Pacific B usiness R eview I nternational

A Refereed Monthly International Journal of Management Indexed With THOMSON REUTERS(ESCI)
ISSN: 0974-438X
Imapct factor (SJIF): 6.56
RNI No.:RAJENG/2016/70346
Postal Reg. No.: RJ/UD/29-136/2017-2019
Editorial Board

Prof. Mahima Birla
(Editor in Chief)

Dr. Khushbu Agarwal

Ms. Asha Galundia
(Circulation Manager)

Editorial Team

Mr. Ramesh Modi

A Refereed Monthly International Journal of Management
Impact of Outward FDI on Macroeconomic Variables of Home-Country (INDIA)

Shraddha Mishra

Senior Research Fellow

Faculty of Management Studies

Banaras Hindu University, Varanasi- 224001

Contact No.- +91-7505670515


Prof. Raj Kumar


Faculty of Management Studies

Banaras Hindu University, Varanasi- 224001


For attainment of the new technological skills, managerial expertise, and innovative strategies, the outward foreign direct investment (OFDI) is the need of the Indian market. We yearned to know the overall scene of Indian OFDI and its impact on macro-economic factors. The data used in the current study consists of multiple time series for the period 1990 to 2014 for India, the choice of period is determined by the availability of data over the time. The study drew data from international sources such as UNCTAD and World Bank.

Given the existence of multiple variables, we have employed Sims (1980), VAR methodology. “The main difference in the VAR approach is that it is built on creating a complete dynamic specification of the series in a system of equations.” (Brandt and Williams,2007). The liberalization of medical services, defence and education sectors are prompting Indian firms to explore overseas merger and acquisitions to build both domestic power and global presence. Natural resource sectors and its foreign investments will surge in future.

Indian Multi National Enterprises (MNEs) will continue to invest in developed nations, particularly now because they are affordable to invest after the global crisis. Three imperative regulatory developments have underpinned India as a large global outward investor.

Keywords: Outward foreign direct investment, VAR methodology, Indian Multi National Enterprises, Macroeconomic Variables.

Paper type: Research Paper


Since1991, India has been emerging as a largest foreign direct investment (FDI) destination from the world’s key investor’s. For attainment of the new technological skills, managerial expertise, and innovative strategies, many Indian organizations are resorting towards developed nations for the outward foreign direct investment (OFDI). Initially before 1990s overseas investment by Indian companies was prominent and laid its foundation earlier itself (Morris, 1987 & 1990; Nagaraj, 2008 and Nayyar, 2008). During British colonial rule India made outside investment in physical assets and raw materials to the countries like Kenya, Ceylon, Malaysia, Nigeria, Thailand and Uganda (Morris, 1987).

The new height of expansion in OFDI, since 2005, has been noticed in the study of Nayyar (2008). The major takeover were: Corus by Tata Steel and Jaguar and land Rover by Tata Motors, U.S Soda ash producer by Tata Chemical Ltd, Info-crossing ltd. by Wipro technologies and the acquisition of Daewoo’s electronics by Videocon Industries for manufacturing in South Korea are the major takeover’s and Acquisition’s made by India in abroad. Nayyar, 2008 mentioned that about 75 percent of OFDI from Indian economy is done in industries nations only.

The phenomenal rate of 809 percent increase has been observed between 1991 and 2003 for Indian parents companies investing abroad, in number it has been amplified from187 to 1700 firms.

This is an apparent difference in the thoughts that being a developing country with scarce capital sources and less foreign reserves the economy has to widely depend upon the inward FDI for financing its Balance of Payment (BOP). In contrast, the sparse capital of Indian economy has at the same time made it as one of the large exporter and foreign investor to the global market. Hence, it becomes necessary to enquire the following research questions:

1. What explains the rising OFDI from India?

2. The motivation of Indian companies to invest overseas.

3. The factors affecting the OFDI of Indian economy.

4. The implications of this outward FDI on the economy.

So, we yearned to know the answer of these research issues and the major aim of this article is to gather the overall scene of Indian OFDI and its impact on macro-economic factors. Further, this article is divided into five sections. Section one is devoted to historic introduction of outward FDI. Section two will describe about the existing profile of OFDI and motives behind overseas investment of Indian organizations. Fourth Section will explain the factors affecting OFDI and FDI. The implications and conclusion will be discussed in last section.

Motives Driving the OFDI

Nagaraj (2006) and Nayyar (2008) classify the underlying factors that drive the process of OFDI from India. No matter about the classification of these factors, the facts shows that since 1990s, the Indian organizations are much motivated towards the OFDI. The motivation behind OFDI from Indian market are numerous such as to develop trade networks in abroad, for exploitation of ownership advantages in better way, for the incremental scale of

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