Investment in India
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. It was the fastest growing major economy in 2017-18 with its GDP growing 8.2 per cent and reaching Rs 167.73 trillion (US$ 2.30 trillion). Between April-September 2018, the GDP (at constant 2011-12 prices) grew 7.6 per cent year-on-year. A host of factors has enabled this growth, which includes a highly developed financial system, infrastructure requirements and proactive government regimes. Domestic and foreign investments both have had made an impact on the country’s growth. Between April 2000 and June 2018, India has received equity inflows of US$ 389.60 billion through Foreign Direct Investments (FDI). Foreign Portfolio/Institutional Investors (FPI/FII) have invested around Rs 12.51 trillion (US$ 171.81 billion) in India between FY02-18. During April-August 2018, Foreign Institutional Investment in India stood at US$ 5.60 billion. The domestic stock markets ranked second globally in terms of number of Initial Public Offer (IPO) raised with 161 IPOs offering US$ 5.52 billion upto November 2018.
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 investments of US$ 4.5 trillion to build sustainable infrastructure by 2040.
Foreign Direct Investment (FDI)
About FDI in India
Apart from being a critical driver of economic growth, foreign direct investment (FDI) is a major source of non-debt financial resource for the economic development of India. Foreign companies invest in India to take advantage of relatively lower wages, special investment privileges such as tax exemptions, etc. For a country where foreign investments are being made, it also means achieving technical know-how and generating employment.
The Indian government’s favourable policy regime and robust business environment have ensured that foreign capital keeps flowing into the country. The government has taken many initiatives in recent years such as relaxing FDI norms across sectors such as defence, PSU oil refineries, telecom, power exchanges, and stock exchanges, among others.
According to Department of Industrial Policy and Promotion (DIPP), the total FDI investments in India April-September 2018 stood at US$ 22.66 billion, indicating that government's effort to improve ease of doing business and relaxation in FDI norms is yielding results.
Data for April-September 2018 indicates that the services sector attracted the highest FDI equity inflow of US$ 4.92 billion, followed by computer software and hardware – US$ 2.54 billion, telecommunications – US$ 2.18 billion and trading – US$ 2.14 billion. Most recently, the total FDI equity inflows for the month of September 2018 touched US$ 4.64 billion.
During April-September 2018, India received the maximum FDI equity inflows from Singapore (US$ 8.62 billion), followed by Mauritius (US$ 3.89 billion), Netherlands (US$ 2.32 billion), Japan (US$ 1.89 billion), and USA (US$ 0.97 billion).
India emerged as the top recipient of greenfield FDI Inflows from the Commonwealth, as per a trade review released by The Commonwealth in 2018.
Some of the recent significant FDI announcements are as follows:
Government of India is planning to consider 100 per cent FDI in Insurance intermediaries in India to give a boost to the sector and attracting more funds.
In December 2018, the Government of India revised FDI rules related to e-commerce. As per the rules 100 per cent FDI is allowed in the marketplace based model of e-commerce. Also, sales of any vendor through an e-commerce marketplace entity or its group companies have been limited to 25 per cent of the total sales of such vendor.
In September 2018, the Government of India released the National Digital Communications Policy, 2018 which envisages increasing FDI inflows in the telecommunications sector to US$ 100 billion by 2022.
In January 2018, Government of India allowed foreign airlines to invest in Air India up to 49 per cent with government approval. The investment cannot exceed 49 per cent directly or indirectly.
No government approval will be required for FDI up to an extent of 100 per cent in Real Estate Broking Services.
In September 2017, the Government of India asked the states to focus on strengthening single window clearance system for fast-tracking approval processes, in order to increase Japanese investments in India.
The Ministry of Commerce and Industry, Government of India has eased the approval mechanism for foreign direct investment (FDI) proposals by doing away with the approval of Department of Revenue and mandating clearance of all proposals requiring approval within 10 weeks after the receipt of application.
The Government of India is in talks with stakeholders to further ease foreign direct investment (FDI) in defence under the automatic route to 51 per cent from the current 49 per cent, in order to give a boost to the Make in India initiative and to generate employment.
In January 2018, Government of India allowed 100 per cent FDI in single brand retail through automatic route.
India has become the most attractive emerging market for global partners (GP) investment for the coming 12 months, as per a recent market attractiveness survey conducted by Emerging Market Private Equity Association (EMPEA).
Annual FDI inflows in the country are expected to rise to US$ 75 billion over the next five years, as per a report by UBS.
The Government of India is aiming to achieve US$ 100 billion worth of FDI inflows in the next two years.
The World Bank has stated that private investments in India is expected to grow by 8.8 per cent in FY 2018-19 to overtake private consumption growth of 7.4 per cent, and thereby drive the growth in India's gross domestic product (GDP) in FY 2018-19.
Exchange Rate Used: INR 1 = US$ 0.0143 as on December 31, 2018
References: Media Reports, Press Releases, Press Information Bureau, Press Trust of India
Download PDF (Size: 801 KB )
Foreign Institutional Investors
Foreign Portfolio/Institutional Investors (FPI/FII) have been one of the biggest drivers of India’s financial markets and have invested around Rs 12.51 trillion (US$ 171.81 billion) in India between FY02-18. Highly developed primary and secondary markets have attracted FIIs/FPIs to the country. Investments by FIIs/FPIs in India are regulated by the Securities and Exchange Board of India (SEBI) while the ceilings on such investments are maintained by the Reserve Bank of India (RBI). Following are the few types of FIIs investing in India:
The total market capitalization (M-cap) of all the companies listed on Bombay Stock Exchange (BSE) rose to a record high level of Rs 142.25 trillion (US$ 1.95 trillion) in 2017-18.
Some of the recent significant FII/FPI developments are as follows:
India is being viewed as a potential opportunity by investors, with the economy having the capacity to grow tremendously. Buoyed by strong support from the government, FII investments have been strong and are expected to continue to improve going forward.
Mr Mark Machin, Chief Executive Officer, Canada Pension Plan Investment Board (CPPIB), has expressed confidence in the Indian equity market and stated that the country is one of the best investment destination based on its demographic growth, increased productivity, and long-term economic growth potential.
"The FII participation has been very consistent as far as India is concerned and we see the trend continuing. We have been overweight India in the context of Asia and emerging markets since November 2013 and that stance very much continues," said Mr Bharat Iyer, MD, Global Research, JP Morgan India.
Exchange Rate Used: INR 1 = US$ 0.0143 as on December 31, 2018
Domestic Investment in India
The Government of India has taken significant initiatives to strengthen the economic credentials of the country and make it one of the strongest economies in the world. India is fast becoming home to start-ups focused on high growth areas such as mobility, e-commerce and other vertical specific solutions - creating new markets and driving innovation.
Rise in domestic investments has been one of the biggest contributors to the India growth story and the public and private sector have both enabled and sustained these investments. Following are the various investors driving the domestic investments in the country:
India’s Gross Fixed Capital Formation at constant prices was Rs 40.88 lakh crore (US$ 561.44 billion) in 2017-18. The Government of India forecasts capital expenditure to increase by 30 per cent from Rs 3 lakh crore (US$ 41.2 billion) in 2017-18 to Rs 3.9 lakh crore (US$ 53.6 billion) in 2019-20. Investments by Domestic Institutional Investors (DIIs) reached Rs 97,739.02 crore (US$ 14.00 billion) in 2018. The total number of investor accounts with 41 active mutual fund houses rose to a record 79.03 million at the end of October 2018 as against 71.35 million in March 2018, according to the data from Association of Mutual Funds in India (Amfi).
India has emerged as one of the strongest performers in terms of deals related to mergers and acquisitions (M&A). The value of M&A activity in India is estimated to have reached US$ 71.3 billion in 2018.
With the improvement in the economic scenario, there have been quite a few investments in various sectors along with M&A in India. Some of them are as follows:
The Government of India has taken several initiatives in various sectors to improve the overall economic condition in the country. Some of these are:
The Association of Mutual Funds in India (AMFI) is targeting nearly five-fold growth in assets under management (AUM) to Rs 95 lakh crore (US$ 1.30 trillion) and a more than three times growth in investor accounts to 130 million by 2025.
India’s GDP is expected to grow 7.3 per cent in 2018-19. This is on account of India’s attempt to implement reforms to unlock the country's investment potential to improve the business environment, liberalised FDI policies, quick solution to the corporate disputes, simplified tax structure, and a boost in both public and private expenditure.
The Central Electricity Authority (CEA) expects investment in India's power transmission sector to reach Rs 2.6 trillion (US$ 35.62 billion) during the 13th plan (2017-22).
India is expected to witness M&A activities worth US$ 50 billion in 2018, according to ASSOCHAM’s Year Ahead Outlook.
Exchange Rate Used: INR 1 = US$ 0.0143 as on December 31, 2018
References: Press Information Bureau (PIB), Media Reports, World Bank, Department of Industrial Policy & Promotion (DIPP), Grant Thornton, Database of Indian Economy (DBIE), Knight and Frank
Indian Investment Abroad - Overseas Direct Investment by Indian Companies
Outbound investments from India have undergone a considerable change not only in terms of magnitude but also in terms of geographical spread and sectorial composition. Analysis of the trends in direct investments over the last decade reveals that while investment flows, both inward and outward, were rather muted during the early part of the decade, they gained momentum during the latter half.
There has been a perceptible shift in Overseas Investment Destination (OID) in last decade or so. While in the first half, overseas investments were directed to resource rich countries such as Australia, UAE, and Sudan, in the latter half, OID was channelled into countries providing higher tax benefits such as Mauritius, Singapore, British Virgin Islands, and the Netherlands.
Indian firms invest in foreign shores primarily through Mergers and Acquisition (M&A) transactions. With rising M&A activity, companies will get direct access to newer and more extensive markets, and better technologies, which would enable them to increase their customer base and achieve a global reach.
According to the data provided by Reserve Bank of India (RBI), India’s outward Foreign Direct Investment (OFDI) in equity, loan and guaranteed issue stood at US$ 11.33 billion in 2017-18 and US$ 1,093.6 million in October 2018.
India’s cumulative stock of Overseas Foreign Direct Investment (OFDI) stood at US$ 155 billion in 2017.
In a recent development, UK announced that India has become the third largest source of FDI for them as investments increased by 65 per cent in 2015 leading to over 9,000 new and safeguarded jobs.
Some of the major overseas investments by Indian companies were:
Overseas investment is one of the foremost steps to enter the global marketplace and in recent times, India has taken necessary steps to make its presence felt in the global arena. Investment outlook in some of the overseas market looks positive. For instance, the Indian industry is projected to increase its revenue from Africa. IT services, infrastructure, agriculture, pharmaceuticals and consumer goods are vital to India boosting Africa revenues to US$ 160 billion by 2025, as per McKinsey & Co.
In another development, the Ministry of External Affairs has initiated a move to set up a direct sea and air link between India and the Latin American region, as Indian corporates plan significant investments in the mining, oil, IT and pharmaceutical sectors in that region.
Overseas investments by India companies are expected to increase, backed by stable market conditions and considerable impact of the investments on local economies.
Exchange Rates Used: INR 1 = US$ 0.0143 as on December 31, 2018
References: Department of Industrial Policy and Promotion (DIPP), Media Reports and Press Releases, Press Information Bureau (PIB), Reserve Bank of India (RBI), Directorate General of Foreign Trade, 'Indian Roots, American Soil' by the Confederation of Indian Industry (CII), CII EY Bertelsman Foundation
Some Important Websites: