Grappling with the agonising human effects of Covid-19 together with mounting inflation and wavering geopolitical scenario, there is a palpable positive sentiment across sectors in India to go full-throttle on the recovery process to sustain the economic growth of the country.
Notably, the recent RBI data shows that Indian companies’ direct overseas investment increased 8.5 per cent YoY to $3.34 billion in March 2022. In fact, even at the height of the coronavirus pandemic last year, Indian companies had invested $3.1 billion in their overseas fully-owned subsidiaries and joint ventures.
Private equity capital flows to India reached a record $27.6 billion in the first six months of the year, nearly equalising the $29 billion outflow in portfolio investments and establishing that the country’s appeal as a growth engine in the long term is unabated despite near-term disruptions caused by a surge in dollar-denominated assets.
Most importantly, the job market is also optimistic. Reportedly, in Q3 (July-September) 2022, 63 per cent of companies are planning to employ more people. Significantly, in the Asia-Pacific region, with 51 per cent hiring, India reported the highest recruitment, according to a survey.
Moreover, India recorded its second-highest monthly gross GST revenues in June at ₹1,44,616 crore, 56 per cent more than a year ago. The Finance Ministry said that coupled with economic recovery, anti-evasion activities, especially action against fake billers, have been contributing to the enhanced GST.
The driving force
Even though private investment is slowly picking up, it is the government that is the driving force behind India’s economic recovery.
In recent years, the government has relaxed FDI norms across several sectors, including defence, PSU, energy, stock exchanges and more. Therefore, FDI will play a significant role in the country’s future economic development. Notably, India’s gross FDI inflows increased, from $82 billion in FY 2021 to $83.6 billion in FY 2022. Several sectors remained attractive to investors, including FMCG, IT, pharma, financial services, etc.
The government’s capex recorded a 39 per cent growth over 2021, at a record ₹5.9 lakh crore. Additionally, the government has budgeted ₹7.5 lakh crore capital expenditure in FY23 that rivals a revised ₹6.03 lakh crore capex in FY22.
Additionally, the center’s PLI scheme has been received well by Indian businesses. For instance, the PLI for domestic production of specialty steel will result in capacity addition of 25-million tonnes, additional investments of about ₹40,000 crore.
The Emergency Credit Line Guarantee Scheme (ECLGS) introduced as a part of the Indian government's Covid-19 financial relief package, supported the services sector which led to an increase in debt intake. Thus, the sector’s overall operating margin recovered. Reportedly, the performance of MSMEs has been more significant than corporate, with a two-year revenue annual growth of 13.4 per cent and an annual net profit of 63.7 per cent.
The government is looking at the long-term growth of the economy and short-term developments. Hence, the manufacturing, service and infrastructure sectors could see a strong investment-led recovery in the coming years.
Still more, in 2021, 598 M&A deals worth $112.8 billion were signed or concluded at a record high. Start-up PE/VC investments were the highest between January-March 2022, with $7.7 billion invested across 255 deals. And, 2250 new startups were founded in India in 2021, which raised $24.1 billion combined.
Confidence among India's small businesses remains high with an overwhelming majority of executives expecting improvement in the second quarter of 2022 on most of the parameters, including sales, capacity utilisation and hiring, according to the ASSOCHAM-Dun & Bradstreet Small Business Confidence Index. The index, which measures the level of optimism of small and medium businesses on key business factors such as sales, employment, prices, inventory and investment, stood at 87 in Q2 2022.
Further, the RBI has projected a GDP growth of 7.2 per cent for the fiscal ending March 2023. Similarly, Moody's Investors Service has lowered India's growth forecast for 2022 to 8.8 per cent from 9.1 per cent projected in March. According to the Finance Ministry, India’s GDP growth for 2022-23 is expected to be above 7 per cent even in the face of global headwinds.
India Inc. is expected to see revenue growth of 10-14 per cent next fiscal. This is steered by IT services, which are seeing robust demand, and BFSI, where digitalisation and novel business models are driving growth.
On the whole, infrastructure and transport, technology, IT, telecom, manufacturing including defence, electronics and chips, pharma and healthcare will be front-runners in the investment recovery. India has become easier to do business. In July 2022, India’s flagship digital payments platform UPI saw a record transaction of over six billion, the highest since its inception in 2016. The volume and value of transactions are set to increase with the RBI’s decision to link credit cards to UPI.
Conversely, however, India’s investment focus is shifting towards green capital expenditure, with an expected spend of over ₹2.85 lakh crore per annum over fiscals 2023 to 2030, accounting for nearly 15-20 per cent of total investments (in the infrastructure and industrial sectors) per annum. This will further help push a supply-driven recovery for the economy as a whole.
The writer is Secretary Genera,l ASSOCHAM