Indian economic growth is overtaking the world economy. India is on track to overtake Japan and Germany as the world’s third-largest economy by 2027. After the COVID-19 epidemic, India’s economy showed strong indications of recovery in FY22.
Per IBEF, India’s GDP at current prices is projected to reach $ 447.44 billion (Rs. 36.85 lakh crore) in the first quarter of 2022–23, up from$ 394.13 billion (Rs. 32.46 lakh crore) in 2021–22, which is a growth rate of 13.5%.
According to these numbers, India is the world’s fastest-growing major economy. The Indian investment industry has benefited from this Indian economic growth. Domestic investments in the Indian market have increased from retail investors, mutual funds, and PE/VC firms. India stock market will be the third-largest in the world by 2030. Furthermore, it offers a developing and prosperous ecosystem for domestic and foreign investments in the India economy.
Domestic Investment in Indian Economic Growth
Retail investors made up an all-time high of 7.42% of shareholders in companies listed on the National Stock Exchange (NSE) as of March 31, 2022, up from 7.33% as of December 31, 2021.
Foreign Direct Investment (FDI) in Indian Economic Growth
The development of India’s financial system, infrastructure enhancement, and easing restrictions on Foreign Direct Investment (FDI) has contributed to the country’s investment boom. So, the government has promoted a favorable FDI policy to investors, with most sectors allowing 100% FDI via the automatic mechanism for better Indian economic growth.
The FDI policy is also revised frequently to keep the India stock market a desirable and welcoming place for investors. As a result, the India economy achieved its highest-ever annual FDI influx of $ 83.57 billion in FY22, an astounding 85.09% increase over FDI inflows of $ 45.15 billion in FY15.
A 76% YoY increase from $ 12.09 billion in FY21, FDI equity inflows into the manufacturing sector totaled $ 21.34 billion in FY22. Singapore had the most significant FDI equity inflow into India in FY22, followed by the US and Mauritius, as shown in the pie chart below.
The top two States receiving FDI for FY22 are Karnataka and Maharashtra.
The manufacturing sectors have seen a 76% growth in FDI equity inflow in FY 2021–2022 (USD 21.34 billion). On the other hand, the Computer Software and Hardware and the Services Sector have received the subsequent highest sector FDI Equity Inflow during FY2021–2022.
Private Equity (PE)/Venture Capital (VC)
India’s Private Equity (PE)/Venture Capital (VC) investment environment is likewise scaling new heights, with growth in deal size, deal activity, and fundraising, as well as developments in term sheets and benchmarking procedures. So, PE/VC investment activity reached $ 34.1 billion across 714 deals in the first half of 2022 (January-June), representing a 28% YoY surge adding to the Indian economic growth. PE/VC made the most significant investments in startups, totaling $ 13.3 billion across 506 ventures.
Let’s observe the factors that make India a desirable investment.
Global Offshore Workforce: One of the main forces behind the expansion of India’s economy has been outsourcing a wide range of services to that country. India has become a popular destination for companies looking to outsource non-core activities due to its large English-speaking workforce and low labor costs. As a result, the country’s services sector has expanded to account for more than half of its GDP in Indian economic growth.
Over the next decade, the number of people working in India for jobs outside the country is expected to more than double, reaching over 11 million, as global outsourcing spending rises from $180 billion per year to around $500 billion by 2030, according to Morgan Stanley Research. CEOs today are more at ease with working from home and India in a post-Covid environment.
India’s Consumer Spending, Credit, and Digitization: India consumer spending has skyrocketed. Non-grocery retail is seeing the most growth, including apparel and accessories, leisure and recreation, and household goods and services, among other things.
India’s income distribution could shift over the next decade, causing overall consumption to double from $2 trillion in 2022 to $4.9 trillion by the end of the decade. As India’s income distribution shifts, India’s overall consumption could more than double.
Over a decade ago, India launched the Aadhaar national identification program, which laid the groundwork for a more digital economy. Among other things, the Aadhar system generates biometric IDs to establish proof of residency and has been instrumental in digitizing financial transactions.
This project is now a component of IndiaStack, a decentralized public utility that provides a low-cost comprehensive digital identity, payment, and data-management system. IndiaStack has many applications, including a network for lowering credit costs and making loans more accessible and affordable to consumers and businesses. Credit availability is a critical factor in economic growth. The Morgan Stanley Research team estimates that the credit ratio to India’s GDP over the following decade could rise from 57% to 100%.
India’s Energy Access and Transition: India’s energy access and transition is the third pitch. India’s economic growth has traditionally been linked to the price of oil. However, optimists predict a significant green energy transition that will attract more investment and make India’s energy self-sufficient and competitive.
According to India Utilities and Industrials analyst, the increase in India’s energy sector investments will contribute to a virtuous investment cycle, with more jobs and income, savings, and in turn, more investment.
India’s Government Initiatives
The Indian government is undertaking several initiatives to boost the country’s economy, including structural reforms, infrastructure investment, and the promotion of entrepreneurship and innovation. These policies create a favorable environment for business growth and the overall expansion of India’s economy.
Manufacturing is another area where India has the potential for significant growth. The government has launched initiatives, such as the “Make in India” campaign, to promote the country as a manufacturing hub and attract investment in this sector. If these initiatives are successful, they may help to create jobs and propel Indian economic growth.
Apple may have migrated some of its manufacturing facilities to India during the year due to a substantial increase in iPhone 14 production. The business is currently finalizing the launch of iPad production in India.
The table below shows the manufacturing sector’s annual growth rate, as the National Informatics Center reported, demonstrating the industry’s steady but slow growth.
The startup ecosystem in India is one area where India is seeing significant growth. The country is home to many technology startups dedicated to providing innovative solutions in fields such as e-commerce, fintech, and healthcare.
These startups are attracting significant investment from both domestic and foreign investors, and they are critical to Indian economic growth. However, investing in India is a long-term strategy. Therefore, it has some dangers, such as a protracted global recession, unfavorable geopolitical developments, changes in domestic policy, a shortage of skilled labor, energy constraints, and commodity volatility.
As India’s economy develops over the next decade, it will become more relevant to global investors in the same way China is today. Emerging Market expert Mark Mobius is also allocating his investments to India. India’s upcoming decade may mimic China’s trajectory from 2007 to 2012. According to Morgan Stanley Reports, India has the most compelling growth prospect in Asia in the following years.
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How has the rupee performed during the year 2022?
In 2022, the Indian Rupee performed reasonably well compared to its counterparts from other emerging markets. Over this year, the rupee’s value has decreased by almost 10%. Even while it sounds like a lot, India hasn’t fared all that poorly compared to many of its peers in the emerging market.
Which industries in India are thriving?
The top sectors which are thriving and showing future growth are:
1. Healthcare and Insurance Sector
2. Renewable energy sector
3. IT Sector
4. Fast-Moving Consumer Goods Sector