Indian MNEs & Outward FDI
From Tigers to Cautious Cats: How the Global Financial Crisis Tamed Indian Companies’ International Ambitions
The Rise Before the Fall Picture India in the early 2000s: Its companies were conquering the world with unprecedented confidence. Between 2004-2007, Indian firms’ international investments grew at a blistering 98% annually, outpacing other emerging market giants like China (74%), Malaysia (70%), and Russia (53%). It seemed nothing could stop India’s corporate tigers from establishing their global footprint.
Then Came the Storm The 2008 global financial crisis changed everything. Think of it as a perfect storm that hit Indian companies from multiple directions:
- The Money Drought
- Banks became reluctant to lend
- Stock markets crashed (India’s Sensex fell 48% in one year)
- The rupee’s value swung wildly against the dollar
- Many companies that had borrowed heavily for overseas expansion suddenly found themselves struggling with mounting debt
- Market Meltdown
- Global demand collapsed
- Export earnings plunged
- Commodity prices tumbled
- Both domestic and international growth slowed dramatically
Not All Sectors Were Hit Equally Like passengers on a stormy ship, some sectors managed to stay steadier than others:
Resilient Sectors:
- Oil & Gas: State-owned companies continued their global hunt for energy resources
- Mining: Showed signs of revival by 2009
- IT Services: Maintained relatively stable performance
Hardest Hit:
- Manufacturing: Saw a steep 79% decline in overseas investments
- Hotels & Tourism: Investments nearly disappeared
- Metalworking: Previously major overseas investors dramatically cut back
A Tale of Two Approaches: India vs China While both nations faced the same global storm, they navigated it differently:
- China doubled its overseas investments in 2008
- India’s overseas investments fell by 6.3%
The key difference? China’s expansion was largely state-driven and backed by massive foreign exchange reserves, while Indian companies relied primarily on market forces and private financing.
The Human Side: Real Companies, Real Struggles The crisis forced many proud Indian multinationals to make painful choices:
- Suzlon Energy had to sell 10% of its international operations
- Sakthi Sugars saw its European units file for bankruptcy
- Reliance Industries watched its German subsidiary start insolvency proceedings
- Several companies had to either close or sell their overseas operations
Looking Ahead: Recovery Roadmap The paper suggests three key factors will determine when Indian companies regain their international ambitions:
- Revival of global and domestic growth
- Improvement in corporate profitability
- Easier access to financing
Silver Linings Despite the gloom, some opportunities emerged:
- Assets abroad became cheaper
- Some cash-rich Indian companies could acquire overseas businesses at attractive valuations
- Certain sectors like oil and gas in Africa remained attractive for investment
This crisis reshaped how Indian companies approach international expansion, teaching valuable lessons about risk management, financial prudence, and the importance of sustainable growth. It’s a reminder that even corporate tigers must sometimes learn to tread carefully.
Academic Abstract:
Just over a year ago, India’s outward foreign direct investment (OFDI) seemed to be on a path of rapid and sustained growth. Its average annual growth of 98% between 2004 and 2007 was unprecedented, far ahead of that of other emerging markets like China (74%), Malaysia (70%), Russia (53%), and the Republic of Korea (51%), albeit from a much lower base. However, much of the recent growth in India’s OFDI has been fuelled by large-scale overseas acquisitions, and it faltered when the global financial crisis that started in late 2007 made financing acquisitions harder.
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Full citation: Pradhan, Jaya Prakash (2009), ‘Indian FDI Falls in Global Economic Crisis: Indian Multinationals Tread Cautiously’, Transnational Corporations Review, 1(4), pp. 1–11, Publisher: Routledge, Taylor & Francis.
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