Domestic Investment in India

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. Between April 2020 and November 2020, the Government of India's expenditure amounted at Rs. 19,06,358 crore (US$ 261.03 billion) (63% of the corresponding BE 2020-21), of which Rs. 16,65,200 crore (US$ 228.01 billion) was spent on the revenue account and Rs. 2,41,158 crore (US$ 33.02 billion) was on the capital account.

India’s overall exports from April 2020 to November 2020 were estimated at US$ 304.25 billion. Overall imports from April 2020 to November 2020 were estimated at US$ 290.66 billion.

Private Equity - Venture Capital (PE-VC) companies expanded from US$ 36.3 billion (1,012 deals) in 2019 to US$ 39.2 billion (across 814 deals) in 2020. This growth was mainly attributed to RIL transactions, which boosted the country's hat-trick of record-high PE investments (three continuous years).

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:

• Between July 2020 and September 2020, real estate investments in India stood at US$ 235 million.
• Inflows from the FPI stood at Rs. 627.82 billion (US$ 8.53 billion), as of November 28, 2020. Of this, equity inflows amounted to Rs. 603.58 billion (US$ 8.21 billion).
• In 2020, the total deal value in India stood at ~US$ 80 billion across 1,268 transactions. Out of this, M&A activity contributed ~50% to the total transaction value.
• 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.
• In October 2020, Adani, Hiranandani groups announced plan to invest Rs. 10,000 crore (US$ 1.37 billion) to set up data centres in Uttar Pradesh.

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:

• As part of the Government of India's economic stimulus, Union Finance Minister, Mrs. Nirmala Sitharaman announced 12 key initiatives under the ‘Aatmanirbhar Bharat 3.0’ initiative. The net stimulus announced amounts to Rs. 2.65 lakh crore (US$ 36 billion).
• Financial Support Scheme for public–private partnerships (PPPs) in Infrastructure viability gap funding (VGF) 2024-25 had a total outlay of Rs. 8,100 crore (US$ 1.11 billion).

• In December 2020, Oil Minister, Mr. Dharmendra Pradhan announced that an estimated US$ 66 billion is being allocated for the construction of gas infrastructure, including pipelines, city gas distribution and LNG regasification terminals.
• In November 2020, India's cabinet approved the production-linked incentives (PLI) scheme to provide ~Rs. 2 trillion (US$ 27 billion) over five years to create jobs and boost production in the country.
• In November 2020, India is expected to record an investment of ~Rs. 10,000 crore (US$ 1.37 billion) in the next three years to set up 1,000 LNG stations in the private and public sector.

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 December 2020 is Rs. 1 = US$ 0.014

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