India Inc. exported $5.70 billion in July, up 17 percent from the $4.89 billion in exports in the same month last year and a 81 percent rise from June, when the figure was $3.15 billion, the Reserve Bank of India's latest data showed. At first glance, it appears to be confidence: Indian companies with resources and a voracious appetite in search of growth outside India. But look into it, and you get a much more interesting tale, both of what's driving capital out of India, and what's driving it back in towards Singapore, the United States, the UAE and the Netherlands.

When the July figure is split into its three legal components, things become clearer. Indian parents' guarantees for their overseas units accounted for 42% of the total, and more than twice the $1.79 billion recorded in June, at $2.81 billion. Equity commitments, or the actual dollars invested in foreign shares, totaled $2.02 billion, an increase of almost three times from June, but slightly less than last July's $2.08 billion. The value of the loan commitments increased to $876 million from June's $588 million and a year earlier's $433 million. What this means is that the headline jump has more to do with Indian companies' backstopping and financing of entities it already has abroad as opposed to making bold new moves.

This is no one-month phenomenon, it is a trend. To understand why, it is important to remember some context from just last month, in the RBI's own July bulletin. As the latest of a pattern that has been in place for more than a year, net FDI inflows into India actually reversed to a net outflow of $74 million in May. Net inflows into India declined 60 percent from a month earlier and 23 percent from one year prior while net outflows by domestic companies rose, data showed. The bulletin also noted that about 3 out of 4 investment flows to the country during the April-May period were made in the U.S., Cayman Islands, and the Netherlands, the majority of which were in the financial services, insurance and manufacturing sectors. That's also not new, either. More than 63 per cent of India's outbound investment in the last two financial years has been channeled through low-tax Singapore, Mauritius and even UAE via special purpose vehicles that ease the process of capital sourcing, tax planning and clean up a balance sheet for foreign partners, independent analysis of RBI filings has consistently revealed.

Wall Street has been paying attention to this expanding into a more structural situation. Even as India has attracted $90.8 billion in FDI on a trailing 12-months basis, which is 13 percent higher, net FDI has come down to what Morgan Stanley described as a “near record low” earlier this year. It's because foreign investors brought back more than $50 billion for the second consecutive year as Indian companies invested abroad is now at $35.8 billion, which is a two-and-a-half-fold increase from two years ago. In other words, money is flowing out from abroad at a quicker rate than it is flowing in from abroad, if you will, and capital is going out of India at a faster rate.

Adding to this calculation is the volatility of trade policy. Manufacturers and exporters had no alternative but to hedge geography when Washington's tariff whiplash shifted from a punitive 50 percent tariff rate on India's Russian oil purchases to an 18 percent rate under the trade framework in February. The industry bodies in Gujarat and Maharashtra have recorded similar instances, where a substantial percentage of production was shifted to the UAE and the export products were sufficiently processed in the UAE to avail of the lower tariff wall with the US which is applicable for Indian-origin products. That isn't the classic capital flight. It is defensive relocation and also it is outward FDI.

This does not indicate that Indian businesses are giving up on the Indian market. Foreign officials who have set up such entities for a living are not very tolerant of any interpretation of the numbers as a vote of no confidence in India. Their logic is that a Singapore or Netherlands holding company is all too often the cost to get a strategic investor in the door, to negotiate better exit terms or to simply be able to operate with the same tax efficiency that American and European multinationals have enjoyed for decades via Ireland or Luxembourg. New Delhi has made it its responsibility to make structuring outbound transactions less of a prerequisite, and a record 219 advance pricing agreements (APAs) have been signed by the Indian government in the past financial year to ensure Indian multinationals have greater clarity on cross-border tax treatment. This structuring will gradually be brought back onshore with the growing fund and finance ecosystem in GIFT City.

However, policy tweaks at the margins are unlikely to change this trend, which is driven by lower valuations of the rupee, a still tepid domestic capex cycle and further a regulatory environment that founders and boards find easier to navigate from Singapore than Mumbai. If this continues, don't look for any super-bubbly months like July, when there are strong numbers in the outward investment category, because it is not ominous news about how much or how little the world offers in terms of business opportunities, but a sober evaluation of how easy or hard it is to build and finance a global business from within India.