DOMESTIC INVESTMENT IN INDIA

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Introduction

The Government of India have 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 public and private sector have both enabled and sustained these investments. Following are the various investors driving domestic investments in the country:

• Government/Public Sector Enterprises’ Capital Expenditure
• Private Sector Enterprise
• Banks/Financial Institutions/Domestic Institutional Investors
• Retail Investors

Market Activity

Gross Fixed Capital Formation (GFCF), at 2011-12 prices, was valued at Rs. 1,392,491 crore (US$ 189.16 billion) in the first quarter of FY22, as per provisional estimates of the annual national income. The government final consumption expenditure (GFCE), at 2011-12 prices, stood at Rs. 702,566 crore (US$ 95.44 billion) in the first quarter of FY22.

Between April 2021 and August 2021, India’s overall exports were estimated at US$ 256.17 billion (a 44.04% YoY increase). Also, India’s overall imports in the same period were estimated at US$ 273.45 billion (a 64.18% YoY increase).

Merchandise trade	April-August 2020	April-August 2021
Exports	US$ 98.06 billion	US$ 164.10 billion
Imports	US$ 121.42 billion	US$ 219.63 billion

 

The private equity - venture capital (PE-VC) sector recorded investments worth US$ 10.7 billion across 137 deals in August 2021, registering a 5x YoY growth. This can be attributed to rise in investment value in sectors such as financial services (US$ 2,224 million), technology (US$ 1,560 million), business & professional services (US$ 1,205 million), telecommunication (US$ 1,200 million) and education (US$ 1,169 million).

PE/VC investments reached US$ 47.3 billion in 2021 (until August 2021), an increase of 13.7% over 2018.

PE-VC Investments	August 2021	July 2021	August 2020
Key Sectors	By Value (US$ million)
Financial Services	2,224	435	1,180
Technology	1,560	1,051	33
Business and Professional Services	1,205	170	6
Telecommunication	1,200	0	0
Education	1,169	358	308
Media and Entertainment	517	406	29
E-commerce	408	5,807	138
Others	1,038	998	184

Source: IVCA-EY Monthly PE/VC – August 2021

Investments/developments

With the improving economic scenario, there have been quite a few investments in various sectors along with M&A in India. Some of them are as follows:

• Venture capital investments in the country reached US$ 8 billion in the second quarter of 2021.
• Foreign portfolio investment (FPI) made a net investment of Rs. 7,575 crore (US$ 1.03 billion) in India, as of September 10, 2021.
• In the first half of 2021, ~344 M&A deals worth US$ 21.6 billion were signed/concluded.
• Infrastructure investment trusts (InvITs) and real estate investment trusts (REITs) have raised capital worth >US$ 9.7 billion in India, as of Sept. 2021.
• In the first half of 2021, private equity (PE) investment inflow into the Indian real estate sector stood at US$ 2.7 billion.
• Coal India will be investing > Rs. 1,220 billion (US$ 16.7 billion) in 500 projects by 2023-24 to improve efficiency in coal transport.
• Mutual funds asset base stood at Rs. 36.09 trillion (US$ 490.04 billion) in August 2021.
• In September 2021, Welspun India Ltd. announced to invest Rs. 6.57 billion (US$ 89.4 million) to enhance manufacturing capacity and cater to the overseas demand.
• In July 2021, Maruti Suzuki announced plans to invest Rs. 18,000 crore (US$ 2.45 billion) for establishing a new plant in Haryana.
• In July 2021, Capital India announced to invest US$ 25 million in Credenc, an education lending fin-tech platform, to strengthen capabilities in digital financial products.
• In July 2021, TVS Motor announced to invest Rs. 1,000 crore (US$ 135.84 million) to manufacture electric vehicles in India.
• In May 2021, equity assets under management of domestic mutual funds (MFs) stood at Rs. 11.1 lakh crore (US$ 149.72 billion), registering an increase of 7.7% (on MoM basis).
• Start-up investments made by VCs in India stood at US$ 17.2 billion between January 2021 and July 2021, compared with VC investments of US$ 11.1 billion and US$ 13 billion in 2020 and 2019, respectively.

Government Initiatives

The Government of India has taken several initiatives across sectors to improve the overall economic condition in the country. Some of these are:

• In September 2021, the government approved a Production-linked Incentive (PLI) Scheme for the automobile and drone industries with an outlay of Rs. 26,058 crore (US$ 3.54 billion) to boost the country’s manufacturing capabilities.
• In September 2021, Civil Aviation Minister, Mr. Jyotiraditya M. Scindia, stated that the government plans to provide incentives of Rs. 120 crore in the next three years under the PLI scheme for drones and drone components.
• In August 2021, the Union Cabinet approved an FDI (foreign direct investment) proposal of Anchorage Infrastructure Investment Holding Ltd., proposing an investment of Rs. 15,000 crore (US$ 2.04 billion) in India.
• In August 2021, the Indian government approved Deep Ocean Mission (DOM) with a budget outlay of Rs. 4,077 crore (US$ 553.82 million) over the next five years.
• In July 2021, the Cabinet Committee on Economic Affairs approved the revision and realignment of various components of the Department of Animal Husbandry & Dairying Schemes and Special livestock package for utilising an estimated investment of Rs. 54,618 crore (US$ 7.42 billion).
• In July 2021, the government announced to establish or upgrade 2 lakh micro food processing enterprises between FY21 and FY25, with an outlay of Rs. 10,000 crore (US$ 1.36 billion).
• Financial Support Scheme for public–private partnerships (PPPs) in Infrastructure viability gap funding (VGF) 2024-25 had a total outlay of Rs. 8,100 crore (US$ 1.11 billion).

• In May 2021, the government approved the production linked incentive (PLI) scheme for manufacturing advanced chemistry cell (ACC) battery at an estimated outlay of Rs. 18,100 crore (US$ 2.44 billion); this move is expected to attract domestic and foreign investment worth Rs. 45,000 crore (US$ 6.07 billion).
• In April 2021, Ms. Indu Shekhar Chaturvedi, the top bureaucrat at India's Ministry of New and Renewable Energy, announced that India plans to spend US$ 200 million over the next 5-7 years to boost hydrogen use.
• In November 2020, India's cabinet approved the production-linked incentives (PLI) scheme to provide ~Rs. 2 trillion (US$ 27 billion) over five years to create jobs and boost production in the country.
• In November 2020, India is expected to record an investment of ~Rs. 10,000 crore (US$ 1.37 billion) in the next three years to set up 1,000 LNG stations in the private and public sector.

Road Ahead

The Association of Mutual Funds in India (AMFI) is targeting nearly five-fold growth in assets under management (AUM) to Rs. 95 trillion (US$ 1.30 trillion) and more than three times growth in investor accounts to 130 million by 2025.

India’s attempt to implement reforms to unlock the country's investment potential is expected to improve business environment, liberal FDI policies, quick solution to corporate disputes, simplified tax structure, and a boost to public and private expenditure. To achieve the GDP of US$ 5 trillion by FY25, India needs to spend about US$ 1.4 trillion (Rs. 100 trillion) over these years on infrastructure.

In line with this, in June 2021, Prime Minister, Mr. Narendra Modi invited the world to invest in India stating that the country is home to world’s largest start-up ecosystem that is driven by factors such as Indian talent pool, rising number of internet users and mobile phone penetration. He also encouraged domestic start-ups to focus in areas of healthcare, agriculture, eco-friendly technology and new age tools of learning.

In August 2021, Prime Minister, Mr. Narendra Modi stated that investors’ response has been noteworthy for start-ups in India, indicating that the country has huge growth opportunities in this area. He added that India has 60 unicorn start-ups currently, with about 21 firms attaining the status in the last few months.

Note: Conversion rate used for September 2021 is Rs. 1 = US$ 0.014

References: Press Information Bureau (PIB), Media Reports, World Bank, Grant Thornton, Database of Indian Economy (DBIE), Knight and Frank