Domestic Investment in India

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Last updated: Nov, 2013

Introduction

The domestic investment market in India is in good health. The total value of domestic deals in India during the third quarter of 2013 was US$ 1.31 billion, up from US$ 1.29 billion during the corresponding period of 2012. The country’s industrial economy is gathering momentum on the back of the improved output of eight core sector industries – coal, crude oil, refining, steel, cement, natural gas, fertilisers, and electricity – which rose at its fastest pace in a year at 8 per cent in September 2013.

Also, Indian corporates raised Rs 1,700 billion (US$ 27.20 billion) through commercial papers (CPs) during the first half of FY 2013–14. A total of 169 issuers raised this amount, according to a report by Prime Database.

In spite of the country’s improvement in domestic investment over the years, a lot can still be achieved. A developing country like India should focus more on domestic investments than foreign direct investment (FDI), according to Mr Onno Ruhl, Country Director for India, World Bank. The good news is that there is wide scope for domestic investments in the country.

Investment options in India

  • Indian companies signed as many as 360 private equity (PE) deals totalling US$ 8.9 billion during January–October 2013 period, registering an increase of 33 per cent on the deals of the corresponding period in 2012. The total value of PE deals in the first 10 months of 2012 was worth US$ 6.7 billion, according to a report by global assurance, tax and advisory firm Grant Thornton.
  • Ford India Pvt Ltd, which exports cars and engines made in India to 37 markets worldwide, plans to take that number to 50 over the next few years. “We want to make India an export hub for low displacement engines and small cars,” said Mr Joginder Singh, President and Managing Director, Ford India.
  • India's IT-business process outsourcing (BPO) industry revenue is expected to cross US$ 225 billion by 2020, according to a Confederation of Indian Industry (CII) report, titled 'The SMAC Code – Embracing New Technologies for Future Business'.
  • Public cloud services market in India is expected to grow by 37.5 per cent in 2013 to touch US$ 434 million. This is an increase of US$ 119 million from the US$ 315 million forecast for 2012, according to a study by information technology research and advisory firm, Gartner.

Investments

A high-level delegation of 120 Indian business leaders led by Mr Anand Sharma, Union Minister of Commerce and Industry, Government of India, discussed various business opportunities with their Russian counterparts at the India–Russia Trade and Investment Forum. Special focus was placed on the pharmaceutical and medical industry; tourism and medical tourism; and trade in goods, services and innovative products.

IT spending by the Government of India is projected to touch US$ 6.4 billion in 2013, a growth of 7 per cent year-on-year, according to a report by Gartner.

The following are some of the other investments:

  • Rashtriya Ispat Nigam Ltd (RINL) and the Indian Railways have signed an agreement to set up the country's largest wheel plant at Rae Bareli, Uttar Pradesh, with an investment of Rs 1,100 crore (US$ 176 million).
  • The water division of IVRCL Ltd has bagged four projects worth Rs 1,423.37 crore (US$ 227.74 million). The projects have been awarded by the Public Health Engineering Department (PHED), Jodhpur, Rajasthan.
  • ACC Ltd plans to invest Rs 3,000 crore (US$ 480 million) to expand its capacity by nearly four million tonnes (MT) a year, in three eastern region states over the next three years.
  • Hero MotoCorp has commenced the setting up of a research and development (R&D) centre at Kukas, Rajasthan, with an investment of Rs 450 crore (US$ 72 million). The centre will play a key role in the company's future product development.
  • Kalpataru Power Transmission has secured orders worth about Rs 620 crore (US$ 99.20 million). The company also announced securing a project worth Rs 94 crore (US$ 15.04 million) for setting up a 160 km long liquefied petroleum gas pipeline from HPCL.
  • JK Tyre and Industries Ltd plans to add Rs 300 crore (US$ 48 million) in revenues in a year through the launch of 10 new products. The company is also planning to invest Rs 1,430 crore (US$ 228.80 million) to ramp up capacity at the Chennai plant.

Government Initiatives

The Indian infrastructure landscape is expected to attract investments worth Rs 49,000 billion (US$ 784 billion) during the 12th Five Year Plan period (2012–17), with at least 50 per cent funding from the private sector.

The Cabinet Committee on Investments (CCI) has approved for speedy execution of 36 infrastructure projects entailing investments of Rs 1,830 billion (US$ 29.28 billion) to boost investor confidence, according to Mr P Chidambaram, Union Minister for Finance, Government of India.

The following are some of the major initiatives taken by the Government of India to boost investments:

  • The Government of India has approved plans to set up two chip-making facilities that will entail an investment of over Rs 25,000 crore (US$ 3.92 billion). The total electronics, system, design and manufacturing market is projected to reach US$ 400 billion with semiconductor consumption touching US$ 55 billion, by 2020, according to a statement by the India Electronics and Semiconductor Association (IESA).
  • The Government of Uttar Pradesh (UP) has attracted investments worth Rs 96.08 billion (US$ 1.54 billion) in the industrial sector since April 2012. Also, at the second ‘Invest North’ Conclave 2013’ in August at New Delhi, the Government of UP received preliminary proposals worth Rs 22,000 crore (US$ 3.52 billion) for establishing projects in diverse sectors such as consumer goods, solar power, auto parts, sewage treatment plant and education.
  • NHPC Ltd plans to take over private hydropower projects and is ready to invest equity worth Rs 20,000 crore (US$ 3.2 billion) over the next five years.
  • The Government of India plans to set up two spice parks at Sitarganj and Sahaspur in Uttrakhand with the help of Spice Board of India, said Mr Anand Sharma, Union Minister for Commerce and Industry, Government of India. The project would be undertaken with a view to improving the quality of spices in the state.

Road Ahead

For India to grow at 8-9 per cent in the future, sustained growth in manufacturing, particularly labour-intensive manufacturing, is required, highlighted Dr Manmohan Singh, the Prime Minister of India, at the meeting of the high-level committee on manufacturing.

Moreover, General Electric (GE) plans to make India a manufacturing hub for its global markets due to the country’s vast talent pool and lower manufacturing costs. The company's upcoming plant at Chakan, Maharashtra, is the first major step towards this direction, according to Mr Banmali Agrawala, President and CEO, GE South Asia.

Exchange Rate Used: INR 1 = 0.01601 as on November 19, 2013

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

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