Since the early 1990s, two decades of economic reforms have transformed India from an inward-looking state-controlled economy to a more outward-looking, market-driven economy. Industry, especially the bigger groups such as the Tatas and Birlas, responded by scaling up to meet the global competition, quite often through mergers and acquisitions overseas. Currently, however, their drive abroad appears to be more a result of frustration at the domestic policy drift.

Earlier this year a group of 14 prominent Indians – among them Wipro Group’s chairman Azim Premji, Mahindra Group’s chairman Keshub Mahindra, Godrej’s Group’s Jamshyd Godrej and Thermax Group’s Anu Aga – wrote two open letters to the country’s political leadership bemoaning the governance deficit in government, business and institutions. “Policy uncertainties and delays in approvals are forcing many large corporate entities to seek out opportunities in other geographies,” they wrote.

Changing the rulebook

In his 2011 JRD Tata Memorial lecture, Kumarmangalam Birla of the aluminium-to-retail and mobile telephony conglomerate Aditya Birla Group expressed the same anguish: “We must extend the same attention, priority and courtesy that we give to foreign direct investments to investments by domestic entrepreneurs. The government needs to ask and introspect on why Indians are not investing more in India… Large projects need a plethora of approvals… The policies and rules of the game are not clear and change far too often.”

Significantly, India’s outbound foreign investments have outpaced inflows of FDI for the first time in 2010-11: they surged to $43.9bn as against inflows of $30.4bn. Outbound FDI as reported by authorised foreign exchange dealers has typically been less than half of FDI inflows. But this financial year continues to witness an uptrend. From April to August 2011, outflows were $15.5bn that are 74% of the inflows of $20.9bn, according to official estimates. At this rate, outflows may well exceed inflows again this financial year. 

Heading abroad

Birla has recently announced huge plans to invest $17bn globally over the next two to five years that will double the group’s revenues to $65bn by 2015. The $83.5bn Tata Group, with 58% of its revenues coming from businesses outside India, is not too far behind in this drive to go abroad. It has invested $1bn in a wholly -owned subsidiary in the steel industry in Singapore at a time when its plans to set up new steel plants in India have not progressed for one reason or another.

It is also paradoxical that when the country needs big-ticket investments in infrastructure such as ports, roads, highways and airports, those entrepreneurs who have modernised or built some of its airports are seeking investment opportunities elsewhere in the world. This push overseas by 'India Inc' instead of investing domestically – at a time when foreign investors, too, are wary of investing in the country – obviously will have serious consequences for India, which is still the second fastest expanding economy in the world.

N Chandra Mohan is a business and economics commentator based in New Delhi.