When Giants Stumble: How India’s Global Companies Navigated the 2008 Crisis

By Jaya Prakash Pradhan December 5, 2010 1.1K

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Type	Journal article
Title	“The Global Economic Crisis: Impact on Indian Outward Investment”
Author	Jaya Prakash Pradhan
Published	2010 · Transnational Corporations, 19(1), pp. 69–84 · United Nations (UNCTAD)
Data	Indian outward FDI and TNCs · 2004–2009
Read	DOI · PDF

This is a plain-language summary of “The Global Economic Crisis: Impact on Indian Outward Investment” (Pradhan, Transnational Corporations, 2010).

In short:

After racing abroad in the mid-2000s (outward investment growing ~98% a year in 2004–07), Indian firms pulled back when the 2008 crisis hit — outward FDI fell 6.3% in 2008.
India and China diverged sharply: China’s outward investment roughly doubled that year while India’s declined — a difference rooted in who was investing (state-backed vs private).
For several Indian firms, overseas operations amplified the damage — healthy domestic profits turned into consolidated losses once foreign affiliates were included.

Rise, then reversal

In the mid-2000s, Indian companies were among the most aggressive emerging-market investors in the world — outward FDI grew at roughly 98% a year between 2004 and 2007, briefly outpacing even China. Then the 2008 financial crisis arrived and reversed the momentum. Credit markets froze, making overseas deals hard to finance; the rupee swung sharply against the dollar; export earnings fell as global demand collapsed; and the Sensex dropped about 48% in a single year. Against that backdrop, Indian outward investment declined 6.3% in 2008 and into the first half of 2009.

India and China: same storm, different ships

The most instructive comparison is with China, which faced the same global shock but responded in the opposite direction.

China’s outward investment roughly doubled in 2008; India’s fell. The explanation lies in the structure of each country’s expansion. China’s was led by state-backed firms with access to vast foreign-exchange reserves and patient public capital — able to keep buying when private credit dried up. India’s was driven by private companies dependent on commercial financing and market conditions — exactly what the crisis disrupted. When money got tight, India’s market-reliant firms had to retreat in a way China’s state-backed ones did not.

When overseas operations backfired

The paper’s most striking finding is that, for many Indian firms, going global didn’t cushion the crisis — it amplified it.

Several otherwise-healthy companies saw home-market profits flip to losses once their overseas operations were consolidated. Hindalco’s parent-company profit of around $585 million became a $132 million loss on a consolidated basis. Wockhardt’s roughly $99 million domestic profit turned into a $55 million global loss. Dr. Reddy’s parent earnings of about $159 million flipped to a $143 million consolidated loss. The international footprint these firms had built in the boom years became, for a period, a drag rather than a buffer. (These are the crisis-period figures the paper reports for 2008–09.)

Pockets of resilience

It wasn’t uniform damage. Oil and gas firms — often driven by strategic resource-security goals — kept expanding abroad. IT services held up relatively well. And geographically, investment into Africa actually rose by about 69% even as flows to other regions fell, reflecting longer-horizon, resource- and market-seeking bets that the crisis didn’t derail.

Lessons — and the road to recovery

The episode offers durable lessons about global expansion: international diversification is not automatically protective — it can amplify shocks that strike everywhere at once; sector matters, with resource and services firms more resilient than others; funding sources are decisive, since over-reliance on external finance becomes a vulnerability in a credit crunch; and geographic strategy counts. The paper is cautiously optimistic about recovery, tying it to three conditions — a revival of global and domestic growth, improving corporate profitability, and easier access to financing — and notes that cheaper global assets during the downturn could even set up the next phase of Indian outward investment.

Read the academic abstract

This article reviews the emerging trends of outward investment flows from India during the period of global slowdown and presents preliminary findings on the changing behaviour of emerging Indian transnational corporations (TNCs). During the early 2000s, Indian outward investment registered faster and sustained growth as more Indian firms turned to the global market for growth, technologies, and natural resources. However, it declined in 2008 and the first half of 2009. The global financial and economic crisis appears to have seriously dented the overseas expansion plans of emerging Indian TNCs: Indian investment slowed considerably as firms faced declining domestic demand, falling exports, a rising debt burden, uncertain and difficult financial markets, and a volatile exchange rate. Deteriorating profit and sales at overseas affiliates are found to have had negative impacts on the global performance of a number of Indian TNCs. Nevertheless, as global assets became cheaper during the crisis and signs of recovery emerged in domestic demand, Indian foreign investment could regain its growth dynamism in the coming years.

Cite this article

Pradhan, J. P. (2010). The global economic crisis: Impact on Indian outward investment. Transnational Corporations, 19(1), 69–84. https://doi.org/10.18356/67c3528b-en

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