Guess which country has become the preferred destination for Indians investing abroad? It is not U.S., U.K. or Russia, but the Netherlands. According to an estimate, about $244 million investments were approved for the Netherlands, ahead of $225 for the U.S. during the first nine months of the financial year 2005-06. The total overseas Indian investment approvals were of $1.6 billion for this period. In fact, there is a sudden spike in the Indian investment in the Netherlands, as the approvals for the nine-month period of April 2005 to December 2005 were higher than the total figure for the eight years prior to this (1996-97 to 2004-05). On the basis of cumulative investment approvals since April 1996, the Netherlands stands last among the top ten. In the cumulative list, Russia and U.S. still hold the top slots.

In terms of actual foreign direct investment (FDI) outflow, there has been a 70% increase during the ten-month period from April 2005 to January 2006 compared to the corresponding period of the previous financial year. The largest chunk of this outward FDI has been from the manufacturing sector, which contributed 50%. Non-financial services had a 30% share in the pie. During the year 2004-05, the total outward FDI increased to $2.4 billion From $757 million in 2000-01. Outward FDI from India to certain markets such as the U.K. has already exceeded the inward FDI from those markets. Outbound FDI by the Indian companies range across sectors such as IT, Pharmaceuticals, electronics, chemicals, steel, engineering, automobile, energy etc.
The spike in the overseas Indian investment is the direct result of the favourable actions taken by the Indian government in the beginning of 2004. The Indian government had then allowed Indian companies to freely make overseas investments up to 100% of their net worth either through a joint venture or a wholly-owned subsidiary; while earlier they were restricted to only 25% of their net worth. Also, the ceiling of $100 million on overseas investment was lifted along with some other restrictions.

With the liberal overseas investment norms that coincided with the high growth phase for Indian industry, Indian companies started looking at the global opportunities. It has created a wave of outward FDI from India. Europe, so far largely untapped by the Indian companies, became a major destination for those having a global dream. Not only the blue chip leaders, but also many mid-size companies have tuned in to the global mode. Manufacturing sector, especially pharmaceutical companies led the way, as the companies belonging to this sector tried to leverage the double benefit of an overseas acquisition. These acquisitions on the one hand provided them a foothold in the target destination, as well as offered technology they needed. Also, Indian IT companies tried to expand their presence in the European market, as the U.S. market had become too competitive for them.

The Netherlands has offered the companies seeking expansion in the European market an ideal foothold, as the country is considered to be very investment friendly and English is widely used as the medium of communication. Apparently that is the reason for some Indian companies to set up a holding company in the Netherlands for expanding in the whole European region.