Overseas market gives opportunities to Indian entities to expand and diversify their business abroad by making full utilization of the capacity through an “overseas direct investment” . To put it in simple words, it is an investment done outside India. In recent times, India is making a positive approach towards this pre-eminent step that has seized the global marketplace.
Meaning of Overseas Direct Investment:
When an organisation invests money abroad by starting a business or either capitalising them, it is known as “Overseas Direct Investments”. This business strategy creates branding for an entity as well as helps the Indian entrepreneurs to get global exposure. Overseas Direct Investments can include making investments in Joint Ventures or a Wholly Owned Subsidiary abroad, purchase of shares or private placement in foreign entities etc, but portfolio investments are not included here.
Eg: The third largest software service company in India, Wipro will be acquiring US-based cloud services firm Appirio by spending US$ 500 million.
The Reserve Bank of India is the governing body of the Overseas Direct Investment activities. They draw up the guidelines and look if such investments are in compliance with them. Through the Master Circulars from RBI along with FEMA Act.co the cross-border transactions are regulated and are amended from time to time.
The two different ways an Indian party can involve in ODI are Automatic route and Approval route:
If the Indian parties are exposed to Automatic route while involving in overseas direct investments, they do not necessarily require any prior approval from the Reserve Bank of India.
An Indian party making overseas direct investments whether in a joint venture (JV) or a wholly owned subsidiary (WOS) needs to approach an Authorised Dealer Category-1 bank with application Form ODI and with other documents for remittances in terms of A.P. (DIR Series) Circular No.62 dated April 13, 2016. After a particular Unique Identification Number is provided instantaneously, subsequent investments can be made in the same JV and WOS.
Under the Approval route, if the Indian party proposal does not cover the conditions under the “automatic route”, then it requires a prior approval from the Reserve Bank of India. This requires an Authorized Dealer Category-1 bank to submit a specific application in Form ODI along with other prescribed documents.
To make investments in Pakistan, it is permissible only under the approval route. Any investments in Bhutan are permitted to be made in Indian rupees and in convertible currencies, but in Nepal, it can be done only in Indian Rupees.
Advantages of ODI:
This development has inclined benefits towards drawing better technological know-how to Indian companies.
It provides a platform to expand business opportunities across the globe.
This facility allows the Indian companies to get direct access to more demanding and extensive markets.
Domestic companies can achieve a widespread customer base in the global arena.
Recent developments in ODI:
Considering the above advantages, the Indian government is rigorously making efforts to combine the domestic economy with the global economy. In accordance with the RBI reports, Indian overseas direct investments in equity, loan and guaranteed issue in the month of Aug 2017 rose up to US$ 1.33 billion as against US$ 1.76 billion in July 2017. Lately, the UK reported that India stood at the third place as a source of foreign investments for them.
From April 1, 2017, to June 30, 2017, the highest Overseas Direct Investments by India was made in the United States of America, Singapore and Mauritius with 1,341 USD millions (34%), 657 USD millions (17%) and 554 USD millions (14%) respectively.
Also, refer RBI master circulars for more information:
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