Domestic Investment in India

Introduction

The Government of India has 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.

Owing to higher infrastructure spending, increased fiscal devolution to states, and continued reforms in fiscal and monetary policy, the Indian economic outlook has strengthened. The Government of India is striving to move steadily to minimise structural and political bottlenecks, attract higher investment and improve economic performance. Indian economy is expected to register a 7.5 per cent growth rate in 2018.

Market Activity

The Government of India forecasts capital expenditure to increase by 30 per cent from Rs 3.0 lakh crore (US$ 46.2 billion) in 2017-18 to Rs 3.9 lakh crore (US$ 61 billion) in 2019-20.

The total number of investor accounts with 43 active mutual fund houses rose to a record 69.9 million at the end of February 2018 as against 55.4 million in March 2017, backed by a strong participation from retail investors, according to the Securities and Exchange Board of India (SEBI).

India has emerged as one of the strongest performers in terms of deals related to mergers and acquisitions (M&A). The value of M&A activity in India is estimated to have reached US$ 46.8 billion in 2017. The business-to-business (B2B) start-ups in India raised around US$ 196.5 million between April-November 2017, the highest since 2010. The biggest deal stood at USD100 million raised by Just Buy Live. The deal momentum is likely to see an uptrend in the coming months on account of improving economic growth.

Investments/developments

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

A Rs 320 crore (US$ 49.9 million) fund has been launched by 10 oil companies owned by the Government of India, to invest in 30 innovating start-ups in various sectors.

Investments made by domestic mutual funds in the equities market have crossed the 1 lakh crore (US$ 15.6 billion) mark during 2017.

• Reliance Industries Limited (RIL) is planning to invest over Rs 10,000 crore (US$ 1,540 million) in Uttar Pradesh and Rs 5,000 crore (US$ 770 million) in West Bengal over the next three years.
• Indian auto component companies have planned investments worth Rs 1,500 crore (US$ 234 million) in the state of Gujarat, in order to meet demand from automobile manufacturers.
• Vedanta Resources Plc is planning to invest about US$ 9 billion in India over the next few years to expand its hydrocarbons and metals and mining businesses.
• State Bank of India (SBI) and the World Bank have decided to sanction credit worth Rs 2,317 crore (US$ 361.45 million) to seven corporates towards solar rooftop projects to generate a total of 575 megawatt (MW) of solar energy.
• The Government of Gujarat expects that the extension of the textile policy by a year will attract investments worth Rs 5,000 crore (US$ 774.89 million) in various sectors across the value chain.
• Private equity (PE) investments in the Indian real estate sector are estimated to cross US$ 4 billion in 2017, supported by Government of India's regulatory reforms over the past two years.
• India telecommunication companies will be investing US$ 20 billion over the next two years for expansion of network and operations, stated Mr Akhil Gupta, Vice Chairman, Bharti Enterprise.
• Bharat Petroleum Corporation Ltd (BPCL) plans to invest Rs 1.08 trillion (US$ 16.88 billion) over the coming five years for expansion of operations across business segments, of which the company plans to invest Rs 45,000 crore (US$ 7.03 billion) in the petrochemicals segment.
• Tata Motors is planning to invest Rs 4,000 crore (US$ 623.93 million) in its business as a part of a turnaround strategy involving cost reduction, introduction of new products and increasing efficiencies.
• The Government of India has planned an investment worth Rs 45,000 crore (US$ 7.07 billion) for the development of India's north-eastern regions bordering China, Bhutan, Bangladesh and Myanmar.
• The Ministry of Road Transport and Highways, Government of India, invested Rs 14,916 crore (US$ 2.32 billion) for the Special Accelerated Road Development Programme for North East (SARDP-NE) and Rs 4,095 crore (US$ 635.6 million) for the National Highway (Original) over the past two years to improve the road infrastructure in India's north eastern region.
• Bharti Airtel Ltd has planned to invest about Rs 2,000 crore (US$ 309.88 million) over the next three years in Project Next, its digital innovation programme, in an attempt to strengthen its position in India's highly competitive telecommunications market.
• Piramal Finance Ltd, an arm of Piramal Enterprises Ltd, invested Rs 485 crore (US$ 74.92 million) in the subsidiary of Apollo International Ltd, called Apollo LogiSolutions (ALS), a logistics solutions provider.
• Premji Invest, the investment arm of Mr Azim Premji, Chairman, Wipro, has acquired a 2.2 per cent stake for Rs 700 crore (US$ 108.13 million) in Aditya Birla Capital (ABCL) at a valuation of Rs 32,000 crore (US$ 4.94 billion).
• DMI Finance Pvt Ltd, a Delhi-based non-banking financial company (NBFC), is planning to raise a fund of up to Rs 1,000 crore (US$ 155.11 million), which will be focused on special opportunities situations in the real estate sector and distressed assets space.
• Reliance Industries Ltd (RIL), along with its partner BP plc, has decided to invest US$ 6 billion for the development of new R-series gas fields in the KG-D6 block.
• Piramal Finance Ltd, through its Corporate Finance Group (CFG), has invested in two auto components firms; Rs 275 crore (US$ 42.55 million) in RSB Group and Rs 290 crore (US$ 44.87 million) in Indoshell Mould Ltd.
• Mr Satish Pai, Managing Director and Chief Executive Officer, Hindalco Industries, outlined plans of investing around Rs 5,000 crore (US$ 773.6 million) for increasing Hindalco's capacity in India over the medium term, in order to meet growing demand for its products.
• The Union Cabinet has approved raising of bonds worth Rs 2,360 crore (US$ 363.87 million) by the Indian Renewable Energy Development Agency (IREDA), which will be used in various renewable energy projects in FY 2017-18.
• Mahindra and Mahindra Ltd is planning to invest in high-end electric powertrain technology in a move towards the future of mobility as well as for the electrification of its existing and future line-up of products.
• The Government of India is expected to invest highly in the infrastructure sector, mainly highways, renewable energy and urban transport, prior to the general elections in 2019.
• Coal India (CIL) plans to invest US$ 20-25 billion in next five years to achieve annual output of 1 billion tonnes by 2019-20.

Government Initiatives

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

• Securities and Exchange Board of India (SEBI) is planning to increase the maximum investment by angel funds in venture capital undertakings to Rs 10 crore (US$ 1.54 million) from Rs 5 crore (US$ 0.77 million).
• The Government of India has decided to invest Rs 2.1 trillion (US$ 32.8 billion) to recapitalise public sector banks over the next two years and Rs 7 trillion (US$ 109.2 billion) for construction of new roads and highways over the next five years.
• JSW Energy has signed a memorandum of understanding (MoU) with the Government of Gujarat in September 2017, for setting up an electric vehicle (EV) manufacturing unit in Gujarat at an estimated cost of Rs 4,000 crore (US$ 608.88 million).
• India and Japan have joined hands for infrastructure development in India's north-eastern states and are also setting up an India-Japan Coordination Forum for Development of North East to undertake strategic infrastructure projects in the northeast.
• The Government of Gujarat has signed 54 memorandum of understanding (MoUs) worth Rs 5,022 crore (US$ 771.56 million) in the biotechnology sector and 89 MoUs worth Rs 16,000 crore (US$ 2.46 billion) in the information technology (IT) sector, during the Vibrant Gujarat Global Summit-2017.
• Union Ministry of Shipping plans to raise US$ 15.8 billion in dollar equivalents at the interest rate of three per cent, for developing ships, building ports and improving inland waterways.
• Ministry of environment and forests has granted environment clearance for 35-km coastal road connecting south and north Mumbai. The coastal road project is part of the US$ 9.52 billion transport infrastructure projects being undertaken by the state government and is expected to require an investment of US$ 1.34 billion.
• The Government of India will provide soft loan of US$ 1 billion to sugar mills to help them clear part of their US$ 3.33 billion dues to farmers. The money shall be directly credited to the farmer’s bank accounts through the Pradhan Mantri Jan-Dhan Yojana.

Road Ahead

The Association of Mutual Funds in India (AMFI) is targeting nearly five-fold growth in assets under management (AUM) to Rs 95 lakh crore (US$ 1.47 trillion) and a more than three times growth in investor accounts to 130 million by 2025.

According to The World Bank, the Indian economy will likely grow at 7 per cent in 2017-18 and further accelerate to 7.4 per cent in 2019-20. This is on account of India’s attempt to implement reforms to unlock the country's investment potential to improve the business environment, liberalised FDI policies, quick solution to the corporate disputes, simplified tax structure, and a boost in both public and private expenditure.

Government of India has joined hands with Belarus and has decided to extend a US$ 100 million line of credit for joint ventures with the east European country which has shown interest in the flagship Make in India initiative.

The Central Electricity Authority (CEA) expects investment in India's power transmission sector to reach Rs 2.6 trillion (US$ 39.95 billion) during the 13th plan (2017-22).

India is expected to witness M&A activities worth US$ 50 billion in 2018, according to ASSOCHAM’s Year Ahead Outlook.

Exchange Rate Used: INR 1 = US$ 0.0154 as on March 28, 2018

References: Press Information Bureau (PIB), Media Reports, World Bank, Department of Industrial Policy & Promotion (DIPP), Grant Thornton, Database of Indian Economy (DBIE), Knight and Frank