects and are planning to undertake more investments in the country's oil and gas fields.

  • The RBI, encouraged by adequate forex reserves, has relaxed the norms for domestic companies investing abroad by doing away with the ceiling for raising funds through pledge of shares, domestic and overseas assets. In addition to joint ventures (JVs) and wholly owned subsidiaries (WOSs), the central bank has announced similar concessions for pledging of shares in case of step down subsidiary.

  • The RBI also liberalised/ rationalised guidelines for foreign investments abroad by Indian companies. It raised the annual overseas investment ceiling to US$ 125,000 from US$ 75,000 to establish JV and wholly owned subsidiaries. The government's supportive policy regime complemented by India Inc.'s experimental outlook could lead to an upward trend in OFDI in future.

  • The Union Cabinet has permitted ONGC Videsh to acquire 11 per cent stake in Russian oil company JSC Vankorneft from Rosneft Oil Co. for US$ 930 million.

Jayant Joshi

Jayant Joshi, Managing Director, RS India

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