Amidst the economic slowdown across the globe, India relatively has been doing impressively well in growth and development. And, this aspect has been taken note of by the foreign private investment entities too. It is no surprise then that the country’s private fairness capital share has risen from 4% to about 6% in 2021. Industry experts believe that these figures will register a further increase in the next few years mainly because foreign buyers will scout for development areas as they zoom in on India.
With the Indian economy getting sturdier, private capital inflow especially from outside the country is looking positive and set to rise with the passing years. This, despite, the home public markets where there have been instances of foreign buyers pulling out in the recent past.
Factors That Make India an Attractive Option for Foreign PE
In the global scenario, most countries have been experiencing a slow-down of the economy post-Covid 19. Europe, America and most parts of the developed world are experiencing turmoil. China, one of the largest economies in the world has, in the recent past, established stringent rules for start-ups. Plus, the ongoing war between Russia and Ukraine has stopped capital inflows to Russia. All of these factors have helped India garner the right kind of attention from foreign PE investors.
Amongst all of this, the Indian markets are readily soaking up the capital inflows due to increased capacities. This is even when the rupee has further declined. The trend continues. In 2022, Private equity capital inflow in the first six months of the year from 1,049 deals was about $28.76 billion. As per experts, foreign PE investments will not slow down for India.
To add to this, what has benefitted India in this niche is China’s crackdown on the start-up environment in the country. Rules have become stricter and more stringent, and with the possibilities of another nationwide lockdown, etc., things are pretty grim in the Chinese market. As a result, the capital that was earmarked for the Chinese market needed to be re-allocated to another Asian market or country. And that is where India seemed to benefit vociferously.
The Indian Scene
The low-interest rate ecosystem in India largely has a role to play in this as most investors look at allocating larger capital in emerging markets with lower interest.
Capital inflows from foreign PE are also industry-dependent. Recent trends point out that technology may no longer be an attractive segment. The Indian healthcare and pharma industries are, however, attracting a lot of interest amongst foreign buyers and investors.
Few schemes announced by the government post-Covid are also playing a key role in capital inflows. For example, the production-linked investment scheme for the manufacturing sector is an attractive proposition for foreign investors. Several industrial segments like pharma, textiles, telecom, etc., are now a part of the new incentives announced by the government in 2021.
Additionally, India has a transparent and comparatively liberal FDI policy. The government has enabled most of the sectors to be automatic routes for FDI.
And if this was not enough, the figures are pretty encouraging giving a boost to foreign investors. The projected growth rate of the Indian economy is about 6.7% in 2022 (UNCTAD report 2021). As mentioned above, amidst the global grim scenario, this is an enviable figure putting India as one of the fastest growing economies on the global map at present.
FYs 2021-22 and 2022-23 have a projection of a 9% growth rate in the real GDP of India. Again, it re-establishes India’s potential as becoming a dominant economy in the world in this period.
In terms of global competitiveness, India is now ranked 63rd by the World Bank’s Ease of Doing Business Ranking 2020 and 68th by the World Economic Forum on the Global Competitiveness Index 2018-19.
What other things are acting as drivers for foreign private capital inflows into the country?
Other than the government’s FDI-friendly norms and the overall weak scenario on the global front, other generic factors add to India’s position:
Even with Covid-19, India has been going pretty strong as far as its economic and financial growth is concerned. With the relaxation of the administrative regulations by the government and RBI, things seem to have become easier for foreign investors to enter and exit the market here. Thus, foreign PEs are betting big-time on India at present.
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