Over the years, India has emerged as one of the fastest-growing economies in the world, and it now offers a growing and thriving environment for investments, both domestic and foreign. With the largest youth population in the world, it provides prospective investors with a highly skilled workforce and a strong work ethic.
India's huge domestic consumption, led by the private sector, has played a major role in the country's growth. India has an estimated middle class of 400 million people who are the main drivers of consumption expenditure. This emerging middle class and increasing disposable incomes are the largest factors behind the increasing domestic consumption in India. It is estimated that the private consumer market in India will increase four times by 2025. The present government is also focusing on rural areas and farmers, as rural India is also emerging as an upcoming market for all types of consumer goods.
A host of government initiatives has also enabled India's investment growth, which includes developing India's financial system, improving the infrastructure and relaxing FDI norms. The Government has propagated an investor-friendly FDI policy, in which most sectors are open for 100% FDI under the automatic route. India's FDI policy is also reviewed on an ongoing basis to ensure that India remains an attractive and investor-friendly destination.
India's economy showed great signs of recovery in FY22 after the COVID-19 pandemic. Real GDP or Gross Domestic Product (GDP) at constant (2011-12) prices in FY22 stood at Rs. 147.36 lakh crore (US$ 1.85 trillion), an 8.7% growth YoY, while nominal GDP stood at Rs. 236.65 lakh crore (US$ 2.97 trillion), a 19.5% growth YoY. These figures make India the fastest-growing major economy in the world, and this economic growth has translated to the investment market in India. Retail investors, mutual funds and PE/VC firms have all stepped up their domestic investments in the Indian market.
The share of retail investors in companies listed on the National Stock Exchange (NSE) reached an all-time high of 7.42% as of March 31, 2022, up from 7.33% as of December 31, 2021. In the same time period, in rupee terms, retail holding in companies listed on NSE reached an all-time high of Rs. 19.16 lakh crore (US$ 240.17 billion), up from Rs. 19.05 lakh crore (US$ 238.8 billion) on December 31, 2021.
On the FDI front, in FY22, India received its highest-ever annual FDI inflow, standing at US$ 83.57 billion, a staggering 85.09% growth from US$ 45.15 billion FDI inflows in FY15. In the manufacturing sector, FDI equity inflows stood at US$ 21.34 billion in FY22, a 76% YoY growth from US$ 12.09 billion in FY21. Singapore (27%) was the country with the highest FDI equity inflow in India in FY22, followed by the US (18%) and Mauritius (16%).
India's Private Equity (PE)/Venture Capital (VC) investment environment is also scaling new heights, with increases in deal size, deal activity and fundraising, as well as improvements in term sheets and benchmarking practices. In the first half of 2022 (January-June), PE/VC investment activity stood at US$ 34.1 billion across 714 deals, a 28% growth YoY. Among these, startup investments were the highest, standing at US$ 13.3 billion across 506 deals.
Recent speedy infrastructure investments, the inclusion of more sectors under the PLI scheme, increase in public investments, and increasing PE/VC activity has led to plenty of investments in the Indian market. A stabilising economic backdrop and financial oversight have provided investors with a perfect opportunity to invest in the country, and have made India a rising economic powerhouse. Some of the recent investments and developments in this space are as follows:
The steps taken by the Government during the last few years to attract investments have borne fruit, as is evident from the record volume of FDI inflow that was received in the country in FY22. The government has launched policies that significantly simplify the ease of doing business, as evidenced by India's jump from rank 142 in 2015 to rank 63 in 2020 in the Doing Business Reports of the World Bank. Some of these policies are:
India is presently known as one of the most important players in the global economic landscape. The country is growing rapidly and is expected to become a US$ 5 trillion economy by 2025.
The Reserve Bank of India (RBI), in order to boost India's digital economy, is planning to launch the Central Bank Digital Currency (CBDC) as India's official digital rupee in FY23. The digital rupee will play a crucial role in improving the speed of transactions and reducing the cost of cash.
Increased government investment is expected to attract private investments, both domestic and foreign. The government's key production-linked incentive (PLI) schemes in multiple sectors will provide significant support to the manufacturing sector. The PLI schemes in 14 different sectors can lead to additional production of Rs. 30 lakh crore (US$ 401 billion) over the next five years, as well as create employment for 60 lakh people.
Gradual opening up of the economy by relaxing FDI norms, record vaccinations to combat the pandemic, increase in consumer demand and income, improving financial infrastructure of the country, and continued policy support towards industries by the government in the form of the Atmanirbhar Bharat Abhiyan and various PLI schemes have led to an upturn in the performance of the investment sector in India, which is set to scale new heights in the coming years.