Mergers and acquisitions in India

Abstract

During the past two years, the inflow of Foreign Direct Investments (FDI) in India increased by 46% . There is a favorable climate in the country for foreigners who tend to get away from China [1]. Foreign investors are indeed allowed to hold 100% in sectors such as information technology services, cars industry or hotel businesses. They can also hold shares in others sectors - such as retail - through joint-ventures, mergers or acquisitions. Besides, the low cost of labor and the unlimited resources motivate the increase in the FDI. We can explain this FDI trend by the significant increase in India’s Gross Domestic Product (GDP) at the beginning of the 21th century. In 1991, several foreign shocks affected India’s economy. The Gulf War led to an increase in oil prices, to a slowdown of the global demand and to the collapse of the Soviet market deteriorated the trade deficit. Moreover, the internal political instability contributed in the degradation of the foreign debt. From that point, the Indian government began a new economic strategy: a program of stabilization and structural reforms supported by the International Monetary Fund (IMF) and aiming at liberalizing and opening the economy. The rupee was depreciated by 24 % in July 1991. Therefore the workforce increased thanks to the foreign companies which outsource their production in India.