We are not guided by-elections. We are guided by the potential of India. We are not waiting for any election results to invest in India. We are investing in India for its economic story.”
These were the words of former PepsiCo C.E.O. Indra Nooyi when she announced an investment of $5.5 billion in 2013 by the company and its partnerss into the country.
Over the last few years, India is witnessing a solid increase in investments mainly from Singapore, the U.S., the U.A.E., Mauritius, Cayman Islands, the Netherlands, and the U.K.
As per data released by National Securities Depository Limited, Indian equities received over $23 billion from foreign institutional investors in 2020, as compared to $14.2 billion in 2019. As per a UNCTAD report, India registered a 13% year-on-year growth in foreign direct investment (FDI) up to $57 billion in 2020.
In this article, we discuss why foreign entities should invest in India, where and how they can invest in the country.
The most basic investment principle is to look at the market one and weigh the opportunities and risks in it. The first question an investor needs to ask is: “Is it safe to invest in India?”
In short, the answer is yes. The Indian market is safe and provides immense opportunities for foreign investors. Here are some reasons to invest in India.
India is the fifth-largest economy globally by gross domestic product (GDP), with the average GDP growth at 7.5% and is likely to continue to produce strong growth over the next decade. The International Monetary Fund (IMF) has projected India’s GDP to grow at 12.5% in the fiscal year 2021-22. By 2023-24, the country is projected to become one of the fastest-growing economies globally. As per the Asian Development Bank, India’s GDP is expected to grow at 11% in 2021-22.
Positive demographic for growth
India has a youthful population, a majority of which are educated and working. About 90% of the total population is below 60 years old, of which nearly 35% is under the age of 19. In an aging world, India has one of the youngest populations, with those who can work, earn, and contribute to the economy. Furthermore, India is projected to be the world’s most populated country by 2022, adding to the large work force.
According to The Global Competitiveness Index, India is the third-largest consumer market out of 141 countries in the world. Its middle-class, which includes 350–400 million of its 1.36 billion population, spends the most on consumer goods. As per a report released by Bain & Company with the World Economic Forum, the consumer market of the country is projected to surge to $6 trillion by 2030.
Good and supportive fiscal reforms
In the last few years, the Indian government has relaxed several restrictions on foreign direct investments (FDIs) . It has increased foreign equity limits for insurance and defense which led to a huge improvement in its overall business environment. The introduction of a goods and service tax (GST) in July 2017 was a massive tax reform in the Indian economy. Moreover, in the World Bank’s Doing Business 2020 study, India ranked 63rd in ease of doing business moving up 14 places from the previous year.
Rising private equity investments
India reported $26 billion in private equity (PE) investments in 2017, and the country registered $45 billion in PE and venture capital investments in 2019. As per a report by Anarock Capital, the Indian real estate sector increased about 19% to more than $6.27 billion in the fiscal year 2020-21.
Greater infrastructure spending
In 2017, India spent about 9% of its total GDP on infrastructure and increased its allocation to Rs 5.97 trillion for the 2018 budget. The government intends to spend $1.4 trillion on infrastructure from 2019-23, as well as $750 billion for railway infrastructure between 2018 and 2030.
Dynamic real estate market
According to a report by the Indian Brand Equity Foundation, the country’s real estate sector is projected to have a market size of $1 trillion by 2030. In the sector, commercial properties are expected to perform better. As per Savills India’s report “India Market Watch Office 2020,” office leasing is projected to rise by 25% in 2021.
Global leading IT
India is one of the largest exporters of I.T. products and services. Its young workforce is well-equipped with great technical knowledge to build and leverage innovations and develop new technologies. Their talent and skills make India a global frontrunner in the I.T. revolution and startup space.
Where can foreign investors and P.E.s invest in India?
Foreign investors and private equity firms can invest in the following sectors:
India has 21 unicorns* that are worth $73.2 billion combined. By 2022, more than 50 startups are expected to join the unicorn club. There are also many startups with promising ideas and solutions. They just need the right seed capital and initial investments to achieve their milestones. Overseas investors can look into such prospects to make investments if they see the potential.
Healthcare and pharmaceuticals
India is one of the most popular health tourism destinations globally and is one of the largest manufacturers of generic medicines and pharmaceutical products. The country’s pharmaceutical sector is projected to rise to $100 billion by 2025. India permits up to 100% FDI for greenfield projects in the healthcare sector.
A large population in India (about 60%) is either directly or indirectly engaged in agriculture, which provides huge opportunities for investment in this sector. The government permits 100% FDI in several agricultural activities and investors can invest in procuring agri-produce or developing agri-equipment and technologies for farmers in the country.
How to invest in India?
There are numerous ways that international investors can invest in India. Some of them are listed below:
Overseas investors can invest directly in Indian startups and public-listed companies. In the former, they can invest the seed capital or through any equity-linked instruments for a stake in the company. In the latter, they can purchase shares and debentures through a qualified agent on a registered stock exchange.
India permits 100% foreign direct investment in some sectors where foreign companies can set up wholly-owned subsidiaries. This will enable foreign investors to invest in India through their home-based brands.
The Reserve Bank of India, the apex lender in the country, allows foreign institutional investors to register with the Securities and Exchange Board of India to invest in the security market through the portfolio investment scheme route.
India is an investment-friendly nation and many international investors rank the country as one of the most attractive markets in the world. Over the last few years, the country is receiving huge foreign investments and more overseas investors are investing in several sectors than ever before.
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* A unicorn refers to a privately held start-up company that is valued at $1 billion USD or more.