SPOTLIGHT ON OUTWARD FOREIGN INVESTMENT l 87
BOX 3.3 South Asian Outward Investment: A Historical Perspective Indian overseas investment in the pre-independence era was related to trading and financing opportunities from the mass migrations that resulted from the colonial economic system and famine-related impacts in the late nineteenth century. Earlier, merchant migrant networks had developed along trade routes to establish control over information and credit within communities. With migration came more substantial opportunities to cater to the diaspora, particularly in East Africa, Southeast Asia, and Sri Lanka (then Ceylon). For example, in 1937 a member of the South Indian Chettiar banking community opened branches of the Indian Overseas Bank simultaneously in India, Malaysia, and Myanmar (then Burma) to meet the needs of overseas Indians in Southeast Asia. Similarly, the Bank of Baroda (established in 1908) in Gujarat state opened offices in Kenya and Uganda in 1953. Bank branches expanded along the emigrant trail. Before independence, there was no outward foreign direct investment (OFDI) in manufacturing, but there are indications of Indian ownership of Burmese rice mills and saw and timber mills in 1930. This was not technically OFDI, given that Burma was part of the British Raj (1824–1937) during this period, and likely reflected the successful movement of the Chettiar community from traditional money-lending activities to nontrading activities. In the early 1950s, Jain merchants from Palanpur, Gujarat—a community well known in the gem trade—set up wholesale operations in the diamond business in Antwerp, Belgium. These Indian firms then outsourced the cutting and polishing of rough diamonds from Southern Africa to India, a business that continues to thrive today. In the post-independence period, Indian OFDI in manufacturing developed in response to regulatory barriers (licensing requirements for large firms and reservation of products for small firms).a Indian firms managed overseas investments in the face of the restrictive Foreign Exchange Regulation Act 1973 through joint ventures with host nationals (often of Indian descent), borrowing from foreign banks and the capitalization of exports. (The capitalization of exports refers to equity contribution abroad by exporting machinery and equipment from India.) The first manufacturing OFDI recorded was a joint venture by the family-run Birla Group, which set up a textile mill in Ethiopia in 1959–60. The major traditional merchant communities hailed from Gujarat and Sindh in western India, and Tamil Nadu and Kerala in the south. Muslims included Khojas, Bohras, and Memons; Hindus included Lohanas, Bhatias, Patidars, and Patels. Bhaibands and Bhatias from Sindh navigated the Persian Gulf. Chettiars of south India ventured into Burma, Malaysia, and Sri Lanka, and the Moplah/Mappila Muslims from Kerala and Tamil Nadu operated in Sri Lanka and Burma. Marakkayars ventured to Burma and southeast Asia. The Marwaris who migrated within India from Rajasthan and Bombay to Calcutta in the east had a limited transnational presence that was restricted to Burma. Sources: Markovits 2008; Tumbe 2017. a. This includes the Monopolies and Restrictive Trade Practices Act of 1969 reservation policy for smallscale industry, which started in 1967 with 47 products but had expanded to 800 products by 1978 and 1,000 products by 1996 (Panagariya 2008).
Most outward investment flows from developing economies go to high-income economies and almost half originate from East Asia and Pacific and 5 percent from South Asia. A few key insights are apparent from figure 3.2, which presents the breakdown by region of the total outward investment stock of US$2.2 trillion from developing
