Deconstructing Indian Overseas Foreign Direct Investments: Historical and Contemporary Trends

Abstract

Since the latter half of the 20th century, foreign direct investment (FDI) has emerged as an important strategy for cross-border expansion of business enterprises, especially for those based in developing economies. The share of developing economies in global overseas FDI (OFDI) flows increased from 2.5 per cent in 1981 to 37.7 per cent in 2014.1 Not only has the volume of OFDI from emerging multinational enterprises (EMNEs) grown phenomenally in recent decades, but a significant change has been observed in the nature of such flows. For instance, while a significant proportion of OFDI from EMNEs was concentrated in other developing regions until the late 1980s, the bulk of these investments came to be geographically confined to developed economies over the following decade. This phenomenon does reflect the gradual evolution of EMNEs, which has predominantly occurred through phased elimination of restrictions in home countries and concomitant reforms in global economic dynamics (Athukorala 2009). Over time, the comparative advantage of EMNEs has dramatically shifted from less-technical and more labour intensive activities to knowledge-based sectors requiring the highest levels of technical sophistication. In the context of internationalization of developing economies, India’s evolution in growth and nature of OFDI holds utmost significance. While India has traditionally been an attractive destination of FDI, it has also emerged as an important source of FDI particularly after the introduction of economic reforms in 1991.