ON AUGUST 22, 2022, the Central government announced a review of overseas investment framework to bring clarity on direct and portfolio investments abroad. It brought various transactions under automatic route to enhance ease of doing business. Overseas investments rules and regulations superseded the earlier framework governed by Foreign Exchange Management (Transfer Or Issue Of Any Foreign Security) Regulations, 2004, and Foreign Exchange Management (Acquisition And Transfer of Immovable Property Outside India) Regulations, 2015. The government said the framework is aligned with current business and economic dynamics. The changes were projected as important “in view of evolving needs of businesses in India” that needed to become part of global value chains in an increasingly integrated global market.
A year later, in August 2023, India’s outward foreign direct investment (OFDI) was $595 million, the lowest in 17 months since February 2022. The cumulative outflow was $4.2 billion in first five months of FY24. It was $13.3 in FY23 as against $18.1 billion in FY22. The slowdown was a grim reminder that investment decisions are market-driven — poor global economic conditions in this case — and increasing ease of doing business can aid but not trigger overseas investment by Indian companies. “All inbound and outbound investments are a result of economic activity. Considering the buoyancy in Indian economy and wide consumer base, more and more multinationals are setting up offices in India. Indian companies will also invest overseas depending on business opportunities. As global economic situation improves, Indian companies will invest overseas,” says Puneet Gupta, partner–Tax, KPMG in India.
One year is perhaps too early to gauge the impact of a reform but finance ministry data says OFDI has been in the $13 billion to $15 billion range since FY17 with FY22 being an aberration (See: Overseas Direct Investment). Whether India Inc.