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 current 2011-12 prices, was valued at Rs. 5,229,676 crore (US$ 720.24 billion) in FY21, as per the second advance estimates (SAE) for 2020-21. The government final consumption expenditure (GFCE), at current 2011-12 prices, stood at Rs. 2,468,014 crore (US$ 339.90 billion) in FY21.

India’s overall exports from April 2020 to February 2021 were estimated at US$ 439.64 billion. Overall imports from April 2020 to February 2021 were estimated at US$ 447.44 billion.

Private Equity - Venture Capital (PE-VC) sector recorded investments worth US$ 47.6 billion across 921 deals in 2020. This growth was mainly attributed to fund-raising by Jio Platforms and Reliance Retail (i.e., investments worth US$ 17.3 billion, accounting for 36% of all PE/VC investments in 2020).

In 2020, sectors such as edtech, healthcare, pharmaceuticals, technology and e-commerce gained traction and are expected to be among the most popular investment sectors in the coming decade.

Source: PE/VC Trend book 2021, EY India

The outlook for PE/VC investments in 2021 is positive as India's economic recovery gains traction and becomes more broad-based, with most industries (apart from travel, hospitality and tourism) returning to or rising towards pre-COVID-19 levels, according to Mr. Vivek Soni, EY India Private Equity Leader.

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:

• According to Bain & Company’s India Venture Capital report, in 2020, venture capital investments in the country reached US$ 10 billion, and ~7,000 new start-ups were founded. Sectors such as consumer tech, SaaS and fintech contributed  ~75% to the VC (Venture Capital) investments by value.
• In 2020, real estate investments in India stood at US$ 5.2 billion, across 31 deals.
• Foreign portfolio investment inflows into equities stood at US$ 36 billion in FY21, as of March 10, 2021.
• In 2020, merger and acquisition (M&A) activities increased by 33% to US$ 36.9 billion.
• 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.
• Mutual fund investment in REITs recorded a six-fold increase at Rs. 3,972 crore (US$ 547.03 million) in 2020, up from Rs. 670 crore (US$ 92.27 million) in 2019.
• In January 2021, National Aluminium Company Limited (NALCO) announced to invest Rs. 30,000 crore (US$ 4.13 billion) by FY28 on the company’s expansion and diversification plans.
• In January 2021, Union Cabinet approved the investment proposal worth of Rs. 5,281.94 crore (U$ 727.44 million) for 850 MW Ratle hydroelectric (HE) project in Jammu and Kashmir.

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:

• The Union Budget 2021-22 highlights the government's commitment to boost economic growth through infrastructure development. This is supported by a 34.5% increase in capital expenditure (Rs. 1,42,151 crore (US$ 19.58 billion)) as compared with BE 2020-21.
• 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 March 2021, the Ministry of Electronics and IT (MeitY) invited applications for the second round of large-scale electronics manufacturing under production-linked incentive (PLI) scheme. The application window for the scheme has been opened until March 31, 2021, which could be further extended in accordance with the guidelines issued by the MeitY (Ministry of Electronics and IT).
• In March 2021, the Ministry of Electronics and Information Technology (MeitY) has requested expressions of interest (EoIs) from organisations interested in establishing LCD/OLED/AMOLED/QLED-based display fabrication units in India.

• 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.

In 2021, the Atmanirbhar Bharat Initiative (self-reliant India), Make in India and Digital India initiatives of the Indian government will be the centre stage of development. According to Gartner forecast, government IT expenditure in India is estimated at US$ 7.3 billion in 2021, an increase of 9.4% YoY. In 2021, the software segment, which includes application, technology, and vertical-specific software, will exhibit the fastest development.

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 March 2021 is Rs. 1 = US$ 0.014