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 current prices was Rs 1,381,971 crore (US$ 197.74 billion) in Q2 2019-20. 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) and foreign portfolio investors (FPI) together invested Rs 1.43 lakh crore (around US$ 20 billion) in 2019. 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, as per 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$ 129 billion in 2018 and US$ 48 billion in 2019 (till September 2019).

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)/Venture Capital (VC) investments in India have reached US$ 37.5 billion in 2018 and touched US$ 36.96 billion in 2019.
• In November 2019, Adani Group announced plans to spend Rs 26,000 crore capex over next five years, mainly focused on expansion of its airport business.
• Mergers and acquisitions (M&A) activity in the country has reached US$ 129.4 billion in 2018 and US$ 48 billion in 2019 (till September 2019).
• Companies in India have raised around US$ 114.1 billion through 768 Initial Public Offers (IPO) first nine months of 2019.
• In November 2019, assets managed by mutual funds reached Rs 26.94 trillion (US$ 391.11 billion).
• Alternative Investment Funds (AIFs) received capital investment worth Rs 1.17 billion (US$ 17 billion) in 2018-19.
• As of December 2019, Canada Pension Plan Investment Board, through its wholly owned subsidiary, CPPIB Credit Investment has committed to invest US$ 225 million in the Indian Resurgence Fund platform.
• 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.
• In March 2019, the Tata group entered the airports sector in India by agreeing to invest Rs 8,000 crore (US$ 1.16 billion) in the GMR group along with two other investors.
• Oyo Rooms will invest about US$ 200 million towards capital expenditure, technology and leadership in its India and South Asia business over 2019.
• 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.
• 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.

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:

• In November 2019, the government will 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 plans to introduce new foreign trade policy aimed at providing incentives and guidelines for increasing export in next five financial years 2020-25.
• In February 2019, the Government of India approved the National Policy on Software Products – 2019, to develop the country as a software hub.
• The National Mineral Policy 2019, National Electronics Policy 2019 and Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles (FAME II) have also been approved by the Government of India in 2019.
• In November 2019, the Memorandum of Understanding (MoU) signed between India and Finland approved by Cabinet in order to strengthen the cooperation in the field of Tourism
• In August 2019, four Memorandum of Understanding (MoUs) were signed between India and France focusing on skill development and vocational training, renewable energy, IT services and space research.
• 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).
• 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.

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. To achieve the GDP of US$ 5 trillion by FY2024-25, India needs to spend about US$ 1.4 trillion (Rs 100 lakh crore) over these years on infrastructure.

Conversion rate used as on July 30, 2019: Re 1 = US$ 0.01407

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