Global buyouts may get a leg up

Global acquisitions and investments by Indian corporates such as the Tatas, Birlas and Infosys could soon get a leg up, with the government mulling a comprehensive outward investment policy.

The policy, which is at a nascent stage, will include a financial mechanism to provide corporates access to low-cost funds for overseas mergers and acquisitions.

Government officials said the issue was discussed at a recent meeting of the Prime Minister's Trade and Economic Relations Committee, and the Prime Minister's Office was now seeking inputs from the ministries concerned.

They added that a comprehensive outward investment policy for the country was also being examined in the context of China's growing importance as a global investor.

Outward FDI from China increased from a meagre $400 million in 1980 to $38 billion by the end of 2004. China is also the second largest investor in Africa after the United States.

Pharmaceuticals, information technology, automobiles, engineering goods, and project services were some of the thrust areas that would be covered under the policy, the officials said.

"While the policy is still at a nascent stage, the objective is to create a government-industry partnership in these thrust areas," said one of them.

The financial mechanism to support efforts of the industry to expand overseas could also include options akin to the World Bank's Multilateral Investment Guarantee Agency (MIGA), in order to cover the risk of investing in third countries.

The MIGA is a multilateral risk mitigator that promotes foreign direct 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.

The government-industry partnership could cover areas such as country-specific investment strategies, economic relations with third countries that go beyond strategic or political interests, and aggressive use of international agreements such as a bilateral investment protection agreement, economic co-operation agreements, and plurilateral agreements to open up sectors in third countries, as well as provide legal cover to Indian industry.