Domestic Investment in India

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Last updated: Jun, 2014

Introduction

India has emerged as the third biggest economy in the world in terms of purchasing power parity (PPP), according to a World Bank report. The country was ranked 10th in the previous survey conducted in 2005. Also, India is likely to become the world’s third largest economy in the next three decades, as per Mr P Chidambaram, Minister of Finance, India. Indian Inc witnessed total domestic merger and acquisition (M&A) deals worth US$ 5.74 billion in 2013, according to a Grant Thornton report.

From a growth standpoint, the country looks stronger than many other emerging markets, according to Mr Frederic Lebel, Co-Chief Executive Officer and Chief Investment Officer of OFI MGA, the France-based hedge fund. The HSBC's Manufacturing Purchasing Managers' Index (PMI) for India stood at 51.3 points in April 2014, amid moderate expansion of incoming new business orders. Further, liberalisation of the economy and a growing need for investment, particularly in infrastructure and industry, have resulted in a more investor-friendly climate in India. 

Market Size

The total domestic M&A deals in the first quarter of 2014 stood at US$ 2.7 billion, up 111.2 per cent compared to the first quarter of 2013. Of this total, the bulk focused on the energy and power sector with US$ 1.9 billion, an eleven-fold increase from the same period last year. Energy & Power captured 71.3 per cent of India’s domestic M&A activity this year, according to a report by Thomas Reuters.

Indian insurance companies plan to spend Rs 117 billion (US$ 1.99 billion) on information technology (IT) products and services in 2014, a five percent increase compared to 2013, as per Gartner Inc.

The country’s airports sector is expected to receive investments worth US$ 12.1 billion during the 12th Five-Year Plan, of which US$ 9.3 billion was expected to come from the private sector for construction of new and low-cost airports and expansion and modernisation of existing ones, as per Mr Ajit Singh, Union Minister for Civil Aviation, Government of India.

Investments

National Buildings Construction Corporation Ltd (NBCC) plans to open townships in Alwar, Gurgaon, and Khekra (near Delhi–Saharanpur Highway) over the coming three months, according to Mr Anoop Kumar Mittal, CMD, NBCC. Each township will comprise 500-1,000 affordable housing units.

Jaypee Group plans to diversify into healthcare by investing in excess of Rs 2,000 crore (US$ 340.61 million) over the next three–four years to set up a hospital chain with a minimum capacity of 3,000 beds.

Helion Venture Partners plans to invest about Rs 25 crore (US$ 4.26 million) in enterprise mobility company RapidValue, which helps companies migrate their business operations to laptops, tablets and smartphones.

Steel Authority of India Ltd (SAIL) has secured contracts for supplying over 117,000 tonnes of rails after successful bids for two global tenders floated by Rail Vikas Nigam Ltd (RVNL), for major upcoming passenger rail line projects in India.

Swelect Energy Systems (SWEES) has commissioned its 15 megawatt (MW) solar energy park set up with an investment of Rs 106 crore (US$ 18.05 million) near Vellakoil, Tamil Nadu.

Tractors and Farm Equipment Ltd (TAFE) plans to invest Rs 250 crore (US$ 42.56 million) by the end of FY 15 on expansion and development of new products.

Government Initiatives

The Ministry of Communication and Information Technology, Government of India, plans to extend basic mobile coverage, including voice calling—in remote areas of eight North-Eastern States—at an estimated cost of over Rs 5,000 crore (US$ 851.29 million).

The metro rail link between Noida and Greater Noida has received a green signal from the Ministry of Urban Development. The Ministry has approved Delhi Metro Rail Corporation's (DMRC) appointment as a consultant for the project on a turnkey basis.

The Department of Telecom plans to set up an application development centre with an investment of Rs 1,000 crore (US$ 170.28 million) over a three-year period. The project, which will be financed by the Universal Services Obligation (USO) fund, is aimed at generating income for the USO fund to add to the revenue share received from telecom operators.

The Government of India along with the industry has been working towards fashioning a more dynamic environment for small and medium enterprises (SMEs) and startups over the last few years. Indian SMEs employ about 40 per cent of the country’s workforce and contribute 45 per cent to the overall manufacturing output. A positive policy framework allied with the growth of angel funds and a vibrant entrepreneurial culture is contributing to the growth of first generation entrepreneurs in the country. 

Further, in the interim Budget 2014–15, the government has raised allocation towards the infrastructure sector by 8.6 per cent. It plans to allocate Rs 181,134 crore (US$ 30.84 billion) to the sector, comprising power, coal, roads, civil aviation, ports and railways. The overall outlay for India's space programme was also increased from Rs 5,172 crore (US$ 881.11 million) to Rs 7,238 crore (US$ 1.23 billion).

Road Ahead

"India is now becoming home to a new breed of startup companies focused on high growth areas such as mobility, e-commerce and other vertical specific solutions - creating new markets and driving innovation," highlighted Mr Krishnakumar Natarajan, Chairman, Nasscom.

The year 2014 looks like the year of the big deal. It has started with a high note for inbound M&A, with Indian Inc seeing more than 15 such deals in the first two months of the year. Besides the mounting interest from buyers in the Indian consumer growth story, other sectors such as healthcare, metals, real estate and telecom have led the way in M&A deals this year. According to experts, the overall deal values in India could exceed US$ 30 billion in 2014-15.

The economy is on a bend, with the gross domestic product (GDP) growth likely to expand six per cent in FY 15 and by eight–nine per cent over the next three years, highlighted Mr Anand Sharma, Union Minister for Commerce and Industry, Government of India. For India to grow in the near future, there needs to be a sustained growth in manufacturing, particularly labour-intensive manufacturing.

Exchange Rate Used: INR 1 = 0.01704 as on May 20, 2014

References: Ministry of Finance, Press Information Bureau (PIB), Media Reports, Department of Industrial Policy and Promotion (DIPP)

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