New Delhi: The government has decided it needs to help Indian companies with their global acquisitions.
The finance ministry plans to come up with an ‘outward investment policy’ in the April-June fiscal quarter and will specify the criteria on which companies will be eligible for the incentives.
The policy will offer a slew of incentives, including concessional finance, to assist domestic companies expand the global footprint. “We are hoping to be able to begin work on the policy after the budget,” a senior government official, who did not wish to be identified said.
Once in place, the plan will bring India on a par with China and other Southeast Asian countries that have had an outbound investment policy in place for a while.
The proposal has gained urgency with a slew of big-ticket takeovers being launched by several Indian companies, all of which are looking to grow through acquisitions. But many of them are also taking on significant debt and stretching their balance sheets to make high-priced deals.
The department of economic affairs in the finance ministry had been asked to finalize the contours of the policy, following discussions by the Prime Minister’s Trade and Economic Relations Committee. The department had earlier prepared a discussion paper on the issue for the PM’s committee, proposing creation of government-industry partnerships in thrust areas such as pharmaceuticals, information technology, automobiles, engineering goods and project services, among others.
Officials said that the government was considering several proposals including offering to cover investment risk for companies.
One of the models being examined in this context was the World Bank’s Multilateral Investment Guarantee Agency, which promotes foreign investment in developing countries by insuring investors against political or non-commercial risks, mediating disputes between investors and governments, and advising governments on attracting investment.
Other aspects of the strategy mooted in the paper include actively backing efforts of the private sector through economic diplomacy and co-ordinated efforts in trade and economic forums, aggressive use of international agreements like bilateral investment protection agreements and economic cooperation agreements to open up sectors for investments.
Officials involved in putting together the policy point out that China already has outward investment policies, while countries such as Malaysia, Singapore and Thailand, which didn’t have a specific policy, still provide government assistance to companies for overseas mergers and acquisitions.
The Chinese outward investment policy focuses on five areas: creating incentives for outward investment, streamlining administrative procedures, including greater transparency of rules and decentralization easing capital controls, providing information and guidance on investment opportunities and reducing investment risks.
The policy initiative comes as the number of deals initiated by companies in emerging economies is starting to grow rapidly. Unctad’s 2006 World Investment Report shows that between 1987 and 2005, the share of cross-border mergers and acquisitions by transnational corporations from developing and transition economies increased from 4% to13% in value terms and from 5% to 17% in terms of the number of deals.
“The total number of parent companies in Brazil, China, Hong Kong (China), India and the Republic of Korea has mutliplied from less than 3,000 to more than 13,000 over the past decade,” the report has added.