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Domestic Investments

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Domestic Investments

April, 2010

Investment Scenario

The measures initiated in the Union Budget 2010-11 would help revive private investments and put the economy on 9 per cent growth, according to Mr Pranab Mukherjee, Union Finance Minister. The measures that would help revive private investments include enhancing allocation to the micro, small and medium enterprises (MSME) sector to US$ 535.8 million, increasing the limit for presumptive taxation, raising the threshold for compulsory auditing of accounts of small businesses, extension of interest subvention for exports in certain sectors and exemption from capital gains tax to facilitate conversion of small businesses to limited liability partnership (LLP) format.

Among the states which have received maximum investment proposals in 2009 are Gujarat, Orissa and Andhra Pradesh, a study on corporate investments by an industry body said. Gujarat witnessed US$ 53.1 billion worth of investment plans during the period of January-December 2009. The state attracted majority of investment plans in the real estate, power and infrastructure sectors driven by the investor friendly policies of the state government. Orissa and Andhra Pradesh followed Gujarat in attracting investments, according to the study. Total investment plans of India Inc. increased significantly from US$ 298.5 billion in 2008 to US$ 344.8 billion in 2009; out of which Gujarat, Orissa and Andhra Pradesh carved out a majority share of 15.4 per cent, 12.6 per cent and 8.1 per cent respectively.

Orissa recorded investment proposals worth US$ 43.4 billion in 2009 becoming second in position after Gujarat. The state boasts of rich mineral resources, including coal and iron ore and cheap availability of manpower, which attracted massive investments in Orissa. The sectors which attracted maximum investments in the state include steel and power.

Andhra Pradesh ranks amongst the top three states in attracting corporate investors in 2009 and recorded investment plans to the tune of US$ 27.9 billion in the same year. The major sectors that attracted maximum investments in the state include energy and the real estate.

Karnataka and Maharashtra stood at fourth and fifth position by attracting investment plans worth US$ 22.9 billion and US$ 19.9 billion respectively during 2009. Karnataka has cashed in its investor friendly image by attracting a proposal of setting up a 6 million tonne (MT) integrated steel plant by Arcelor Mittal. Maharashtra has also been among the leading investment destinations in the country.

In terms of sectoral analysis, the study shows that the power sector was the major investment attracting sector for 2009. The sector attracted investment plans worth US$ 89.6 billion with a share of 26 per cent in the overall investment plans across the country.

Power sector is the top investment attracting sectors in 2009, followed by, real estate and energy sector. Real estate sector witnessed proposed investment plans worth US$ 55.7 billion whereas energy sector attracted proposed investments to the tune of US$ 43 billion.

Other sectors which recorded high flowing corporate investments during 2009 were metals and mining (US$ 35.5 billion), infrastructure (US$ 16.1 billion), hospitality (US$ 9.5 billion), auto and auto components (US$ 8.3 billion) and telecom (US$ 7.5 billion).

Significantly, total value of domestic deals in March 2010 was US$ 544 million (42 deals) as against US$ 1.9 billion (12 deals) and US$ 217 million (13 deals) clocked during corresponding period in 2009 and 2008 respectively. According to a Grant Thornton analyst, a positive trend to note is that there have been close to US$ 2.5 billion worth of deals in March 2010 in addition to the Bharti-Zain transaction value. Besides Bharti Airtel, the other top deals included Fortis Healthcare's acquisition of Parkway Holdings for US$ 685 million, and Essar Minerals buying Trinity Coal Corporation at US$ 600 million.

Investment initiatives

The government recently approved six proposals for setting up of special economic zones (SEZs), including gems and jewellery SEZ by Delhi State Industrial and Infrastructure Development Corporation. The Board of Approval (BoA) in the Ministry of Commerce also gave in-principle approval to two proposals, including that of Sterlite Industries (India) Ltd for copper SEZ in Tuticorin, Tamil Nadu. Lanco Solar Pvt Ltd got approval for solar tax-free enclave, which would be set up in Cuttak, Orissa. The government also approved the IT/ITeS tax-free zone of Uralungal Labour Contract Cooperative Society Ltd at Kozhikode, Kerala.

India's economy may be entering a new investment cycle going by expansion plans across industry sectors, a move that could create more jobs, boost demand for machinery and supporting infrastructure, and portend a strong pick-up in the growth momentum in the years ahead.