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The global financial markets may be finally turning favourable for Indian borrowers. Reserve Bank of India (RBI) data on external commercial borrowings (ECB) show that Indian companies have collectively raised $1.919 billion in June, which is $300 million more than in the same month last year. What is impressive is the ability of smaller companies to raise capital alongside blue-chip firms in the most competitive markets. Separately, the RBI presents data on outbound forei gn direct investments (OFDI) by Indian companies that suggest a steady increase in mergers and acquisitions even during September- December 2008, a quarter that witnessed the crash of reputable global institutions, tightening credit and the onset of recession; thus the total value of OFDI in March at $67 billion represented an increase of some $11 billion since September last. Not surprisingly, outbound portfolio investments that had steadily increased since March 2008 though on a much smaller scale declined as markets crashed in September so that by March, it was less than a billion dollars.

The upsurge in ECBs with small companies joining the list undoubtedly points to the confidence of global lenders in the India story that is beginning afresh. It also shows renewed appetite for funds among corporate borrowers for a variety of reasons: to underwrite mergers and acquisitions (M&A), buy technology or modernise. Equally, it suggests an attractive option for debt from markets with the lowest interest rates in recent times. With the average effective interest rates charged by banks close to 11 per cent and the headline inflation close to zero, real interest rates in India are way too high by comparison. The trend in OFDI by Indian companies shows how strategic considerations have not been dented significantly by the domestic slowdown. While fewer M&A plans are on the anvil than were the case in 2008, the value of OFDI has increased. Data also reveal that most of these investments were in the manufacturing sector with pharmaceuticals, automotive and consumer goods followed by information technology. Typically Indian companies have used the M&A route to access technology and brands unlike OFDI from the developed economies that seek market access in the host country. From a policy viewpoint the continuing trend for such activity must get all the encouragement; persistent liberalisation since 2004 has helped Indian companies build global capabilities and acquire iconic brands.

While the present recession and drop in valuations may hurt, the long term advantages of acquisitions can hardly be denied; up-scaling technological capabilities also equips Indian companies to access mature export markets with greater ease.

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