N. V. GALISHCHEVA

Candidate of Economic Sciences

export of capital Keywords:, foreign direct investment, foreign direct investment, India, South Asia, Africa

The internationalization of Indian capital is one of the most important manifestations of the openness of the Indian economy and its integration into the world economy. In the past, a colony that served for a long time as an object of expansion of British capital, India itself has begun to actively export capital to various countries of the world in recent decades.

Stimulating foreign investment by leading Indian companies, often in the form of direct investment, is currently considered by the Indian government as one of the most effective tools for accelerating the country's economic development by gaining access to advanced technologies and innovations, acquiring new markets for exported goods, and increasing the international competitiveness of Indian companies and key sectors of the economy.

NATIONAL FEATURES OF STATE REGULATION

State regulation of the export of Indian capital abroad at different stages of its development has changed depending on the evolution of the country's socio-economic model.

By the time of India's independence, the foundations of the light and food industries had been laid, separate heavy industry enterprises were functioning, and there was an extensive and capacious domestic market. Under these circumstances, the Indian government's choice of import substitution policy as a model of catch-up development was justified. This policy was implemented in conjunction with government regulation of foreign trade based on strict quantitative restrictions.

The creation of new branches of Indian heavy industry led to a noticeable increase in industrial production (in 1948-1964 it grew 2.5 times), and the share of the public sector in gross industrial output increased to 18% by 1960. The central point of India's economic strategy until the early 1980s was the full development of basic industries based on a very significant public sector, the share of which was increased to 20-25% ¹. At the same time, the state, while restricting the activities of large private capital only in certain sectors of the national economy, actively encouraged its development in all other sectors.

In 1951, India passed the Industrial Development and Control Act (The Industrial Development and Control Act, 1951), which provided for the need to obtain a state license (the so-called raj license) for the expansion of all existing and newly established industrial enterprises, as well as the introduction of state control over the scale of their production.

Since by the early 1960s, the 100 largest Indian corporations belonging to the Birla, Tata, Dalmia, Jain, Singhania, Valchand, Goenka, and Mafatlal families controlled about 54% of the total paid-in capital of private joint stock Companies2, the Monopolies and Restrictions on Trade and Industrial Activities Act (The Law on Monopolies and Restrictions on Trade and Industrial Activities) was passed in 1969. Monopolies and Restrictive Trade Practices Act, 1969), which introduced a certain framework for their economic dominance by limiting the possibility of investing in production. Control over the practice of so-called cross-ownership of company shares, which has persisted in India to this day, was also strengthened. Thus, the use of surplus capital was limited, and the entry of companies into new sectors of the economy became very difficult for them. Expansion

an existing enterprise required obtaining the appropriate permission from the authorities.

Large-scale construction of state-owned enterprises and the importation of imported equipment, components and raw materials in this regard ultimately led to a serious shortage of India's foreign exchange reserves. Under these circumstances, the Indian Government was forced to adopt a new import policy that restricts the import of a number of non-strategic materials and goods. For its part, the import restriction resulted in a significant surplus of production capacity in India - the industry was only 60% full3. As a result, many Indian entrepreneurs began exporting capital to foreign countries, mainly in the form of direct investment.

The mechanism of capital export was strictly controlled by the state through a special inter-ministerial commission, which approved only investment proposals in the form of minority interests in joint ventures (JVs) and mainly in the form of capital-intensive equipment exports from India.⁴ All royalties received, as well as 50% of the dividends, were required to be transferred to the parent company in India.

Thus, the state actually stimulated the investment activity of Indian businesses abroad. At the same time, the export of private capital was considered by the Indian government, on the one hand, as an opportunity to acquire foreign currency, which is so necessary to force the creation of a number of heavy industries in India, and on the other, as an effective tool for fighting for new markets in developing countries, primarily African and Asian.

For its part, the Indian Government provided an international legal framework to protect investments abroad.

The first wave of liberalization in India, which began in the late 1970s, brought with it a loosening of import controls and increased subsidies for exports of manufactured goods. Indian companies were granted the right to take loans in foreign currency in the country of investment, if necessary, as well as provide loans to their JV partners. In exceptional cases, they were also allowed to transfer cash from India. At the same time, instead of a strict requirement for minority participation of Indian companies in foreign joint ventures, the rules and laws of the host country were applied. However, until the mid-1990s, the main form of participation of Indian capital in international markets was the acquisition of mainly minority interests in joint ventures.

Large-scale economic liberalization has allowed Indian companies to automatically obtain permits for investment abroad in the amount of no more than $2 million since 1992. At the same time, $1.5 million had to be paid for the supply of machinery and equipment, and only $0.5 million could be exported in cash.

The Reserve Bank of India (RBI) had to get approval for the export of capital in the amount of $2 - 15 million, and over $15 million - the Ministry of Finance. In August 1995, for industrial companies operating in foreign countries outside of South Asia, the upper limit for obtaining an automatic permit was increased to $15 million per year, and for companies operating in Bangladesh, Sri Lanka, the Maldives and Myanmar-to $30 million. It also increased the volume of direct investment in the economy of Nepal and Bhutan to 1.2 billion rupees ($34.3 million at the then exchange rate). In May 1999, the cap on foreign investment of Indian companies operating in Bangladesh, Sri Lanka, and the Maldives was raised to $75 million, and in other countries-to $100 million. At the same time, up to 3.5 billion rupees ($81.4 million) were allowed to be invested in the economies of Nepal and Bhutan without obtaining any prior permission.

In order to create a more efficient-

Table 1

India's position in the global export of direct investment abroad in 1995-2010

Источник: http://www.unctad.org/sections/dite_dir/docs/wir11_fs_in_en.pdf

The Government of India has continued to develop and improve the relevant legal framework, allowing an increasing number of companies to export capital and encouraging their investment activities.

In 2002, the upper limit for automatic authorization was left at $100 million per year for industrial companies, while for companies operating in Myanmar and the South Asian Association for Regional Cooperation (SAARC) member States, with the exception of Pakistan, it was raised to $150 million. In addition, the volume of direct investment in Nepal and Bhutan was increased to 7 billion rupees. ($145.8 million)⁵. Companies doing business in India's special economic zones were allowed to export direct investment abroad without any restriction. Companies operating in the service sector, including those engaged in the financial sector, were also allowed to export capital. The threshold of 150 million rupees ($4.8 million) of authorized capital that existed for them in the 1990s to start operating outside of India was abolished.⁶

Since fy2003/04, free foreign exchanges of shares have been allowed under the joint venture. Indian companies also have the opportunity to automatically invest abroad up to 100% of the company's capital exceeding $100 million, up to 200% of the cost of capital from fy2004/05, and up to 300% from ^June 2007.7 Moreover, if earlier companies could only invest abroad in the industry in which they conducted their business activities in India, now they were granted the right to make investments in foreign countries in any sectors. At the same time, the RBI approval was canceled.

The liberalization of the legislation regulating the export of capital was also extended to venture and mutual funds registered with the Stock Exchange Administration. The former can currently invest up to $500 million abroad, while the latter can invest up to $7 billion. In addition, individual entrepreneurs are also allowed to export direct investments (up to $200 thousand per one financial year) ^.8

EXPORT OF CAPITAL: STAGES OF THE LONG JOURNEY

The first experience of exporting Indian investment abroad dates back to the colonial period, when the Indian bourgeoisie, displaced from the domestic market by the capital of the mother country, was forced to look for a field of activity outside of Hindustan, mainly in the British possessions in Asia - in Burma, Malaya and Ceylon. According to official RBI data, the volume of long-term assets of the Indian private sector abroad in 1948 amounted to 576 million rupees ($174.1 million), of which direct investment, mainly in factories and mines, accounted for 124 million rupees ($37.5 million)^.9

Independent India's overseas investment activities in Africa were initiated by The Birla Group of Companies, which opened a textile factory in Ethiopia in 1959 and a machine - building plant in Kenya in 1960. However, a noticeable increase in Indian investment in both Asian and African countries was observed only by the end of the 1970s. By 1983, there were about 140 foreign projects with Indian capital, and by 1990-229. At the same time, most of the Indian direct investment was made in small and medium-sized enterprises. In total, the Indian business acquired $220 million worth of foreign assets in 1975-1991.¹⁰

The second wave of capital outflows from India occurred during the period of liberal reforms. If in FY 1990/91 the number of approved foreign projects with the participation of Indian capital was 220, then in FY 1999/2000 - 395, and in FY 1999/2000-395.

Table 2

Geographical distribution of Indian foreign direct investment by country

Source: calculated and compiled by the author based on: http://www.rbi.org.in/scripts/BS_ViewBulletin.aspx?Id=12178;http://www.rbi.org.in/scripts/ BS_ViewBulletin.aspx?Id=11359

FY 2007/08 - 1595. The annual volume of direct investment exports increased from $0.1 billion. in the early 1990s, up to $19.397 billion. - in 2008, 15.929 billion in 2009 and 14.626 billion in 2010, which was on average about 1.5% of GDP ¹¹. The decline in the volume of export of Indian capital abroad in 2009-2010 was caused by the global financial and economic crisis.

The total volume of Indian direct investment abroad in 2010 reached $92.407 billion, ¹² of which $75 billion. It was invested in the 2000s, which put India in this indicator in 2010 on the 21st place in ^the world13. However, despite the fact that India has become a very large investor among developing countries (it accounted for an average of about 5.5% of their total capital outflows in 2005 -2010), its share in the global volume of foreign direct investment is still low (in 2010-about 1.1%)¹⁴.

India remains a net importer of capital, although the growth dynamics of its foreign investment is growing. Thus, if in the early 1990s the volume of direct investment exported by India was only 7% of the volume received, then in 2000-2005 it was already 35%, and in 2005-2007 it was about 65%. In 2008 - 2009, as a result of the global financial crisis, this ratio decreased and averaged 45%, but in 2010, the number of people living in the United States declined. it has again reached 60%¹⁵.

GROWTH OF DIRECT INVESTMENT IN DEVELOPED COUNTRIES

The investment activity of most large private companies in developing countries in the 1970s and 1980s was carried out mainly in the "third world" countries, and, as a rule, located in their neighborhood.

But the geography of Indian business even then covered the countries of West and East Africa, the Middle East, South and South-East Asia (SE). One of the factors that contributed to the penetration of private capital in India to other regions of the world was the presence of a significant Indian diaspora there, which retains close cultural and historical ties with the motherland.

Until the early 1990s, the geographical distribution of India's direct investment exports was dominated by developing countries, which accounted for up to 86% of its total foreign investment. At the same time, the main recipients of investment were the countries of East Asia (more than 36%) and Africa (17%), as well as West, Central and South Asia (an average of 10%). Indian business investment in developed countries at that time was relatively small due to its lack of competitiveness.

In the 2000s, there were major changes in the geographical structure - the share of developed countries increased significantly and now stands at 54%. At the same time, the main object of Indian capital investment was Western European countries, and above all, the United Kingdom, which accumulated up to half of the total volume of Indian direct investment in this region. The presence of Indian investments is also very noticeable in Africa (13.5%) and East Asia (about 13%).

In recent years, the main flow of Indian direct investment has been-

Table 3

Industry distribution of Indian foreign direct investment

Source: calculated and compiled by the author based on data from the Reserve Bank of India (based on website materials) - http://www.rbi.org.in/scripts/BS_ViewBulletin.aspx?Id=12178; http://www.rbi.org.in/scripts/BS_ViewBulletin.aspx?Id=11359

The train was sent to only a few countries - Singapore, Mauritius, the Netherlands, the United States and the British Virgin Islands. Thus, in FY2009 / 10, according to the RBI, they accounted for more than 2/3 of the total volume of direct investment exported from India. At the same time, Singapore and Mauritius account for more than 48%. " ¹⁶

For Indian companies, Mauritius is traditionally a favorite offshore zone, used to transfer foreign trade earnings received abroad to India in the form of foreign investments. This allows Indian companies to enjoy the benefits and preferences provided to foreign investors at home.

Differences in the export of Indian direct investment to developed and developing countries are noticeable primarily in the sectoral application of capital. While in developing countries and emerging market economies, Indian capital is directed to the so-called traditional industries (automotive, basic chemicals, textile and clothing production), in developed countries - to the service sector and high-tech industries (mainly in the information technology sector).

FROM INDUSTRIAL PRODUCTS TO SERVICES

Until the early 1990s, the sectoral distribution of Indian direct investment in foreign countries was dominated by industry, which accounted for an average of more than 80% of the total volume. At the same time, the industry structure of distribution of Indian capital investments abroad was more diversified than that of other developing countries, which also exported capital.

The largest concentration of Indian direct investment was in the textile industry, followed by paper and food processing, as well as the production of mineral fertilizers and vehicles. It is noteworthy that the foreign oil and gas industry was not at that time a priority object of application of Indian capital.

Unlike East Asian competitors, which used the markets of their host countries mainly as export platforms for their products, Indian private companies were mainly engaged in the production of import-substituting goods outside the South Asian region. This was especially true in developing countries in Africa, where the growing demand for machinery and equipment pushed Indian entrepreneurs to organize on-site production of competitive products. In this way, India made every effort to take advantage of the opportunities that came with the export of capital.

The 2000s saw significant changes in the sectoral distribution of Indian direct investment abroad. Among the leading industries now stand out pharmaceuticals, automotive industry, fertilizer and chemical production. The share of the industry itself has declined and now stands at about 40%, giving way to the services sector.

At the same time, Indian firms are not limited to investing only in the financial sector or trading in former third world countries, as is often seen in the activities of companies in other developing countries. The Indian business, which is primarily engaged in the information technology sector, is actively expanding its activities abroad in search of new markets and customers. Thus, according to the 2005 UNCTAD Report, 15 leading Indian IT companies have already implemented

Table 4

The largest mergers and acquisitions by Indian capital in 2000-2010

Источник: Составлено автором по материалам сайтов - www.ibef.org/artdispview.aspx7in-37&art_id-27993&cat_id=599&page-2; www.adb.org/Documents/Periodicals/ADR/ADR-Vol26 - 2-Athukorala.pdf; www.alacrastore.com/mergers-acquisitions/Ranbaxy_LaboratoriesLtd-1051166; www.en.wikipedia.org/wiki/TataChemicals; www.in-dianexpress.com/oldStory/49681; www.bharatforge.com/press/final_acquires_federal_forge_24Jun05.pdf; www.celestia-lindIa.com/blog/7p-615; www.en.wikipedia.org/wiki/Suzlon_Energy; www.business.map-sofindia.com/sectors/manufacturing/videocon-group.html; www.newkerala.com/news/world/fullnews-72751.html; http://findarticles.eom/p/articles/mi_m0EIN/is_2003_April_24/ai_100538906; http://philip9876.com/category/south-korea; www.bloom-berg.com/news/2010 - 08 - 03/ada-ni-enterprises-to-pay-2 - 7-billion-for-linc-s-australian-coal-assets.html

large financial investments abroad, mainly in developed countries. In fy2/03, Tata Consultancy Services invested $963 million in Belgium, China, Germany, Japan, the Netherlands and Singapore, Infosys Technologies Ltd. - $750.7 million in Australia, Canada, China, Singapore and the United States, Wipro Ltd. - $590.5 million in Japan, Sweden, the United Kingdom and USA ¹⁷.

COURSE FOR THE ACQUISITION OF FOREIGN COMPANIES

Against the background of steady growth in the volume of exports of Indian capital in recent years, there has been a diversification of forms of its export, which reflects current trends in cross-border investment.

Significant liberalization of Indian currency controls and the removal of restrictions on the amount of assets acquired abroad also affected the ratio of ownership forms of foreign enterprises with Indian capital. Since the early 2000s, the main form of Indian direct investment in foreign countries has been the acquisition of large stakes in joint ventures, up to 100%, and the acquisition of ¹⁸. If in 2000 Indian business absorbed 25 foreign companies, in 2008 - already 277.

In 2000-2010, more than 2/3 of all completed acquisitions were made up of acquisitions of companies, and only 15% were made up of purchases of minority stakes in joint ventures. At the same time, Indian businesses typically acquired large stakes of up to 100% in developed countries, while minority stakes in joint ventures were acquired in emerging market and developing countries. The value of acquisitions by Indian companies abroad in 2005-2008 alone was $22 billion.¹⁹

The volume of foreign assets acquired by Indian businesses is growing significantly from year to year, which puts India in a leading position among emerging market and developing countries in this indicator. In FY 2007/08, the volume of assets acquired by private Indian companies abroad exceeded $9.7 billion, and India ranked 4th, behind only Singapore, the United Arab Emirates and ^Russia20.

Until the early 1990s, major Indian direct investment exporters were large state-owned companies, including Computer Maintenance Corporation (later sold to Tata Consultancy Services), Bharat Heavy Electricals Ltd, Heavy Engineering Corporation, Bharat Heavy Plates and Vessels, Bharat Earth Movers Ltd, and Indian Drugs and Pharmaceuticals (later went bankrupt)., Steel Authority of India, etc. Now, the role of state-owned companies in investment activities abroad has significantly decreased, and this sector is represented by only a few corporations, among which the Indian Oil Corporation and ONGC Videsh Ltd., a subsidiary of Oil and Natural Gas Corporation Limited (ONGC Limited), operating in the oil and gas sector, stand out.

In the Indian private sector, the main exporters of direct investment before the reforms of the 1990s and 2000s were The Birla Group of Companies, which accounted for about 40% of all foreign private investment, as well as The Tata Group (11%) and The Thapar Group (7%)²¹. To date, these three conglomerates have further increased their investment assets abroad, and the main Indian direct investment exporters have significantly expanded at the expense of companies such as pharmaceutical companies Dr. Reddy's and Ranbaxy Laboratories Limited, IT companies Lnfosys Technologies Limited and Wipro Ltd, telecommunications company Reliance Lnfocomm, etc. Moreover, if before the beginning of the 2000s, mainly industrial companies participated in the export of capital (their share was more than 70%), then by 2010 there was a tendency to reduce their dominance. Gradually, the share of companies engaged in the service sector (more than 40%) began to increase in the export of capital from India.

Foreign operations of Indian corporations are characterized by an extremely high concentration of capital, which is particularly evident when analyzing the processes of their mergers and acquisitions. So, in 2000-2006 alone, the 15 largest companies accounted for 98 out of 306 acquisitions, which accounted for 80% of the value of assets acquired by Indian private businesses abroad.

MODERNIZATION OF CAPITAL OUTFLOW

The most important factors influencing the export of capital from India up to the 1980s were the strengthening of monopolistic groups among the Indian bourgeoisie, the concentration and centralization of capital, the uneven development of their development, as well as government policies that prevent large companies from becoming monopolies. During this period, the growth of Indian corporations was limited not so much by the lack of opportunities in the domestic market for expanding their activities, but by legislation restricting this process. Obtaining a state license to expand the enterprise remained mandatory and was very difficult for large companies.

According to research, out of the 17 largest Indian multinational companies (TNCs), only 1/3 entered international capital markets as an investor in order to sell their products there due to the narrowness of the Indian domestic market. The remaining 2/3 began to invest directly abroad due to the impossibility of further expansion and management of the company.-

* No more recent data available.

The Monopolies and Restrictive Trade Practices Act (1969)²².

In this regard, the reaction of one of the largest corporations in India, Aditya Birla Group, to the tightening of legislation on monopolies is very interesting. In an effort to further develop its business, the company immediately began its foreign investment activities after the adoption of the Law on Monopolies, opening in Thailand a company for the production of synthetic fibers Indo-Thai Synthetics Limited, which later became one of the largest Thai exporters of synthetic fiber (now 50% of exports). By the mid-1970s, with the deteriorating business climate in India, Aditya Birla Group's overseas business activities had further expanded. Joint ventures with Indian capital were established to produce textiles in the Philippines, Malaysia and Indonesia.

It is significant that at that time the desire to invest in production at home was not supported by the state. For example, when the Aditya Birla Group's application to expand its Gwalior viscose factory went unanswered for 18 months, the capital for further development of the factory was transferred in 1978 to Thailand and a number of other Southeast Asian countries. Strengthening the position of Indian capital in this region was facilitated by the policies of the governments of the ASEAN member states, especially Malaysia and Thailand, which encouraged the flow of foreign capital into their economies.

The relatively less attractive domestic investment climate that prevailed in India until the mid-1990s served as a catalyst for the export of Indian capital. Moreover, the export of investments in that period in some cases looked like capital flight.

With the successful implementation of the reforms, the factors that stimulate the export of Indian direct investment began to change and, in fact, approached those in developed countries. The main reasons for exporting Indian private and public capital were: providing access to foreign technologies and sources of raw materials; expanding the scale of companies ' activities; and striving to strengthen India's position in international markets.

Obviously, in the future, state regulation of capital flows will follow the path of further liberalization, and the export of Indian direct investment to foreign countries will increase.

Overcoming the consequences of the global financial and economic crisis in the context of the globalized world economy, the Government of India is doing everything possible to expand the foreign activities of Indian business capital. At the same time, Indian foreign investments in high-tech industries, primarily in information and communication technologies, are increasing particularly rapidly. Further penetration of Indian capital is facilitated by India's participation (both as a full member and as a dialogue partner) in various integration groupings and forums - ASEAN, SAARC (South Asian Association for Regional Cooperation), BIMSTEC*, IBSA** , etc.

India has become one of the largest sources of direct investment not only for most South Asian countries, but also for African countries, as well as a number of emerging market economies.

The geography of investment activity of Indian capital continues to expand, actively extending to developed countries, primarily the United States, Canada, Belgium and the United Kingdom.

* BIMSTEC - Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation. Established in 1997, it includes Bangladesh, India, Myanmar, Sri Lanka, Thailand, Nepal and Bhutan.

** IBSA-a trilateral dialogue forum for political, trade and economic cooperation (The IBSA Dialogue Forum) consisting of India, Brazil and the Republic of South Africa. Established in 2003.

^{Galishcheva N. V.} 1 Ekonomika stran Yuzhnoi Azii [Economics of South Asian countries], MGIMO (U) MFA of Russia, 2009, pp. 54-55.

^{Sedov I. A.} 2 Economic relations of India with developing countries of Asia and Africa. Moscow, Nauka, 1971, p. 98.

³ Ibid., p. 136.

^{Prema-chandra Athukorala,} 4 p. 129 -http://www.adb.org/Documents/Periodicals/ADR/ADR-Vol26 - 2-Athukorala.pdf

^{Jaya Prakash Pradhan.} 5 Outward Foreign Direct Investment from India: Recent Trends and Patterns. Gujarat Institute of Development Research. February 2005, p. 8 - 9.

⁶ India's Outward FDI: a Giant Awakening? // UNCTAD/DITE/IIAB/2004/1. 20 October 2004 - http://www.unctad.org/sections/dite_iiab/docs/diteiiab20041_en.pdf

^{Prema-chandra Athukorala.} 7 Op. cit.

⁸ http://www.ibef.org/artdispview.aspx?in=37&artJd-27993&catJd=599&page-2

^{Sedov I. A.} 9 Decree. soch., p. 99.

^{Jaya Prakash Pradhan.} 10 Op. cit.; Premachandra Athukorala. Op. cit., p. 130.

¹¹ http://www.unctad.org/sections/ditedir/docs/wir11_fs_in_en.pdf

¹² http://www.unctad.org/sections/dite_dir/docs/wirl l_fs_in_en.pdf

¹³ http://www.indianexpress.com/news/india-is/world-no. -21-in-outward-fdi/686664/2

¹⁴ Ibidem.

¹⁵ Ibid.

¹⁶ http://www.ibef.org/artdispview.aspx?in-37&art_id=27993&cat_id=599&page=2

¹⁷ India's Outward FDI: a Giant Awakening? Op. cit.

^{Prema-chandra Athukorala.} 18 Op. cit., p. 137.

¹⁹ Ibidem.

²⁰ Ibid.

²¹ Ibid., p. 141.

²² Ibid., p. 147.

Permanent link to this publication: