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Domestic Investment in India

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Last updated: Nov, 2020

Introduction

The Government of India have taken significant initiatives to strengthen the economic credentials of the country and make it one of the strongest economies in the world. India is fast becoming home to start-ups focused on high growth areas such as mobility, E-commerce, and other vertical specific solutions - creating new markets and driving innovation.

Rise in domestic investments has been one of the biggest contributors to the India growth story and public and private sector have both enabled and sustained these investments. Following are the various investors driving domestic investments in the country:

  • Government/Public Sector Enterprises’ Capital Expenditure
  • Private Sector Enterprise
  • Banks/Financial Institutions/Domestic Institutional Investors
  • Retail Investors

Market Activity

Gross Fixed Capital Formation (GFCF), at constant 2011-12 prices, was valued at Rs 5.9 trillion (US$ 80 billion) in the first quarter (April-June) of 2020-21. The government targeted capital expenditure to reach Rs 4.12 trillion (US$ 55.67 billion) in 2020-21 (Rs 631.78 billion (US$8.7 billion)) higher than the revised estimates for 2019--2020).

At constant 2011-12 prices

Q1 (April--June) of 2019--20

Q1 (April--June) of 2020--21


GFCF

Rs 11.3 trillion
(US$ 0.15 trillion)

Rs 5.9 trillion
(US$ 0.08 trillion)

Exports

Rs 7.0 trillion
(US$ 0.10 trillion)

Rs 5.6 trillion
(US$ 0.08 trillion)

Imports

Rs 8.2 trillion
(US$ 0.11 trillion)

Rs 4.9 trillion
(US$ 0.07 trillion)

 

In the first half of the year (2020--2021), Private Equity (PE) investments decreased by 10% to US$ 18.3 billion, from US$ 20.4 billion in the first half of 2019--2020. Of this, the Jio Platform’s deal worth US$ 9.6 billion accounted for 52% of the total PE/VC investments. Overall, most sectors witnessed a decline in investments, while telecom and life sciences recorded an increase in investments in the first half of 2020.

Key Sector

PE/VC Investments

Number of Deals

YoY % Change

Telecom

US$ 9.7 billion

11

10%

Financial services

US$ 1.8 billion

74

-53%

Life sciences

US$ 1.5 billion

43

60%

Infrastructure

US$ 1.6 billion

17

-71%

 

Investments/developments

With the improving economic scenario, there have been quite a few investments in various sectors along with M&A in India. Some of them are as follows:

  • In 2019-20, institutional investment in Indian real estate stood at US$ 4.48 billion.
  • As the first quarter for 2020--21 ended in June, Foreign Portfolio Investors (FPI) investments in Indian equities stood at US$ 344 billion, 23% higher than the previous quarter. This growth could be attributed to lifting of the lockdown—an increasing effort from the government to kickstart the economy.
  • The inbound M&A activity in India stood at ~US$ 17 billion in the first half of the year 2020.
    • Facebook invested ~US$ 5.7 billion in Jio Platforms, the largest deal in the first half of 2020.
    • Groupe ADP also contributed to the inbound activity with US$ 1.5 billion investment in GMR Airports.
  • Coal India will be investing > Rs 1,220 billion (US$ 16.7 billion) in 500 projects by 2023--24 to improve efficiency in coal transport.
  • Bengal Chemicals & Pharmaceuticals Ltd. achieved a record production of phenol worth Rs 83 million (US$ 1.14 million) in August 2020.
  • In August 2020, the Oil & Gas industry announced 8,363 projects worth Rs 5,880 billion (US$ 80.6 billion). For the completion of these projects, a total of ~338 million man-days (direct and indirect) of employment will be generated. Out of this, >97.6 million man-days of employment generation are targeted for FY 2020--21.

Government Initiatives

The Government of India has taken several initiatives across sectors to improve the overall economic condition in the country. Some of these are:

  • Mr Nitin Gadkari, Union Minister for Road Transport & Highways and MSME stated that the government aims to enhance MSME’s contribution to GDP from ~30% to 50%; in exports from 49% to 60%. He also said that the government aims to create 5 crore (50 million) additional jobs in the MSME sector, which currently employs ~110 million people.
  • On September 09, 2020, Union Minister of Finance & Corporate Affairs, Ms Nirmala Sitharaman inaugurated ‘Doorstep Banking Services’, by Public Sector Banks (PSBs), which enabled customers to avail all the banking services right at their doorstep through the universal touchpoints of Call Centre, Web Portal or Mobile App.
  • On June 01, 2020, the Government of India launched ‘PM Svanidhi Scheme’ to help street vendors resume their livelihood activities. It targets to benefit >5 million street vendors. Under this scheme, vendors can avail a working capital loan of up to Rs 10,000 (US$ 137), which will be repayable in monthly instalments in the tenure of one year.
  • Atal Innovation Mission (AIM), NITI Aayog, in September 2020 launched the ‘Aatmanirbhar Bharat ARISE-Atal New India Challenges’ programme to boost research and innovation in Indian MSMEs and start-ups by providing funds up to Rs 5 million (US$ 0.08 million) to support speedy development of the proposed technology solution and/or a product.
  • As of September 09, 2020, a sum of ~Rs 1.03 billion (US$ 1.4 billion) was released by the Ministry of Road Transport and Highways a part of Aatma Nirbhar Bharat, in building road infrastructure in the country. Another sum of Rs 24.75 billion (US$ 0.3 billion) is being processed and likely to be released soon.
  • In August 2020, Prime Minister, Mr Narendra Modi, launched a financing facility worth Rs 1 trillion (US$ 13.75 billion) under the ‘Agriculture Infrastructure Fund’.
  • In August 2020, Japan committed ~Rs 35 billion (US$ 472.94 million) as ‘Official Development Assistance’ for the health sector to fight the COVID-19 crisis in India.
  • As of August 17, 2020, 12.2 million KCCs have been sanctioned with a credit limit of Rs 1.02 trillion (US$ 13.98 billion); this is expected to accelerate growth in the rural economy and agricultural sector. This is a part of the Aatm-Nirbhar Bharat Package, wherein the government had announced provision of a concessional credit of Rs 2 trillion (US$ 27.4 billion), which is likely to benefit 25 million farmers, including fishermen and dairy farmers.
  • In July 2020, Department of Science & Technology (DST) announced funds worth Rs 150 million (US$ 2.06 million) to support India-Russia’s collaboration on R&D and cross-country technology adaptation.

Road Ahead

The Association of Mutual Funds in India (AMFI) is targeting nearly five-fold growth in assets under management (AUM) to Rs 95 trillion (US$ 1.30 trillion) and more than three times growth in investor accounts to 130 million by 2025.

India’s attempt to implement reforms to unlock the country's investment potential is expected to improve business environment, liberal FDI policies, quick solution to corporate disputes, simplified tax structure, and a boost to public and private expenditure. To achieve the GDP of US$ 5 trillion by FY25, India needs to spend about US$ 1.4 trillion (Rs 100 trillion) over these years on infrastructure.

Note: Conversion rate used for September 2020 is Rs 1 = US$ 0.01370

References: Press Information Bureau (PIB), Media Reports, World Bank, Grant Thornton, Database of Indian Economy (DBIE), Knight and Frank