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Investment in India

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Last updated: July, 2021

Introduction

Over the years, India has emerged as one of the fastest growing economies in the world and an attractive investment destination driven by economic reforms and a large consumption base. India’s real gross domestic product (GDP) at current prices stood at Rs. 135.13 lakh crore (US$ 1.82 trillion) in FY21 as per provisional estimates of the annual national income for 2020-21. Simultaneously, the per capita income with GDP at current prices was estimated at Rs. 145,680 (US$ 1,960.96) in FY21.

In a country like India, the seven major infrastructural factors that are most significant in accelerating the pace of economic development are: energy, transport, irrigation, finance, communication, education, and health. The first five refer to economic infrastructural facilities, while the latter two relate to social infrastructure.

India has the second largest road network in the world, spanning a total of 5.5 million kilometres (kms).

With a generation of 1,561 terawatt-hour (TWh), India is the third largest producer and the third largest consumer of electricity in the world. As of May 2021, India had a total installed power-generation capacity of 383,373.68 MW, of which 97,506.93 MW was contributed by central utilities, 103,869.64 MW (state utilities) and 181,997.12 MW (private utilities).

The Indian banking system consists of 20 public sector banks, 22 private sector banks, 44 foreign banks, 44 regional rural banks, 1,542 urban cooperative banks and 94,384 rural cooperative banks in addition to cooperative credit institutions. As of March 2021, the number of ATMs in India increased to 2.39 lakh compared with 2.35 lakh ATMs in March 2020. According to Worldline India, the total cards in circulation stood at 94.7 crore in December; of this, debit cards accounted for 94% of the total market share, while credit cards accounted for 6%.

A host of factors has enabled this growth, which includes a highly developed financial system, infrastructure requirement and proactive Government initiatives. Domestic and foreign investment has made an impact on the country’s growth.

Recent Developments/Investments

  • Merchandise exports stood at US$ 62.89 billion between April 2021 and May 2021, while imports touched US$ 84.27 billion. The estimated value of service exports and imports between April 2021 and May 2021* stood at US$ 35.39 billion and US$ 19.86 billion, respectively.
  • According to data from the RBI, as of the week ended on June 04, 2021, the foreign exchange reserves in India increased by US$ 6.842 billion to reach US$ 605 billion.
  • The Private Equity - Venture Capital (PE-VC) sector recorded investments worth US$ 20 billion in the first five months of 2021, registering 2x growth in value compared with the same period in 2020.
  • In June 2021, foreign portfolio investors (FPIs) turned net buyers by investing a net Rs. 12,714 crore (US$ 1.71 billion) in the Indian markets.
  • The direct tax collections for FY22 (until June 15, 2021) stood at Rs. 185,871 crore (US$ 25.36 billion), a 100% YoY increase.
  • According to a report by Grant Thornton, >30 M&A transactions worth US$ 5 billion were recorded in April 2021.
  • In June 2021, Finance Minister, Ms. Nirmala Sitharaman, announced relief funds worth Rs. 628,993 crore (US$ 84.73 billion) to support economic recovery. Key highlights are as follows:
    • The government announced an additional Rs. 1.5 lakh crore funding for Emergency Credit Line Guarantee Scheme, taking the overall cap of permissible assurance to Rs. 4.5 lakh crore.
    • To support the National Export Insurance Account (NEIA) Trust, the government announced an additional Rs. 33,000 crore for project exports over the next five years through the Exim Bank of India.
    • The government announced to extend the production-linked incentive (PLI) scheme for mobile phones by one year until FY26, lending a boost mobile phone manufacturers including domestic players such as Micromax, Dixon and Lava and iPhone manufacturers such as Foxconn and Wistron.
    • In June 2021, Finance Minister, Ms. Nirmala Sitharaman, announced an additional outlay of Rs. 19,000 crore (US$ 2.56 billion) for the BharatNet project—to expand broadband penetration in rural areas through the PPP model and boost the ‘Digital India’ initiative.
  • In June 2021, Defence Minister, Mr. Rajnath Singh, invited Swedish companies to invest in defence corridors in Tamil Nadu and Uttar Pradesh.
  • In June 2021, Mr. Mukesh Ambani, Chairman, Reliance Industries Ltd., announced that the company (Reliance) plans to invest Rs. 750 billion (US$ 10.10 billion) in a new energy business over the next three years.
  • In May 2021, the Government of India signed a finance agreement with the European Investment Bank for second tranche of EUR 150 million (US$ 178.58 million) for the Pune Metro Rail project.

Road Ahead

India is presently known as one of the most important players in the global economic landscape. The country is on a fast-paced growth and is expected to become a US$ 5 trillion economy by 2022. Going by the estimates of Government of India, the country will need investment of US$ 4.5 trillion to build sustainable infrastructure by 2040. The Union Budget 2021-22 highlights a 34.5% increase in capital expenditure—Rs. 142,151 crore (US$ 19.58 billion)—compared with BE 2020-21 to boost economic growth through infrastructure development. Increased government investment is expected to attract private investments, coupled with the government's key Production-linked Incentive Scheme providing significant support.

According to provisional estimates published by the National Statistical Office (NSO), India witnessed a V-shaped recovery in the second half of FY21. As per the estimates, India recorded an increase of 1.1% in the second half of FY21, due to increased government expenditure, recovery in private consumption and investment in the fourth quarter of FY21. Sectors such as services also recorded growth in the fourth quarter of FY21 and this is expected to push further economic recovery in FY22. In addition, anticipated healthy monsoon presents a positive outlook for growth of the agricultural sector.

As per the Reserve Bank of India’s (RBI) estimates, India’s real GDP growth is projected at 9.5% in FY22, which includes growth of 18.5% in the first quarter of FY22; 7.9% growth in the second quarter of FY22; 7.2% growth in the third quarter of FY22 and 6.6% growth in the fourth quarter of FY22.

Note: Conversion rate used for June 2021 is Rs. 1 = US$ 0.013