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. India’s nominal gross domestic product (GDP) at current prices is estimated to be at Rs. 301.75 trillion (US$ 3.62 trillion) in 2023-24. Additionally, the Nominal GDP at current prices in Q1 of 2023-24 was Rs. 70.67 trillion (US$ 848.92 billion), as against Rs. 65.42 trillion (US$ 785.85 billion) in 2022-23, estimating a growth of 8%. Real GDP at constant prices (2011-12) in the first quarter of 2023–24 is estimated at Rs. 40.37 trillion (US$ 484.94 billion), showing a growth of 7.8% as compared to the first quarter of 2022-23 estimated at Rs. 37.44 trillion (US$ 449.74 billion). 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 equity holding listed on the National Stock Exchange (NSE) reached an all-time high of 27% year-on-year (YoY) in (April-August) 2023. In Q1 of 2023, retail holding went up in 908 companies listed on NSE. As on June 30th, 2023, the value of retail holdings was only Rs. 21.69 lakh crore (US$ 260.97 billion). As per a report by Zinnov, the share of Indian retail investors in listed equities has increased from 36% in FY17 to 41% in FY22, which was mostly fueled by the launch of new-age financial products like cryptocurrency, digital gold, non-fungible tokens, and small cases. According to BSE, the number of registered investors on BSE has jumped nearly 24% year-on-year.
India ranked 4th globally in tech venture capital (VC) investments recording US$ 24.1 billion in 2022. According to a report by Startup Genome, India has 429 scale-up companies with a total VC investment of US$ 127 billion and a cumulative tech value investment of US$ 446 billion. Moreover, India ranks 4th globally in terms of start-ups that have secured over US$ 50 million in disclosed venture capital (VC) investment.
On the FDI front, according to the Department for Promotion of Industry and Internal Trade (DPIIT), India's cumulative FDI inflow stood at US$ 937.58 billion between April 2000 and June 2023; this was mainly due to the government's efforts to improve the ease of doing business and relax FDI norms. The total FDI inflow into India from January to June 2023 stood at US$ 17.56 billion, while the FDI equity inflow for the same period was US$ 10.94 billion.
From April 2000–June 2023, India's service sector attracted the highest FDI equity inflow of 16% amounting to US$ 105.40 billion, followed by the computer software and hardware industry at 15%, amounting to US$ 95.88 billion, trading at 6%, US$ 40.05 billion, telecommunications at 6%, US$ 39.27 billion and automobile industry at 5%, US$ 35.14 billion. India also had major FDI inflows during April 2000-June 2023, coming from Mauritius at US$ 164.83 billion with a total share of 26%, followed by Singapore at 23% (US$ 151.16 billion), the USA at 9%, (US$ 61.26 billion), Netherlands at 7%, (US$ 45.28 billion) and Japan at 6%, (US$ 39.94 billion).
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. Private Equity-Venture Capital (PE-VC) funds invested US$ 6 billion (across 139 deals) in India-based companies during the quarter ended September 2023. 1,261 deals were recorded of more than US$ 46 billion of Private Equity (PE) – Venture Capitalist (VC) investments in 2022.
Around 130 SME companies went public in 2023 (till October 2023), raising a total of Rs. 3,540 crore (US$ 426.33 million) through IPOs.
Recent speedy infrastructure investments, the inclusion of more sectors under the PLI scheme, an increase in public investments, and increasing PE/VC activity have led to plenty of investments in the Indian market. A stabilizing 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 the 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.