FDI flows into and out of India in 2017 remained as robust as before. This, and a series of policy measures taken by the Narendra Modi government, have laid the platform for the economy to go global in 2018, writes India Inc. Founder & CEO Manoj Ladwa.
I think it will be fair to say that robust inbound investments into any country signifies the confidence of foreign investors in the host economy and strong outbound investments indicate rising conviction of local investors. There are, of course, myriad other points that come up for discussion on any decision to invest money in a foreign country but these two would certainly rank among the most import “big picture” considerations.
How did India fare on the touchstone of these two issues in the year just gone by?
Anecdotal evidence, which, I’m sure will be backed by hard data when it becomes available (usually with a lag of a couple of months), suggests that 2017 was another good year for both inbound and outbound FDI deals into and out of India.
Data collated by India Global Business and published last month in the year-end issue shows that outbound investment activity remained in top gear.
The charge was led by the Indian pharmaceutical and information technology sectors, which brushed aside misgivings about how US President Donald Trump’s America First policy would affect them. Twelve of the top 50 outbound deals were executed by the pharma sector; it was followed closely by the IT sector, which accounted for 10 of the top 50 outbound FDI deals.
Indian policy planners fear that Trump may push US Big Pharma’s agenda and nudge India to adopt a patent regime that blatantly privileges the profits of western companies over health concerns in the rest of the world.
But they also see a slim sliver of silver lining in Trump’s demand that US drug companies stop charging astronomical rates for medicines. The feeling is that since Indian pharma companies produce and sell generic versions of off-patent drugs at a fraction of the prices charged by Big Pharma, the US President could turn to them as suppliers if only to put pressure on his homegrown CEOs to cut prices.
The US remains, by far, the biggest market, accounting for about 50 per cent of the Indian pharma industry’s annual exports of $16 billion. The acquisitions by companies such as Aurobindo Pharma, Intas, Piramal Group, Serum Institute, Cadila and Dabur, among others, in geographies as diverse as Portugal, the Czech Republic, the UK, South Africa and the US will only strengthen the Indian pharma sector by filling up critical product and technology gaps in their portfolios and enable them to retain their tag as world’s friendly drug supplier.
India’s pharma czars have carefully followed a string of pearls acquisition policy, mostly buying up foreign rivals to facilitate entry into some markets or to fill up gaps in their portfolio. Companies such as Lupin, India’s third largest drug maker, Cipla and Glenmark, among others, have all expanded into the developed markets of the West in the face of stiff competition from global rivals.
Indian companies will continue to employ this strategy, which has paid rich dividends over the years.
I am not aware of any hard targets but several Indian pharma industry leaders I have spoken to say India is definitely on the path to increasing its current share of 20 per cent in the world’s generic medicine exports.
In the process, they will also be giving a more concrete shape to the Narendra Modi government’s Make in India initiative.
It’s still a David versus Goliath battle – even large Indian pharma companies such as Sun Pharma are small compared to the global behemoths – but success in the western markets and acquisitions in the incredibly competitive markets of Europe and the US have instilled in Indian pharma executives a rare fighting spirit and given them a battle hardened edge in their fight for domination of poor and under-penetrated markets.
The same story repeated itself in the IT sector. Brushing aside fears of a slowdown in the sector, companies such as Wipro, Infosys, Tech Mahindra and HCL, among others, carried on their quest for new markets and newer technologies by gobbling up small and mid-sized IT companies across Europe and the US.
Then, engineering and project companies such as Larsen & Toubro and Jain Irrigation also braved the global headwinds and ventured out of India. Among large Indian conglomerates, the Tata Group and the Mahindra Group notched up the largest presence among the top 50 outbound deals in 2017.
It was an equally good year for inbound FDI deals. As we said in the May issue of India Investment Journal, the unstated target for inbound FDI is $100 billion. The country is still some way short of that figure – we’ll know by how much once the Reserve Bank of India completes its math in a couple of months – but anecdotal evidence seems to suggest that India took another large step towards that magical figure in 2017.
The biggest deals and the eye-popping multi-billion dollar numbers were generated by the defence sector. In a huge boost to the Modi government’s plan to develop an indigenous private sector defence industrial base in India, Anil Ambani’s Reliance Aerostructure struck a $9.2-billion JV with France’s Dassault Aviation.
Then, Lockheed Martin of the US signed up with the Tata Group to make the iconic F-16 fighter jets in India. This JV is subject to the Indian government selecting the plane for the Indian Air Force.
Large deals were also signed in the natural resources sector. Mukesh Ambani’s Reliance Industries and BP signed a $6.2-billion deal to invest in India’s energy sector while Vedanta signed an MoU with the richly endowed eastern Indian state of Jharkhand for a $1-billion steel plant.
The pick-up in inbound FDI can be partly attributed to the untiring efforts of the industrious Deepak Bagla, CEO of Invest India, the country’s investment facilitation agency, and his team of young go-getters.
Significantly, the Chinese boom, fuelled mainly by FDI, was engineered largely by its investment promotion agency. Singapore’s IPA, too, is famous for aggressively facilitating investments in the city state. Now, India is following in the footsteps of these pioneers and entering uncharted waters – with considerable success.
As our list, to be published later this month, shows, not only have FDI inflows grown by leaps and bounds since Invest India was set up, the content and quality of FDI have also changed significantly over the last couple of years.
For example, if one compares the FDI basket during the 2000-2014 period with FDI inflows thereafter, the difference in the composition of industries will be clear.
Hotels, hospitals & tourism, electrical equipment, all large job creators, did not feature anywhere in the list prior to 2014 but have, since, emerged as important components of FDI.
This indicates that more foreign investors from more diverse industries are buying into the India story and are investing their money in that country.
Another interesting diversification, a welcome change from the past, is that the manufacturing sector is attracting increasingly higher amounts of FDI.
This is important as the government has set a target of increasing the share of industry in the country’s GDP from 18 per cent at present to 25 per cent – sine qua non for providing jobs to the army of 10-12 million youth who join the Indian workforce every year.
This is obviously a very random selection of inbound and outbound FDI deals but they do tell a bigger story. And that story is about the Indian economy, still groaning from the impact of tough structural changes in the form of demonetization and GST, which is alive and kicking.
And given the rising momentum, I think we can all look forward to India Inc. going global with a vengeance in 2018.