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 Rs 43.34 lakh crore (US$ 614.85 billion) in 2019-20. The Government had forecast 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 Domestic institutional investors (DIIs) and foreign portfolio investors (FPI) together invested Rs 1.43 lakh crore (around US$ 20 billion) in 2019.

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 was estimated to have reached US$ 129 billion in 2018 and US$ 48 billion in 2019 (till September 2019).

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.
• In 2019, FPI investment in Indian equities touched a five-year high of Rs 101,122 crore (US$ 14.47 billion).
• The M&A activity in India stood at US$ 28 billion in 2019, while private equity (PE) deals reached US$ 48 billion.
• In 2019, companies in India raised around US$ 2.5 billion through 17 initial public offers (IPO).
• In April 2020, assets managed by mutual funds reached Rs 23.52 trillion (US$ 351.18 billion).
• As of December 2019, Canada Pension Plan Investment Board, through its wholly owned subsidiary, CPPIB Credit Investment, committed to invest US$ 225 million in the Indian Resurgence Fund platform.
• In November 2019, Adani Group announced plans to spend Rs 26,000 crore capex over the next five years, mainly focused on expansion of its airport business.
• In 2019, India’s real estate witnessed an increase in investment by 8.7 per cent compared to 2018 and touched US$ 6.2 billion.

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 Prime Minister of India, Mr Narendra Modi announced various economic packages worth around Rs 20 lakh crore (US$ 283.73 billion), which was about 10 per cent of India's GDP.
• Pradhan Mantri Garib Kalyan Package (PMGK) was introduced in April 2020 to provide relief to underprivileged and help them fight the battle against COVID-19. Rs 1.70 lakh crore (US$ 24.12 billion) was allocated to the scheme.
• In February 2020, cabinet approved the memorandum of understanding (MoU) signed between India and Iceland in the field of Sustainable Fisheries Development. 
• Memorandum of cooperation (MoC) between the Governments of India and Japan in order to constitute ‘India-Japan Steel Dialogue’ to strengthen cooperation in the steel sector got approval from the cabinet in December 2019.
• In November 2019, the Government planned to invest Rs 10,000 crore (US$ 1.43 billion) in the Rs 25,000 crore (US$ 3.58 billion) alternative investment fund (AIF).
• In August 2019, Ministry of Commerce planned to introduce new foreign trade policy aimed at providing incentives and guidelines for increasing export during2020-25.
• National Mineral Policy 2019, National Electronics Policy 2019 and Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles (FAME II) were approved by the Government of India in 2019.
• In August 2019, four MoUs were signed between India and France, focusing on skill development and vocational training, renewable energy, IT services and space research.

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 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 lakh crore) over these years on infrastructure.

Note: Conversion rate used in April 2020, Rs 1 = US$ 0.013123

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