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Investment in India

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Last updated: June, 2020

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 GDP (at constant 2011-12 prices) is estimated to be Rs 145.65 lakh crore (US$ 2.06 trillion) for 2019-20, showing a growth rate of 4.2 percent over the previous year.

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. Electricity generation in the country reached 1,252.61 billion unit (BU) in FY20. India is ranked fourth in wind power, fifth in solar power and fifth in renewable power installed capacity as of 2018.

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 on January 31, 2020, the total number of ATMs in India increased to 210,263 and is further expected to increase to 407,000 by 2021.

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

  • 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.
  • India's Foreign Direct Investment (FDI) equity inflow reached US$ 469.99 billion between April 2000 to March 2020, with maximum contribution from services, computer software and hardware, telecommunications, construction, trading and automobiles.
  • Foreign Portfolio Investors/Foreign Institutional Investors (FPIs/FIIs) have been one of the biggest drivers of India’s financial markets and have invested around Rs 12.30 lakh crore (US$ 174.55 billion) in India between FY02-21 (till June 09, 2020).
  • In 2019, FPI investment in Indian equities touched a five-year high of Rs 101,122 crore (US$ 14.47 billion).
  • In the first week of June 2020, FPI pumped in Rs 18,589 crore (US$ 2.77 billion) in the Indian market.
  • In 2019, companies in India raised around US$ 2.5 billion through 17 Initial Public Offers (IPO).
  • The gross tax revenue stood at Rs 15.04 lakh crore (US$ 215.28 billion) in 2019-20 and Income tax collection contributed Rs 4.80 lakh crore (US$ 68.14 billion) to it.
  • The mergers and acquisition (M&A) activity in India stood at US$ 28 billion in 2019 while private equity (PE) deals reached US$ 48 billion.
  • Alternative Investment Funds (AIFs) received capital investment worth Rs 1.17 billion (US$ 17 billion) in 2018-19.
  • In April 2020, assets managed by mutual funds reached Rs 23.52 trillion (US$ 351.18 billion).
  • 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.
  • Around 12 million jobs in a year were created in India during 2015-19.
  • India improved its ranking in the World Bank's Doing Business Report by 14 spots over last year and was ranked 63 among 190 countries in the 2020 edition of the report.

 

Road Ahead

India is presently known as one of the most important players in the global economic landscape. The country is on a fast pace 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 total Indian PE/VC (venture capital) investment could potentially be in the range of US$ 48 billion to US$ 50 billion in 2020. Government initiatives like Make in India and Ease of Doing Business in India is expected to boost PE/VC investments in the country.

 

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