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Investment in India

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Last updated: January, 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 GDP (at constant 2011-12 prices) was estimated at Rs. 33.14 trillion (US$ 452.74 billion) for the second quarter of FY2020-21 against Rs. 35.84 trillion (US$ 489.62 billion) in the second quarter of FY2019-20.

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 November 2020, India had a total installed power generation capacity of 374199.04 MW, of which 93,926.93 MW was contributed by central utilities, 103,617.40 MW (state utilities) and 176,654.72 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 September 2020, the ATM industry in India increased to ~2.5 lakh ATMs. Debit cards in India doubled to 86 crore in September 2020, of which ~30% (i.e., 30 crore) are RuPay cards issued to the PM Jan Dhan Yojana accounts.

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

  • In November 2020, the Government of India announced Rs. 2.65 lakh crore (US$ 36 billion) stimulus package to generate job opportunities and provide liquidity support to various sectors such as tourism, aviation, construction and housing. Of the total stimulus package, the government allocated ~Rs. 2 trillion (US$ 27 billion) for production-linked incentive schemes.
  • The Prime Minister of India, Mr. Narendra Modi, announced various economic packages worth about Rs. 30 trillion (US$ 410 billion), which was about 15% of India's GDP.
  • FDI equity inflow in India stood at US$ 30.0 billion in 2020-21 (between April 2020 and September 2020). Data for 2020-21 indicates that the computer software and hardware sector attracted the highest FDI equity inflow of US$ 17.55 billion, followed by the services sector at US$ 2.25 billion, trading at US$ 949 million and chemicals (other than fertilisers) at US$ 437 million.
  • Inflows from the Foreign Portfolio Investors (FPI) stood at Rs. 627.82 billion (US$ 8.53 billion), as of November 28, 2020. Of this, equity inflow amounted to Rs. 603.58 billion (US$ 8.21 billion).
  • Private Equity – Venture Capital (PE-VC) companies expanded from US$ 36.3 billion (1,012 deals) in 2019 to US$ 39.2 billion (across 814 deals) in 2020.
  • Gross tax revenue stood at Rs. 7.21 trillion (US$ 98.50 billion) in the first six months of FY21.
  • In 2020, the total deal value in India stood at ~US$ 80 billion across 1,268 transactions. Of  this, M&A activity contributed ~50% to the total transaction value.
  • The Securities and Exchange Board of India (SEBI) directed stamp duty on alternative investment funds (AIFs), effective from July 1, 2020.
  • In November 2020, assets managed by mutual funds reached Rs. 29.83 trillion (US$ 407.52 billion).
  • In December 2020, Coal India announced to invest Rs. 3,370 crore (US$ 460.39 million) to develop 21 railway sidings to transport coal.

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. In November 2020, Prime Minister Narendra Modi invited investors to participate in the Indian smart cities project pipeline (US$ 30 billion), of which projects worth US$ 20 billion are already underway.

Government initiatives like Make in India and Ease of Doing Business in India is expected to boost PE/VC investments in the country. Investors expect an increase in M&A activities in FY 2020-21.

To realise full potential of the Atma Nirbhar Bharat project, India is encouraging global investors to finance the energy sector. By 2030, the oil & natural gas sector in India is projected to attract over ~US$ 300 billion investments. Also, the government is aiming to more than double the share of natural gas in its energy base to 15% by 2030.

Note: Conversion rate used for December 2020 is Rs. 1 = US$ 0.014