INDIA CALLING – Investment Destiny

  • February 25, 2023
  • Posted by: ENGAGETREE
  • Category: Uncategorized
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India has emerged as one of the most preferred destinations in the world. The country is growing rapidly and is expected to become a US$ 5 Trillion economy by 2025 from present US$ 3 Trillion mark. The attractiveness of India as a preferred destination for investment could be understood from the large increase in FDI inflows to India. It grew from $6B in 2002 to almost $38B in 2009.

The IMF (International Monetary Fund) has retained India’s FY23 growth forecast at 6.8%, terming the country a bright spot and major engine of growth amid an expected fall in global growth to 2.9% in 2023 from an estimated 3.4% in 2022.

The Reserve Bank has projected India’s economic growth at 6.4 per cent for 2023-24, broadly in line with the estimate of the Economic Survey tabled in Parliament. Gross Domestic Product (GDP) growth is estimated at 7 per cent in 2022-23.

The Reserve Bank of India (RBI), in order to boost India’s digital economy, is planning to launch the Central Bank Digital Currency (CBDC)as India’s official digital rupees in FY 23. The digital rupee will play a crucial role in improving the speed of transactions and reducing the cost of cast.

Following factors are influencing investments in India

1.INDIA’S POPULATION

Third, India’s current population is expected to rise from 121 crore to 152 crore. The country has a large and increasing middle class who are willing to spend. This provides a major market potential for a wide range of products and services across industrial sectors. It is a huge draw for foreign investors looking to expand to developed markets outside.

2. LOWEST MANUFACTURING COSTS & SCALABILITY

India ranks second among world countries in terms of lowest manufacturing costs.  India has a young working population that will increase to 15 crore from 2022 to 2050. Of that 50 per cent of the population is under the age of 25 and more than 65 per cent under the age of 35 years. India has a consistent supply of skilled and semi-skilled workforce at a low cost. The availability of labour at a cheaper cost lowers production cost and increases competitiveness. It will be a key driver of economic growth over the long term.

3. FAVOURABLE INDUSTRIAL POLICIES

With appealing industrial policies, programmes such as Skill India and Digital India, and significant investments in industrial corridors, seaports, airports, roads, and railways, India provides a favourable investment climate for manufacturing firms.

 

4. GOVERNMENT SUPPORT / REFORTS.

The world’s leading corporations are looking for investment opportunities in the Indian Market. A host of government initiatives has also enabled India’s investment growth, which includes developing India’s financial system, improving the infrastructure and relaxing FDI norms. The Government has propagated an investor friendly FDI policy, in which most sectors are open for 100% FDI under the automatic route. India’s FDI policy is also reviewed on an ongoing basis to ensure that India remains an attractive and investor-friendly destination.

India has been very successful in increasing its rank and obtaining the 63rd position in the Ease of Doing Business.

5. FDI POLICIES – The government is also working on an investor-friendly strategy to encourage FDI.

The Deloitte survey mentioned above suggests that India can target attracting greater FDI into seven capital-intensive areas that have secured $181 billion of merchandise exports in 2020-21. These areas are — food processing, chemical, vehicle and parts, textile and apparel, pharmaceuticals, electronics, and capital goods. On the other hand, the RBI specifies manufacturing, communication services, computer services, retail and wholesale trade sectors, and financial services, which accounted for the major stake of FDI inflow during April-August 2022.

According to the UNCTAD’s World Investment Report-2022, as many as 108 new international project finance deals have taken place in the country against the 20 projects on average for the last 10 years. The largest projects include the construction of a steel and cement plant for $13.5 billion and a new car manufacturing facility for $2.4 billion.

The government action towards liberalised FDI policy has resulted in higher FDI inflows in India even amidst the heavy selling by foreign portfolio investors. Infrastructure in India has witnessed a growth in spending. Over the next two decades more than USD 1.5 Trillion investments are planned for infrastructure.

FDI Investment Routes

Foreign Direct Investment (FDI) can be made through two routes that are:

Automatic Route:

Indian companies engaged in various industries can issue shares to foreign investors up to 100% of their paid up capital in Indian companies

 Government Approval Route

Certain activities that are not covered under the automatic route require prior Government approval for FDIs.

 *Investors are advised to check for government approval and other related sector condition in latest FDI Circular Section 5.

 Procedure for Government Approval

Foreign Investment Facilitation Portal (FIFP) is the new online single point interface of the Government of India for investors to facilitate Foreign Direct Investment. This portal is designed to facilitate the single window clearance of applications which are through approval route. Upon receipt of the FDI application, the concerned Administrative Ministry/Department shall process the application as per the Standard Operation Procedure (SOP).

Subsequent to abolition of the Foreign Investment Promotion Board (FIPB) by the Government, the work of granting government approval for foreign investment under the extant FDI Policy and FEMA Regulations, has been entrusted to the concerned Administrative Ministries/Departments.

The eleven notified sectors/activities requiring government approval are:

  • Mining, Defence/cases relating to FDI in small arms
  • Broadcasting
  • Print media
  • Civil Aviation
  • Satellites
  • Telecom
  • Private Security Agencies
  • Trading(Single, Multi brand and Food Products)
  • Financial services not regulated or regulated by more than one regulator/ Banking Public and Private (as per FDI Policy)

On the FDI front, in FY22, India received its highest-ever annual FDI inflow, standing at US$ 83.57 billion, a staggering 85.09% growth from US$ 45.15 billion FDI inflows in FY15. In the manufacturing sector, FDI equity inflows stood at US$ 21.34 billion in FY22, a 76% YoY growth from US$ 12.09 billion in FY21.

Singapore (27%) was the country with the highest FDI equity inflow in India in FY22, followed by the US (18%) and Mauritius (16%).

India’s Private Equity (PE)/Venture Capital (VC) investment environment is also scaling new heights, with increases in deal size, deal activity and fundraising, as well as improvements in term sheets and benchmarking practices. In the first half of 2022 (January-June), PE/VC investment activity stood at US$ 34.1 billion across 714 deals, a 28% growth YoY. Among these, startup investments were the highest, standing at US$ 13.3 billion across 506 deals.

RECENT DEVELOPMENTS/INVESTMENTS

Recent speedy infrastructure investments, the inclusion of more sectors under the PLI (Production Linked Incentive) scheme, increase in public investments, and increasing PE/VC activity has led to plenty of investments in the Indian market. A stabilising economic backdrop and financial oversight have provided investors with a perfect opportunity to invest in the country and have made India a rising economic powerhouse. Some of the recent investments and developments in this space are as follows:

 

  • In September 2022, PE/VC investments in India stood at US$ 2 billion across 73 deals.
  • Infrastructure was the top sector in September 2022, with US$ 795 million in PE/VC investments across 4 deals.
  • In the third quarter of FY22 (July-September), US$ 8.3 billion was invested in PE/VC investments.
  • In September 2022:
    • Singapore-based investment firm Temasek has invested US$ 85 million in Goa-based diagnostics chain, Molbio Diagnostics Pvt. Ltd, which values the company at US$ 1.6 billion.
  • Google-backed DotPe has raised US$ 54.4 million in a funding round led by Singapore’s sovereign fund Temasek.
  • In its most recent round of fundraising, the space technology startup Skyroot Aerospace raised US$ 51 million, with GIC of Singapore serving as the round’s lead investor.
  • Education-focused non-bank lender, Avanse Financial Services, raised roughly Rs. 390 crore (US$ 47.35 million) from its current shareholders, Warburg Pincus, and International Finance Corporation (IFC).
  • The Hero Group and US private equity company KKR will invest US$ 450 million in Hero Future Energies (HFE). Along with eventually entering new markets, the investment will assist HFE in increasing capacity and capabilities across technologies like solar, wind, battery storage, and green hydrogen.
  • Reliance Power has raised Rs. 933 crore (US$ 113.28 million) through a private placement of shares to VFSI Holdings, an affiliate of investment firm Varde Partners.
  • In FY22, net inflows into mutual funds stood at Rs. 2.46 lakh crore (US$ 30.93 billion).

In June 2022:

  • India’s sovereign wealth fund, National Investment, and Infrastructure Fund (NIIF) announced that it would invest Rs. 2,250 crore (US$ 282 million) to acquire around 22.5% stake in Hindustan Ports Pvt. Ltd (HPPL).
  • Abu Dhabi Investment Authority (ADIA) announced plans to invest Rs. 2,200 crore (US$ 275.89 million) into IIFL Finance for a 20% stake in the company.
  • Shriram Transport Finance Company (STFC) secured a loan of US$ 250 million from the US Development Finance Corporation (DFC).
  • In May 2022, Bodhi Tree announced plans to invest US$ 600 million in ALLEN Career Institute to build India’s largest test-prep company.

Startup PE/VC investing in India stood at US$ 28.5 billion in 2021, a 290% YoY growth.

  • Technology (US$ 16.3 billion), e-commerce (US$ 15.9 billion) and financial services (US$ 11.7 billion) accounted for 57% of the total PE/VC investments by value in 2021.
  • The AUM of the PE/VC industry in India exceeds US$ 150 billion, as of 2021.
  • In 2021, new sectors like edtech, electric vehicles, gaming, online streaming, and sports-based entertainment recorded significant PE/VC investment inflows of over US$ 10 billion.
  • In March 2022, FDI equity inflow into India stood at US$ 4.59 billion.
  • PE and VC investments stood at US$ 15.5 billion across 360 deals between January-March 2022. The largest deal in this time period was Baring PE Asia buying out IGT Solutions Private Limited from AION for over US$ 800 million.
  • Private equity and venture capital firms invested US$ 77 billion across 1,266 deals in India in 2021, a 62% increase from last year’s US$ 47.6 billion across 923 deals.
  • In 2021, 598 M&A deals worth US$ 112.8 billion were signed/concluded, a record high.

According to the UNCTAD’s World Investment Report-2022, as many as 108 new international project finance deals have taken place in the country against the 20 projects on average for the last 10 years. The largest projects include the construction of a steel and cement plant for $13.5 billion and a new car manufacturing facility for $2.4 billion.

 



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