fdi in india and its growth linkages - Department Of Industrial Policy ...

proportion of foreign investment in acquisition of shares increased from 17 per cent in 2000 to 28 per cent in 2006. The
value of fresh investments has increased from $2.3 billion during 2000 to $33 billion during 2008. Over the same period,
the investment through acquisition of shares increased from $0.5 billion to $6.2 billion. A much stronger growth in
inflows through acquisitions is observed due to relatively lower figures in the initial years. Though investment in new
projects always exceeds the investment in acquisitions by at least two and a half times, the gap between these two modes
widened in 2007 and 2008. In 2008, foreign investment in newer facilities was almost five times the expenditures
incurred in acquisitions. This brings forward a clear preference of the foreign investor to start a new business set-up or
fund an expansion through infusing fresh capital in India compared to purchasing or attaining a stake in an existing one.
3.5 Profile of Greenfield FDI – India
The number of greenfield investments in India increased from 247 projects in 2000 to 980 projects in 2006, but declined
to 682 projects in 2007. According to OCO Consulting (cited in Bloodgood, 2007, pp. 2-6), greenfield investment is
India is largely destined for new facilities rather than for expansion of existing units. The share of expansion projects has
been declining steadily over the period, from 22 per cent of the reported projects in 2002 to 11 per cent in 2006. During
the period 2002 to 2006, 15 of the 300 greenfield projects that were reported exceeded $1 billion in their worth. These
investment projects were concentrated in heavy industries, property, tourism and leisure, and electronics. Further, a
classification based on their business function indicates their spread among manufacturing, construction, resource
extraction and R&D. The investor countries included Canada, Germany, Japan, Luxembourg, the Netherlands,
Singapore, South Korea, Venezuela, the UAE, the UK and the US. The beneficiary industries of these greenfield
investments included a wide range of industries such as steel, electronic components and semiconductors, construction,
mining, real estate and machinery.
3.6 Profile of Cross-border M&A investments – India
The growth in number of M&A deals in India has been less impressive than the number of greenfield investments
(Table 3.4). Based on the Zephyr Mergers and Acquisition database, Bloodgood (2007) found that 167 M&A deals in
India accounted for investment worth $5.6 billion during 2007. Of 15 M&A transactions during 2002-06, several were
made with US firms, as well as with firms from Mauritius, the UK, Switzerland and the British Virgin Islands. These
15 most significant deals were spread across manufacturing sectors, such as electronics, cement, pharmaceuticals and
food-processing. The service sector included computer software services, investment-banking services, BPO, insurance
and port services.
Table 3.4
M&A Deals in India
Years Number of deals $ million
2004 80 1760
2005 121 3754
2006 161 4740
2007 167 5580
2008* 66 2254
Source: UNCTAD (various years). World Investment Report.
Note: * Number of cross-border M&As refers to the first half of 2008.
MERGERS & ACQUISITIONS AND GREENFIELD FDI
According to information in UNCTAD’s World Investment Report (2008), the value of cross-border M&A sales by
India increased from $4,740 million in 2006 to $5,580 million in 2007 and purchases from $6,586 million in 2006
to $30,414 million in 2007. The number of sales deals increased from 161 to 167 and purchases from 162 to 194.
This implies that the average sales deal size increased from $29.4 million in 2006 to $33.4 million in 2007. The
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