Rising Corruption Drives Indian Companies Abroad

Investments by Indian companies overseas have more than doubled in the past year, highlighting their widespread expansion outside of their fast-growing but corruption-stricken home market.

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The Reserve Bank of India on Thursday released data showing that foreign direct investment by Indian multinationals surged to $43.9 billion in the 2010-11 fiscal year, compared with $18 billion in the previous year.

The latest figures represent a big shift in outward investment. In the 2007-08 fiscal year, outward investment totaled $21 billion.

The central bank said that the rise reflected regulatory liberalization – such as greater freedom to invest overseas – to allow leading Indian companies to globalize. It also reflected the drive by many Indian companies to raise capital more cheaply overseas at a time when rupee borrowing costs in India are rising.

“Indian overseas investment policies have been progressively liberalized and simplified to meet the changing needs of a growing economy in a globalizes environment,” the RBI said in a statement.

“The policy which was evolved as one of the strategies for export promotion and strengthening economic linkages with other countries has been streamlined significantly in scope and size,” the RBI said.

The heightened outward investment comes as concern deepens that Indian companies are not investing sufficiently in their domestic market.

The RBI has highlighted the need for measures to increase output through investment to help reduce inflation, which at 9.1 percent in May is the highest in any of the main emerging markets. By comparison, foreign direct investment into India has been falling. Gross FDI inflows in India declined by 32 percent to $24.2 billion in 2010 compared with the previous year. India is one of the few emerging markets where FDI declined last year.

Some Indian business leaders have complained that doing business in India has become more difficult in the wake of a series of high-profile corruption scandals. They are seeking greater opportunities in better regulated and more predictable markets.

Sahara India Pariwar’s £470 million ($753 million) purchase of the Grosvenor House hotel in central London was one of the highest-profile international acquisitions since the Tata Group snapped up Land Rover and Jaguar, the British car marques, three years ago.

Venkateshwara Hatcheries, a poultry company, bought Blackburn Rovers, an English premiership football club, and Reliance Industries, owned by Mukesh Ambani, has embarked on what is likely to be a sustained buying spree of shale gas assets to build its business in the US.

“It won’t be enough for these companies to have one or two powerful people sitting on their board and expecting a premium valuation from investors simply due to the presence of these luminaries,” it said.