India: opportunities for European businesses and investors
Growing potential in investment opportunities.
India is poised for substantial growth driven by a combination of rising consumer spending, government investment in infrastructure and a push towards energy transition. As the world’s most populous market, India’s growth trajectory and its strategic focus towards sustainable energy present a wealth of opportunities for investors and business alike.
Economic growth: a foundation of stability
India’s economic growth is underpinned by strong macroeconomic fundamentals that provide a stable foundation for future expansion. With 1.4 billion mostly young consumers, and a GDP of US$3.5 trillion that grew 7.8% in the first quarter of this year, India is on track to becoming the world’s third-largest economy by 2028. The country’s debt-to-GDP and external debt-to-GDP ratios are at comfortable levels, alongside record-high foreign exchange reserves. These indicators are crucial in ensuring sustained growth, particularly in a global environment marked by uncertainty.
Consumer spending is experiencing a robust rebound, signalling renewed confidence. This resurgence is complemented by the government’s focus on productive spending, particularly in infrastructure development. After a 33% increase in productive capital expenditure on infrastructure last year, India’s Ministry of Finance announced a further 11% hike for 2024. Investment in infrastructure not only catalyses economic activity but also creates a multiplier effect, driving growth across various sectors.
With the government’s ongoing efforts to improve governance and streamline bureaucracy, including reforming the banking sector and deepening credit markets, the landscape for investment in increasingly favourable. In addition to these measures coming out of New Delhi, states are competing for investors by striving to be more business-friendly. These measures had proven effective, coinciding with India’s inclusion in JPMorgan Chase’s Emerging Market Bond Index at the end of June.
Growing potential in investment opportunities
Global investors are keen to gain access to India’s US$1.3 trillion government bond market following its inclusion in JPMorgan’s EM bond index in June 2024. India is the biggest entrant since China in 2020 and is projected to gain up to US$40 billion in new investment. EU and other foreign investors anticipated this development by moving a net total of almost US$1 billion into rupee-denominated corporate bonds in the first five months of 2024, breaking a six-year run of being net sellers.
As an outcome of these and other factors, India has become one of the most popular foreign direct investment (FDI) destinations, increasing its FDI inflows by 89% in the past decade and drawing in US$46 billion in 2023. The UN Conference on Trade and Development’s (UNCTAD) World Investment Report puts it in fourth place for the most greenfield projects in 2023 and in second place for international project finance deals. As large as these inflows of capital may be, they are dwarfed by the size of the opportunity.
The Gujarat International Finance Tec-City (GIFT City), an international financial services and technology centre, also presents a great opportunity to attract local and foreign investors. Established in 2015, it today hosts 24 multinational banks, 23 insurance companies and intermediaries, two international stock exchanges, the country’s first international bullion exchange, and approximately 35 fintechs.
Standard Chartered’s Global Head of Capital Structure and Rating Advisory, Shoaib Yaqub, believes that India today has a great deal to offer foreign investors. “The story is brilliant, it’s all about growth”, he says, pointing out that equity flows into the country in the first five months of 2024 amounted to US$22 billion, compared to US$34 billion for the whole of 2023.
The bond market too has attracted foreign inflows of about US$10 billion in the past nine months alone – since the bond index inclusion announcement. And because of the shift to longer-term planning by the government and corporations alike to match the long-term nature of the majority of ongoing investment projects in the country – Yaqub believes this trend is likely to be sustained.
Energy transition: powering sustainable growth
India’s commitment to energy transition – from fossil fuels to renewables – is a cornerstone of its long-term growth strategy. The country has set ambitious targets for expanding its renewable energy capacity, including a strong focus on green hydrogen production. These efforts are crucial for meeting the nation’s energy needs while minimising environmental impact.
The renewables sector presents vast opportunities for investment, particularly in solar panel and electrolyzer manufacturing. Between April 2020 and September 2023, India – the world’s fourth-largest producer of renewable energy, with an installed capacity of 194 gigawatts – attracted US$6.1 billion in foreign investment into its renewables sector. But to achieve 500 gigawatts of fossil fuel-free generating capacity by 2030, it needs to triple its current investment.
To meet this goal, the Indian government is permitting generation and distribution projects to be entirely funded by FDI. Two companies that are taking advantage of this concession and are supporting India’s transition to net zero are Technip Energies and GE Vernova Financial Services.
- Technip Energies is a French engineering and technology firm focused on renewable energy and offering services ranging from early engagement, through design and project development, to delivery. With a focus on liquefied natural gas, it is investing in a manufacturing plant to produce marine loading arms for onshore and offshore fluid transfer systems. It is also engaged in green ammonia projects to produce sustainable aviation fuel, and in green hydrogen and liquefied CO2 projects.
- GE Vernova is a US-based energy equipment manufacturer and services provider that houses four of its businesses and 10,000 of its 80,000 employees in India. It emphasises the importance for India of not only an expanded renewables capacity but also investment in a resilient, reliable and affordable power grid. Half of the country’s total energy supply is transmitted and distributed by means of GE Vernova’s equipment, none of which is imported.
Understanding the policy landscape
Investing in India, as in any emerging market, presents some challenges. Reforms to regulatory frameworks over recent years has resulted in a more welcoming environment for foreign investment and partnerships. However, while many policy barriers have been removed, India is a unique destination with much that is unfamiliar to newcomers. Investors eyeing joint ventures are advised to spend time getting to know their prospective partners and to carry out rigorous due diligence on their companies and assets.
For investors and businesses, the key to unlocking the investment potential lies in aligning with the country’s growth strategies. Opportunities abound across the economy, with renewable energy being one of the most promising for foreign investors. And as the government continues to take steps to facilitate the inflow of capital and create the conditions needed for investors to become engaged and thrive, its approach is paying dividends. In no uncertain terms, India is declaring it is open for business.
This article is based on a panel discussion at Standard Chartered’s Global Credit Markets Forum 2024 in Paris. Access the panel recording here.
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