Outward foreign direct investment (OFDI) comprising equity, loan and guarantees issued by Indian companies dropped to $5.724 billion in the first four months of the current financial year against $11.130 billion in the year-ago period.
With cashflows of India Inc coming under pressure due to their operations almost coming to a halt amid the raging pandemic, companies seem to have preferred to conserve cash.
While the OFDI was muted in the first three months (April: $1.018 billion; May: $1.294 billion; and June: $893.18 million), there has been a substantial improvement in July 2020.
OFDI in July 2020 jumped to $2.518 billion in July 2020 against $893.18 million in June 2020, according to Reserve Bank of India (RBI) data.
OFDI (or total overseas financial commitment) by Indian companies in July 2020 was also higher vis-a-vis year-ago period’s $1.844 billion.
Direct investment outside India means investments, either under the automatic route or the approval route, by way of contribution to the capital or subscription to the memorandum of a foreign entity or by way of purchase of existing shares of a foreign entity either by market purchase or private placement or through stock exchange, signifying a long-term interest in the foreign entity (joint venture or wholly-owned subsidiary).
According to the RBI, funding for overseas direct investment can be made by drawal of foreign exchange from an authorised dealer bank in India; swap of shares (refers to the acquisition of the shares of an overseas JV / WOS by way of exchange of the shares of the Indian party); capitalisation of exports and other dues and entitlements; proceeds of External Commercial Borrowings / Foreign Currency Convertible Bonds.
Further, such investment can also be made in exchange of American Depository Receipts / Global Depository Receipts issued in accordance with the scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares; and balances held in Exchange Earners Foreign Currency account of the Indian Party maintained with an authorised dealer.