The long­term growth prospective of the Indian economy is moderately positive due to its young population, corresponding low dependency ratio, healthy savings and investment rates, and increasing integration into the global economy. The Indian economy has the potential to become the world's 3rd­largest economy by the next decade, and one of the largest economies by mid­century. The outlook for short­term growth is also good, according to the IMF the Indian economy is the "bright spot" in the global landscape. India also topped the World Bank's growth outlook for 2015­16 for the first time with the economy having grown 7.6% in 2015­16 and expected to grow 7.7­8.0% in 2016­17. According to recent The World Bank report, they have projected that India will grow by a robust 7.8 per cent in 2016 and 7.9 per cent in the next two years. World Bank also predicted that India will be the fastest growing economy in the world in the next three years and would outpace China. With the recent fall in oil prices, India remains the bright spot of the global economy as Chinese growth is predicted to slow further.

The economy is now on the fulcrum of high growth, after grappling with the global economic crisis during the end of the past decade. The current decade is expected to play a crucial role in charting out India's progress towards becoming a developed nation

Currently Indian economy has significant place and role with respect to Global economy and has the tremendous scope of growth. The Major statistics of Indian economy discussed in upcoming paragraphs describes the current and future growth potential.

The Economy of India is the seventh­largest in the world by nominal GDP and the third­largest by purchasing power parity (PPP). The country is classified as a newly industrialised country, one of the G­20 major economies, a member of BRICS and a developing economy with an average growth rate of approximately 7% over the last two decades.

India has the one of fastest growing service sectors in the world with annual growth rate of above 9% since 2001, which contributed to 57% of GDP in 2012­13. India has become a major exporter of IT services, BPO services, and software services with $167.0 billion worth of service exports in 2013­14. The IT industry continues to be the largest private sector employer in India. India is also the fourth largest start­up hub in the world with over 3,100 technology start­ups in 2014­15.The agricultural sector is the largest employer in India's economy but contributes to a declining share of its GDP (17% in 2013­14). India ranks second worldwide in farm output. The Industry sector has held a constant share of its economic contribution (26% of GDP in 2013­14).The Indian auto mobile industry is one of the largest in the world with an annual production of 21.48 million vehicles (mostly two and three wheelers) in FY 2013­14. India has $600 billion worth of retail market in 2015 and one of world's fastest growing E­Commerce markets.

India has emerged as one of the strongest performers with respect to deals across the world in terms of mergers and acquisitions (M&A). M&A activity increased in 2014 with deals worth US$ 38.1 billion being concluded, compared to US$ 28.2 billion in 2013 and US$ 35.4 billion in 2012. Also, Private equity (PE) investments increased 86 per cent y­o­y to US$ 1.43 billion.

India's Index of Industrial Production (IIP) grew by 9.8 per cent in October, 2015 compared to 3.8 per cent in September 2015.India's Consumer Price Index (CPI) inflation rate increased to 5.41 per cent in November 2015 as compared to 5 per cent in October 2015.

Owing to increased investor confidence, net Foreign Direct Investment (FDI) inflows touched a record high of US$ 34.9 billion in 2015 compared to US$ 21.6 billion in the previous fiscal year, according to a Nomura report. The report indicated that the net FDI inflows reached to 1.7 per cent of the GDP in 2015 from 1.1 per cent in the previous fiscal year.

As per the recent research done by D&B, they are also positive about Indian macro-economic outlook 2020. The major findings of them are highlighted here:

• India is expected to be more than US$ 5 trillion (current market price) economy by FY20, equivalent to Japan (in terms of GDP in US$) as of 2010

• India's growth would be driven by rapidly expanding services sector

• Strong growth in domestic savings will support domestic investment

• Although consumption will continue to be the major contributor to GDP during the current decade, its share is expected to decline gradually due to significant increase in share of domestic investment

• Substantial rise in private investment activity and surge in infrastructure investment to drive investment

• Rising income levels coupled with increasing young working­age population will lead to significant growth in private final consumption expenditure

• Under consumption, share of discretionary spending expected to rise significantly to 72% of private final consumption expenditure (PFCE) by FY20 as compared to 59.7% during FY10To achieve the above discussed future growth, Infrastructure sector will play a foremost role. Infrastructure development reflects the health of the economy of any nation because infrastructure is directly proportional to the development and growth of the country. According to a research, the infrastructure sector of India contributes more than 8% of the country's GDP. The figures are going to touch 10% by year 2017 to uphold the growth objectives. Indian infrastructure sector is well poised to take a big leap and it provides several investment opportunities for foreign investors from across the world. Infrastructure will be both a cause and a consequence of economic growth.

Infrastructure sector includes power, railways, bridges, dams, roads and urban infrastructure development. India needs Rs 31 trillion (US$ 465 billion) to be spent on infrastructure development over the next five years, with 70 per cent of funds needed for power, roads and urban infrastructure segments.Since IL&FS group is in Infrastructure sector, it will be certainly a key contributor in the nation's development as well as its own future economic outlook

The Government's thrust on infrastructure development in recent years and the structural policy changes are expected to provide a big impetus for the Indian economy, enabling it to achieve greater inclusive growth in the current decade. The Government of India is taking every possible initiative to boost the infrastructure sector. The Major Initiatives taken by Government which have set the stage for economic surge is discussed as below

• Working on encouraging investments in India by bringing down certain entry barriers, promoting foreign direct investments (FDIs) in appropriate sectors and simplifying tax regulations for foreign entities in India

• GOI earmarked Rs 50,000 crore (US$ 7.5 billion) to develop 100 smart cities across the country.

• To ensure quicker execution of major projects, the Government of India has declared a single window clearance mechanism for issue and review of clearance associated

• "Make in India" campaign is an international marketing campaigning slogan to attract businesses from around the world to invest and manufacture in India. The campaign has been concentrated to fulfil the purpose of Job Creation, Enforcement to Secondary and Tertiary sector, Boosting national economy, converting India to a self­reliant country along with global recognition

• The government has rolled out stuck projects worth Rs 4 lakh crore (US$ 60 billion) in the past six months (ending November 2015), while stating that infrastructure development is the government's top priority in order to improve economic growth.

• The Union Cabinet has approved several reforms such as allowing National Highways Authority of India (NHAI) to extend the concession period for current incomplete projects in build­operate­transfer (BOT) mode.

• Government of India plans to launch the National Infrastructure Investment Fund (NIFF) with an initial corpus of at least Rs 40,000 crore (US$ 6 billion). The Ministry of Urban Development has approved an investment of Rs 19,170 crore (US$ 2.88 billion) for improving basic urban infrastructure in 474 cities in 18 states and Union Territories (UTs) under Atal Mission for Urban Rejuvenation and Transformation (AMRUT) for 2015­16. • Department of Industrial Policy and Promotion (DIPP) has set up an online monitoring system for on­going projects under the Industrial Infrastructure Upgradation Scheme (IIUS).

• Allow the use of construction & demolition waste up to 20 per cent in construction of load bearing items and up to 100 per cent for non­load bearing purposes, which will significantly help in reuse of such waste

• Approved amendments to 'The National Waterways Bill, 2015' which will provide for enacting a central legislation to declare 106 additional inland waterways, as the national waterways.

• Plans to award 100 highway projects under the public­private partnership (PPP) mode in 2016

• RBI has notified 100 per cent foreign direct investment (FDI) under automatic route in the construction development sector, power sector and setting up new and established industrial park.49 percent FDI is allowed under Government route in any petroleum refining in Public Sector Undertaking (PSU).

• India and the US have signed a memorandum of understanding (MoU) in order to establish Infrastructure Collaboration Platform.

• Taking into account the issue of long­term infrastructure financing, the proposed 5/25 scheme is indeed a step in the right direction which will plug the asset-liability gap and would also help banks extend finance to these long gestation infrastructure projects for 20­25 years with an option to refinance every 5 or 7 years. The aspects of Government Initiatives for overall economic growth is as below:

• Policy changes in Agriculture sector to eliminate the intermediaries, contract farming concept, involvement of private players to improve infrastructure in agriculture sector

• Policy on direct cash subsidy to reduce adulteration and wastage to benefit people below poverty line

• Fast­tracking the Indian manufacturing policy, land acquisition policy, introducing measures to facilitate FDI in India to reforms in the corporate governance through the Companies bill and many more augurs well for the development of the industrial sector

• Single window clearance for ease of doing business

• Financial reforms to attract more FDI

• Social security for labourers such as creating a unique identification number and smart cards for the unorganised workers.

• Better transparency from the corporate sector via regulations like New companies act

• Tax reforms initiatives like implementation roadmap of GST and Direct Tax code

• Banking and Insurance sector reforms like Increase the reach of banking services throughout the country, Proper allocation of funds to the priority sector, More Asset Reconstruction Companies (ARC), tighten the bank exposure norms, increase of FDI cap etc

• Reforms in the Indian equity market like Introduction of uniform stamp duty on bonds, Lifting of regulatory restrictions on domestic and government funds to increase their participation in the corporate bond market, Forming of an efficient risk management system, Adopting of standardisation method for valuing various components in corporate bonds

As IFIN provides one stop solutions in terms of structured financing, syndication and all type of advisory services in Infrastructure and financial domain, the foregoing present's enormous Business opportunities for IFIN.IFIN further stands to benefit from its global footprints having established subsidiaries in London, Dubai, Hong Kong and Singapore providing advisory and Syndication services to its clients in the form of capital structuring solutions, raising project / corporate debt from International lenders in form of Foreign currency loans or structured debt, mobilize Equity / Mezzanine investments from potential PE and Institutional Investors and advising clients on alternate offshore fund raising platforms in both listed and unlisted space.

Deepak Pareek - CFO, IL&FS Financial Services


 


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Opinions expressed by the Contributors are their own and do not reflect any opinion of IL&FS Financial Services on the said subject

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