Leveraging Outward FDI for Domestic Growth: A New Growth Frontier for India
In a notable shift, India's current account swung into a surplus of $5.7 billion (0.6% of GDP) in the March quarter, marking its first surplus in four years. This turnaround from a deficit of $1.3 billion (0.2% of GDP) in the same quarter last year is attributed to moderation in trade deficit, higher services income, and increased remittances from the non-resident diaspora. For the full fiscal year 2023-24, India recorded a deficit of $23.2 billion (0.7% of GDP), a substantial improvement from $67 billion (2% of GDP) in the previous year.
India is often referred to as a net investment destination for Foreign Direct Investment (FDI). From a modest $3.5 billion in 2000, net FDI inflows peaked at $43.4 billion in 2008, fell after the global financial crisis, and subsequently reached $50 billion in 2022. However, an intriguing aspect often overlooked is the significant outward FDI flows from India – i.e. investments made by Indian individuals and corporations in foreign enterprises.
FDI outflows from India rose dramatically, from just $514 million in 2000 to a peak of $19.3 billion in 2008. This peak was followed by a decline after the economic crisis. In recent years, these outflows have stabilized, averaging around $11-15 billion annually over the past decade. These outflows represent Indian companies and conglomerates investing in foreign entities, showcasing India's growing global economic footprint.
In a parallel observation, India's Gross National Income (GNI) is approximately equal to its Gross Domestic Product (GDP). This suggests that the income earned by Indian entities abroad is roughly equivalent to the income earned by foreign entities within India. It implies that although FDI inflows are substantially higher in value, they largely end up flowing into Indian companies (with realizations being counted under GDP), whereas outflows from India are establishing Indian-owned entities abroad, with their earnings reflecting in India's GNI.
Given this scenario, it would be prudent for the Indian government to incentivize the repatriation of profits from foreign subsidiaries of Indian companies back to the mainland. While double taxation avoidance treaties are in place with most countries, additional incentives could encourage reinvestment of foreign profits into the Indian economy.
Several avenues could be explored to encourage such investments:
领英推荐
By implementing these measures, India can create an additional pillar to support its local markets. Alongside Domestic Institutional Investors (DIIs) and regular FDI inflows, repatriated profits from Indian companies' foreign operations can serve as a new channel for economic growth and development.
This approach not only strengthens India's economic position but also enhances its global corporate presence. It's a testament to India's growing stature in the international business arena and a call to action for Indian companies to play a more significant role in the nation's economic progress.