India Outbound Investments - Journey into 2021

February 2021

India Outbound Investments - Journey into 2021

Twenty Twenty one - Yes, “one” is important metaphorically as we make a new beginning with a new approach wherein traditional models are consigned to the year gone by. Foreign Direct Investment and International Trade, the arteries of globalisation have been stifled due to travel and economic uncertainties.

This is the year of paradigm shift.

India started 2021 with a roster of good news – test cricket series win in Brisbane, Australia reflecting the prevalence of grit, teamwork and stoic determination; bending of the pandemic curve and launch of world’s largest vaccination program fully supported by the digitisation platform. Finally, a rebound of almost all economic parameters – highest ever power consumption, Goods and Service tax collection higher than pre-pandemic levels, capacity expansion announcements by leading industry players, increase in bank credit and being theonly major economy with an increase in inbound FDI by 13% in 2020.

Liquidity tap continues to remain open by major central banks and these inflows have played a role in the domestic Indian stock market reaching historical highs. The recent financial results of major Indian Information technology players indicate a very strong performance, and as an FDI attraction segment, they were one of the most resilient players in the Global outbound investments.

India also had the unique distinction of having created the second highest number of unicorns in 2020, i.e. 12 with a total number now standing at 38. Two-thirds of Indian unicorns are already servicing the global market. Start-ups in Deep Tech - AI, IoT, Blockchain and Big Data are growing at 40-45% CAGR, and nearly one-third of them have their primary market overseas. The depth of talent and vision of the founding team at these Start-ups is an eye opener. In a way, it is a reflection of the forays of our young cricket team whereby you play to win, and a win overseas is the real deal. The playbook of growth at these companies reflects the motto “Go Global and Go Early”.

Detailed conversations with several of these Deep Tech start-ups have provided valuable insights and important takeaways for Investment Promotion Agencies. These includebandwidth for a deeper understanding of technology and emerging business models, easyavailability of information on research projects at academia and partnership opportunities for Indian companies.

Promotion of academic excellence at leading educations institutions in Deep Tech with openness to welcome Indian students goes a long way in strengthening the overall FDI proposition. We foresee more jointed activities towards positioning a destination as an attractive location for pursuing higher studies and a “knowledge” led FDI.

India now has its own version of “Mittelstand “, call it if you may “EmergIndia” - mid-size firms with revenues ranging from USD 50m- USD 250m, a proven track record of export markets including OECD countries and a cost competitive edge with quality products. These are across a diverse range of sectors, including automotive, food processing, chemicals, life sciences, engineering goods, and advanced materials. These firms have the management depth, financial resources, and most importantly, the vision to establish their operations in their key markets. Attractive and simple incentives package, reduced compliance burden, availability of shovel ready sites with common competitively priced utilities and access to the non-unionised workforce in the vicinity are important location selection criteria.

The year ahead is expected to witness a tremendous shift in directional, quantum and nature of FDI outflows. Early movers who redefine their investment attraction approach and amend the FDI offering suited to this new environment will be the winners and shall garner even a larger share of FDI.

Best wishes for a successful 2021

May the juggernaut of FDI and international trade rediscover its mojo!