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.

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

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

Market Activity

India’s Gross Fixed Capital Formation at constant prices was Rs 40.88 lakh crore (US$ 561.44 billion) in 2017-18. The Government of India forecasts capital expenditure to increase by 30 per cent from Rs 3 lakh crore (US$ 41.2 billion) in 2017-18 to Rs 3.9 lakh crore (US$ 53.6 billion) in 2019-20. Investments by Domestic Institutional Investors (DIIs) reached Rs 97,739.02 crore (US$ 14.00 billion) in 2018. The total number of investor accounts with 41 active mutual fund houses rose to a record 79.03 million at the end of October 2018 as against 71.35 million in March 2018, according to the data from Association of Mutual Funds in India (Amfi).

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$ 71.3 billion in 2018.

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:

• Private Equity (PE) investments in India have reached US$ 34.0 billion in 2018.
• Total number of deal activity in India reached 1,640 in 2018.
• In August 2018, Indian Oil Corporation announced a Rs 22,000 crore (US$ 3.02 billion) capex plan for 2018-19.
• Mergers and acquisitions (M&A) activity in the country has reached US$ 71.3 billion in 2018.
• Companies in India have raised around US$ 5.52 billion through Initial Public Offers (IPO) in 2018 (up to November).
• In November 2018, assets managed by mutual funds reached Rs 24.03 trillion (US$ 344.31 billion).
• Investments by Alternative Investment Funds (AIFs) increased 90 per cent year-on-year between April-June 2018 to Rs 74,893 crore (US$ 10.26 billion).
• Reliance Industries Limited (RIL) is planning to invest over Rs 10,000 crore (US$ 1.37 billion) in Uttar Pradesh and Rs 5,000 crore (US$ 687 million) in West Bengal over the next three years.
• 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$ 318.21 million) to seven corporates towards solar rooftop projects to generate a total of 575 megawatt (MW) of solar energy.
• Bharat Petroleum Corporation Ltd (BPCL) plans to invest Rs 1.08 trillion (US$ 14.83 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$ 6.18 billion) in the petrochemicals segment.
• Bharti Airtel Ltd has planned to invest about Rs 2,000 crore (US$ 274.67 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$ 66.61 million) in the subsidiary of Apollo International Ltd, called Apollo LogiSolutions (ALS), a logistics solutions provider.
• 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.
• 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.
• Private equity (PE) investments in the Indian real estate sector are estimated to have crossed US$ 4 billion in 2017, supported by Government of India's regulatory reforms over the past two years.

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:

• The Securities and Exchange Board of India (SEBI) has approved Unified Payments Interface (UPI) payment mechanism for public issues which will commence from January 1, 2019.
• In November 2018, the Government of India launched a support and outreach programme for the Micro, Small and Medium Enterprises (MSME) sector. It involves 12 key initiatives which will help the growth, expansion and facilitation of MSMEs across the country.
• In September 2018, the National Digital Communications Policy (NDCP) has been approved by Government of India with the objectives of attracting US$ 100 billion in investments, improved broadband connectivity and generation of four million jobs in the telecom sector.
• Securities and Exchange Board of India (SEBI) doubled the maximum investment by angel funds in venture capital undertakings to Rs 10 crore (US$ 1.37 million).
• The Government of India has decided to invest Rs 2.1 trillion (US$ 28.8 billion) to recapitalise public sector banks over the next two years and Rs 7 trillion (US$ 95.9 billion) for construction of new roads and highways over the next five years.
• 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.
• 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$ 1.30 trillion) and a more than three times growth in investor accounts to 130 million by 2025.

India’s GDP is expected to grow 7.3 per cent in 2018-19. 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.

The Central Electricity Authority (CEA) expects investment in India's power transmission sector to reach Rs 2.6 trillion (US$ 35.62 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$ 0.0143 as on December 31, 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