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Modi's two-year regime sees record US$ 40-bn PE investment

Business Standard:  June 02, 2016

Prime Minister Narendra Modi's myriad foreign visits have often come under criticism. But, it has apparently helped attract a record $40-billion investment by private equity (PE) in India, according to VCCEdge.

The rising significance of PE investments is evident by their contribution to foreign direct investment (FDI) flow into the country. According to Bain & Company, the PE sector contributed $24 billion out of the $37-billion net FDI in 2015. In the previous year, PEs contributed about $15 billion of the $22 billion net FDI. The number of funds participating in India also increased to 240 in 2015 from 193 a year ago, says Bain.

"The focus of the PM and his government on clear communication to the global community, that India means business and wants to attract foreign dollars, has given a strong message to investors - 'invest in India'," says Dhanpal Jhaveri, managing partner, Everstone Capital.

The India-focused fund raised its third fund with the largest $730-million corpus last year, indicating the growing comfort of global investors in India's growth story.

The focus on keeping the fiscal deficit in check and kick-starting planned expenditure have been helpful. Rail, road, shipping and defence ministries now have large spending budgets; so, there is enough economic activity. But, stretched corporate balance sheets have slowed annual credit growth to less than 10 per cent now from 16 per cent at its peak about five years ago. Everstone believes kick-starting the economy is going to happen only if the government starts aggressive planned expenditure, as banks are under pressure, with rising bad debt.

"When you are undertaking structural reforms and moving away from a subsidy regime to a direct benefit regime, and trying to basically convert a cash and partially opaque economy into a more financially transparent one, as this government is aiming to do, there will be short-term challenges to consumption. But, it is more a transition period," says Jhaveri.

He sees green shoots in power sector reform and says the aggressive stance of the government to roll out Goods and Services Tax, besides the Make in India campaign and enabling state governments would bring labour reforms.

This year, Carlyle the world's second largest PE fund, ranked India the most attractive investment destination in the world, by offering the highest expected returns on incremental capital over the next four years.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.