Investment Opportunities in India

December 27, 2012

Opportunities for foreign investors in India

Indian markets, across all industries, are considered as viable long-term investment options as the country stands strong amid global financial turmoil. India is considered to be the third most favoured destination for investment after China and the US for major global companies, according to UNCTAD’s World Investment Report 2012. The report anticipates that foreign investments in India could increase by over 20 per cent in 2012-13.

Foreign Direct Investments in India

In recent years, bulk of the foreign direct investments in Indian business sectors of infrastructure, telecommunication, information technology, computer hardware and software, and hospitality services, have been made by investors of countries like US, UK, Mauritius, Singapore, and many others.

The foreign direct investment in India can easily be made in a variety of ways, through the Governmental and automatic routes. However, the joint ventures (JV) are the most popular and preferred forms of making investment in Indian industry.

The Government has recently cleared 14 foreign direct investment proposals worth Rs 113.35 crore based on the recommendations of Foreign Investment Promotion Board (FIPB). Major proposals include an equity increase of Rs 68.22 crore by the UK-based Dashtag to conduct business of pharmaceuticals specialising in dermatology, anti-histamines, antibiotics and oncology products.

Some of the major foreign direct investments in India are:

  • Japanese auto major Nissan intends to introduce 10 new passenger car models by the end of March 2016 in a bid to boost its volumes in India. The company also aims to double its vehicle sales in 2012-13
  • United Nations Industrial Development Organisation (UNIDO), Austria has appointed Ramky Enviro Engineers Limited (REEL) as its strategic partner to work on a project for the Bhilai Steel plant
  • Mahindra Finance’s subsidiary Mahindra Insurance Brokers (MIBL) has formed a venture with LeapFrog Investments wherein the latter’s subsidiary, Inclusion Resources Singapore, would infuse Rs 80.41 crore for a 15 per cent stake in MIBL

Major reforms in foreign direct investments in India

The Government of India has given its nod to 51 per cent foreign direct investment in multi-brand retail. The decision will pave way for retail giants like Walmart, Tesco and IKEA to enter into Indian market and make footprints in the US$ 450 billion retail industry. Moreover, the Government has relaxed sourcing norms for single-brand retailers and has permitted them to buy at least 30 per cent of the goods from Indian industry, rather than particularly from Indian small and medium enterprises (SMEs) as per earlier stipulation.

In case of civil aviation, the Government has allowed foreign carriers to buy up to 49 per cent stake in their Indian counterparts.

Further, to sustain the momentum of the above stated reforms, the Government would take more decisions to create investment options for overseas investors. The measures being considered include raising the ceiling for foreign borrowings, easing curbs on portfolio investors, and liberalising norms for overseas borrowings.

Future of foreign investment in India

With the Government of India laying intense focus on increasing the country’s share in the global FDI space from 1.3 per cent in 2007 to 5 per cent by 2017 by relaxing and un-complicating the FDI norms, it is expected that foreign majors would invest aggressively in the flourishing Indian markets.

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NRI Investment options in Indian education sector

India has emerged as a strong potential market for investments in training and education sector, due to its favourable demographics (young population) and being a services-driven economy. Further, India’s expanding role in sectors such as software development, generic pharmaceuticals and healthcare, would require the country to invest into learning and training segment as well.

Market size of education sector in India

With a growth rate of 10 to 15 per cent expected over the next decade, education in India has witnessed a series of developments and changes in the last few years, which has resulted in a significant increase in the market size and investment opportunities as compared to previous years.

In India, the pre-school segment is currently worth US$ 750 million and is expected to reach US$ 1 billion by 2012, said Arun Arora, Chairman, Serra International Pre-Schools.

The market size of K-12 sector is expected to reach US$ 34 billion in 2012, with a rise of 14 per cent, as compared to US$ 20 billion in 2008.

Vocational education/training is gathering huge investments from corporate and private equity (PE) firms as the methodology and technology pertaining to this sector is witnessing significant improvements.

Investment in Indian education sector

Education in India is also considered as one of the major areas for investments as the entire education system is going through a process of renovation, according to a report ‘Emerging Opportunities for Private and Foreign Participants in Higher Education’ by PricewaterhouseCoopers (PwC).

The Government of India has allowed foreign direct Investment (FDI) up to 100 per cent through the automatic route in the education sector.

Government Initiatives for promoting education sector in India

Some of the initiatives taken by the Government of India for infrastructural development of education sector are as follows:

  • The Ministry of Human Resource Development plans to set up ten community colleges in collaboration with the Government of Canada in 2012. The Government of India has decided to set up hundred community colleges this year.
  • The Government of Gujarat plans to set up a farming educational institute in collaboration with Israel, offering post-graduation and Ph.D programmes with practical training and degree from Israeli universities.
  • The Government of India also plans to set up an Indian Institute of Agricultural Biotechnology at Ranchi with investments of Rs 287.50 crore.

Future of Indian education sector

Consulting firm Technopak is very positive about the growth of the sector and estimates private education sector alone to grow to US$ 70 billion by 2013 and US$ 115 billion by 2018 in its study ‘A Report Card on India’s Education Sector’.

There are clear investment opportunities for private players to enter the Indian education space. The opportunity exists in all three segments – schooling, higher education and vocational training. Some success stories are Manipal University, Amity University and the Indian School of Business. Public-private partnerships (PPP) arrangements, tax concessions for education and encouraging foreign capital to build infrastructure in India would encourage the creation of new capacities by the private sector.

India’s education sector is expected to witness huge investments from PE funds over the next couple of years on the back of increased Government spending and expansion plans of private players.

Investment opportunities in energy and telecommunication sector of India

The Government of India has accepted Telecom Regualtory Authority of India’s (TRAI) recommendations on ‘Approach towards Green Telecommunication’ and has decided to promote the use of green energy in the telecommunication sector setting broad directions and goals to achieve desired reduction in carbon emission through use of renewable energy technologies and energy efficient equipment. Department of Telecommunications has issued directions to the licensees for implementation with immediate effect. These directions stipulate inter-alia that at least 50 per cent of all rural telecom towers and 20 per cent of the urban towers are to be powered by hybrid power (renewable energy technologies and grid power) by 2015 while 75 per cent of rural towers and 33 per cent of urban towers are to be powered by such systems by 2020.

Telecommunication sector of India

Telecommunication in India is the second-largest in the world with 951.3 million subscribers as of March 2012. India is expected to feature among the top 10 broadband markets by 2013.

In terms of subscriber base, Bharti Airtel made the lead in the month of July 2012 with 188.8 million subscribers followed by Vodafone with 154.9 million. Idea Cellular added 455, 912 subscribers to have 117.6 users and State-run Bharat Sanchar Nigam Ltd (BSNL) added 471,552 users to have 98.75 million subscribers. Tata Teleservices has a total number of 77.8 million subscribers, while Uninor has 44.5 million.

Since the introduction of the New Telecom Policy in 1999, telecommunication in India has witnessed huge investment opportunities, especially in the wireless segment. The industry has evolved as a basic infrastructure on the similar lines of electricity, roads, water etc.

The Government of India is also focussing on improving rural tele-density and broadband connectivity, effective expansion of the networks with efficient utilisation of scarce spectrum and ensuring equal sharing of highly capital intensive infrastructure.

Indian Energy Sector

The Indian energy sector is one of the most diversified sectors in the world. Energy in India is generated from commercial sources like coal, lignite, natural gas, oil, hydro and nuclear power as well as other viable non-conventional sources like wind, solar and agriculture and domestic waste. Energy sector in India has been growing at a rapid rate and is expected to increase further in the years to come. In order to meet the increasing requirement of electricity, massive addition to the installed generating capacity in the country is required.

India has been one of the top performing clean energy economies in the 21st century, registering the fifth highest five-year rate of investment growth and eighth highest in installed renewable energy capacity, according to a research report released by The Pew Charitable Trusts.

The investment climate is very positive in the Indian energy sector. Due to the surge in the sector, it has witnessed higher investment flows than envisaged. The Ministry of Power has sent its proposal for addition of 76,000 MW of power capacity in the Twelfth Five Year plan (2012-2017) to the planning commission. The ministry has set a target for adding 93,000 MW in the Thirteenth FiveYear Plan (2017-2022).

The Government has initiated several policies for energy sector in India to promote and garner investments from NRIs/PIOs. To accelerate capacity addition, several policy initiatives have been undertaken by the Ministry of Power.

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