Foreign Companies in India

Only available on StudyMode
  • Download(s) : 112
  • Published : March 15, 2013
Open Document
Text Preview
EVEN now, when India is desperate to attract capital to fund its big balance-of-payments gap, the red carpet it rolls out is a little dusty. A year after rules were eased to permit foreign “single-brand” retailers to operate in India, Sweden’s IKEA is still waiting for the go-ahead to sell Nordic comfort food and furniture. India’s cabinet has yet to make its mind up about the flat-packed sort, it seems.

The delay may become just another war story about foreign direct investment (FDI) in India. In the 1970s India chucked out IBM and Coca-Cola in a fit of nationalist pique. In the late 1990s the alchemists at Enron met their match in the subcontinent, losing billions on a power plant embroiled in a government spat. Recent acquisitions by foreigners, including those by Vodafone, a British mobile-telecoms firm, and Dai-ichi Sankyo, a Japanese drugs firm, have done poorly.

Yet just how representative are these horror tales? The stock of FDI in India is now quite big—some $220 billion, or 12% of GDP, according to the Reserve Bank of India (RBI), the central bank. This includes everything from research centres in Bangalore to cement plants.

The balance-of-payments data suggest that the overall return on equity for foreign investors is probably below 10% and slumped in the year to March 2012. An alternative measure is a recent survey by the RBI of 745 firms with significant foreign shareholders. It is mildly more optimistic: the overall return on equity was 13% in the year to March 2011, it finds. Technology firms, carmakers and chemical-makers did well, transport and telecoms firms less so. Unlike FDI in China, which has been directed at building factories for export, investment into India is aimed at the domestic market—only 12% of the firms’ sales were foreign.

That mediocre big picture belies some stunning successes, however. In particular India has a handful of high-profile firms that are listed while being controlled by foreign firms, such as Suzuki,...
tracking img