Agriculture is one of the strongholds of the Indian economy and accounts for 14.6 per cent of the country's gross domestic product (GDP) in 2009-10, and 10.23 per cent (provisional) of the total exports. Furthermore, the sector provided employment to 58.2 per cent of the work force.
The total geographical area of India is 328.7 million hectares of which 140.3 million hectares is net sown area, while 193.7 million hectares is the gross cropped area, according to the Annual Report 2009-10 of the Ministry of Agriculture.
According to Annual Report 2009-10 of the Ministry of Agriculture, production of foodgrains during 2009-10 is estimated at 216.85 million tonnes (MT) as per 2nd Advance Estimates.
India has become the world's largest producer across a range of commodities due to its favourable agro-climatic conditions and rich natural resource base.
India is the largest producer of coconuts, mangoes, bananas, milk and dairy products, cashew nuts, pulses, ginger, turmeric and black pepper. It is also the second largest producer of rice, wheat, sugar, cotton, fruits and vegetables.
The US Department of Agriculture (USDA) has pegged India's rice output up by 13 per cent at 99 million tonnes in 2010-11.
About 85 per cent of the country's total rice output is grown during the kharif season (between June and September), while the rest of the 15 per cent is cultivated during the rabi season (between November and February).
Further, according to the USDA, India's cotton production may increase by over 6 per cent to a record 25 million bales in 2010-11, provided India receives normal monsoon this year.
Cotton output is pegged at 23.5 million bales (one bale equals 170 kg) in 2009-10 marketing season (August-July).
According to the government's agri-trade promotion body, Agricultural and Processed Food Products Export Development Authority (APEDA), India's exports of agricultural and floricultural products, fruits and vegetables, animal products and processed food products was worth US$ 8.1 billion in 2008-09, an increase of 13.88 per cent from US$ 7.11 billion in 2007-08.
Exports during April-December 2009-10 were worth US$ 54.16 million.
India's agri-export turnover is expected to double in the next five years, according to APEDA. Agri-export turnover is set to rise to nearly US$ 18 billion by 2014.
At present, around 70 per cent of the country's agricultural and processed food exports are to developing countries in the Middle East, Asia, Africa and South America.
Indian seed companies are eyeing the export markets in SAARC (South Asian Association for Regional Cooperation) and African countries with a host of hybrid seeds and best farm practices. While some of the companies like J K Seeds, Namdhari Seeds, Nuziveedu Seeds, Nath Seeds, Rasi and Vibha Seeds have already ventured into the export markets in the region.
The public and private sector investment in agriculture have been steadily increasing since 2004-05. While public sector investments in agriculture have increased from US$ 3.61 billion in 2004-05 to US$ 5.5 billion in 2008-09, private sector investment has increased from US$ 14 billion in 2004-05 to US$ 25.5 billion in 2008-09, according to the Annual Report 2009-10 of the Ministry of Agriculture.
A number of other initiatives are already in place for the agriculture sector, which include
The government has issued the new Consolidated Foreign Direct Investment (FDI) policy document, which has come into effect from April 1, 2010.
Moreover, as per a press release by the Ministry of Commerce and Industry, the government is working on launching a National Manufacturing Policy by the end of 2010 and has already circulated a discussion paper, inviting comments from all stakeholders in this regard.
According to Mr Anand Sharma, Union Minister for Commerce, the government is also planning to establish National Manufacturing and Investment Zones (NMIZs) to push the manufacturing share in gross domestic price (GDP). The proposed National Manufacturing Policy for these NMIZs would act as the key enablers in driving the growth of the sector in India, as per the press release.
Lead indicators suggest that the pace of expansion in the services sector activity is likely to be sustained.
According to an HSBC survey, HSBC Markit Business Activity Index, based on a survey of 400 firms, rose to 62.1 in April 2010.The services index has expanded robustly for the twelfth month in April 2010.
According to World Trade Organisation's (WTO) "International Trade Statistics 2009" released in November 2009, India ranks ninth in commercial service exports.
According to the Economic Survey 2009-10, services exports reached US$ 102 billion in 2008-09 registering a growth of 12.5 per cent over 2007-08. The miscellaneous services category share has increased by 16.1 percentage points to 76.4 per cent in 2008-09 as compared to 2000-01. While the share of software services increased by 6.5 percentage points to 45.5 per cent, the share of non-software services increased by 9.6 percentage points to 30.9 per cent in 2008-09.
According to the Department of Information Technology, the share of information technology enabled services (ITeS) and business process outsourcing (BPO) exports has expanded. The total ITeS-BPO exports is estimated to have risen from US$ 1.5 billion in 2001-02 to US$ 12.7 billion in 2008-09, a CAGR of about 39.2 per cent. BPO now accounts for about 27 per cent of total exports.
According to data released by the Department of Industrial Policy and Promotion, the services sector (financial and non-financial) attracted foreign direct investments (FDI) worth US$ 4.4 billion between April and March 2009-10 while the cumulative FDI between April 2000 and March 2010 has been US$ 23.6 billion, accounting for 21 per cent of the total FDI inflow.
- Tata Consultancy Services (TCS), the country's largest software exporter by revenue, was awarded a contract in March 2010 to administer the UK's National Employee Savings Trust (NEST) scheme's administered services under a 10-year deal, worth around US$ 906 million.
- Aditya Birla Minacs, the information technology business solutions firm, has acquired UK-based Compass BPO, a finance and accounting (F&A) services provider
- India's largest back office firm, Genpact, has acquired US-based analytics and data management services provider, Symphony Marketing Solutions (SMS)
- Domestic Investments:
Investment Scenario
The measures initiated in the Union Budget 2010-11 would help revive private investments and put the economy on 9 per cent growth, according to Mr Pranab Mukherjee, Union Finance Minister. The measures that would help revive private investments include enhancing allocation to the micro, small and medium enterprises (MSME) sector to US$ 535.8 million, increasing the limit for presumptive taxation, raising the threshold for compulsory auditing of accounts of small businesses, extension of interest subvention for exports in certain sectors and exemption from capital gains tax to facilitate conversion of small businesses to limited liability partnership (LLP) format.
The domestic investment announcements witnessed a growth of 16 per cent during the calendar year 2009, according to an analysis on corporate investments by an industry body. Among the states which have received maximum investment proposals in 2009 are Gujarat, Orissa and Andhra Pradesh, stated the study. Gujarat witnessed US$ 53.1 billion worth of investment plans during the period of January-December 2009. The state attracted majority of investment plans in the real estate, power and infrastructure sectors driven by the investor friendly policies of the state government. Orissa and Andhra Pradesh followed Gujarat in attracting investments, according to the study. Total investment plans of India Inc increased considerably to US$ 344.8 billion in 2009 from US$ 298.5 billion in 2008; out of which Gujarat captured 15.4 per cent investment share, while Orissa and Andhra Pradesh received12.6 per cent and 8.1 per cent, respectively.
Orissa recorded investment proposals worth US$ 43.4 billion in 2009 becoming second in position after Gujarat. The state boasts of rich mineral resources, including coal and iron ore and cheap availability of manpower, which attracted massive investments in Orissa. The sectors which attracted maximum investments in the state include steel and power.
Andhra Pradesh ranks amongst the top three states in attracting corporate investors in 2009 and recorded investment plans to the tune of US$ 27.9 billion in the same year. The major sectors that attracted maximum investments in the state include energy and the real estate.
Karnataka and Maharashtra stood at fourth and fifth positions by attracting investment plans worth US$ 22.9 billion and US$ 19.9 billion, respectively during 2009.
In terms of sectoral analysis, the study shows that the power sector was the major sector attracting investment in 2009. The sector attracted investment plans worth US$ 89.6 billion with a share of 26 per cent in the overall investment plans across the country.
The power sector was followed by real estate and energy sectors. Real estate sector witnessed proposed investment plans of around US$ 55.7 billion while energy sector attracted proposed investments worth US$ 43 billion.
Other sectors which recorded considerable corporate investments during 2009 were metals and mining (US$ 35.5 billion), infrastructure (US$ 16.1 billion), hospitality (US$ 9.5 billion), auto and auto components (US$ 8.3 billion) and telecom (US$ 7.5 billion).
Significantly, total value of domestic deals in March 2010 was US$ 544 million (42 deals) as against US$ 1.9 billion (12 deals) and US$ 217 million (13 deals) clocked during the corresponding period in 2009 and 2008, respectively. According to a Grant Thornton analyst, a positive trend to note is that there have been close to US$ 2.5 billion worth of deals in March 2010 in addition to the Bharti-Zain transaction value. Besides Bharti Airtel, the other top deals included Fortis Healthcare's acquisition of Parkway Holdings for US$ 685 million, and Essar Minerals buying Trinity Coal Corporation at US$ 600 million.
Investment initiatives
The government recently approved six proposals for setting up of special economic zones (SEZs), including gems and jewellery SEZ by Delhi State Industrial and Infrastructure Development Corporation. The Board of Approval (BoA) in the Ministry of Commerce also gave in-principle approval to two proposals, including the proposal of Sterlite Industries (India) Ltd for copper SEZ in Tuticorin, Tamil Nadu. Lanco Solar Pvt Ltd received approval for solar tax-free enclave, which would be set up in Cuttak, Orissa. The government has also approved the IT/ITeS tax-free zone of Uralungal Labour Contract Cooperative Society Ltd at Kozhikode, Kerala.
Further, Andhra Pradesh’s State Investment Promotion Board (SIPB) has cleared 27 industries that has an estimated total investment of US$ 3.88 billion and is expected to generate 59,732 jobs. The industries that are in focus are agro (seed conditioning), food processing, cement, glass, mineral, steel and ferro alloy, pharma, tyres, textiles, warehousing and photovoltaic etc. SIPB has also announced to give nearly 50 per cent VAT/CST or SGST reimbursement for the next five years and other incentives for gearing the sectors.
A major factor buoying investments is robust consumption demand, with domestic consumption of items such as automobiles and consumer electronics pacing up the growth of industrial revival.
Automobile and allied industries are witnessing major capacity addition. Demand for automobiles rose sharply in 2009 after the government came out with a fiscal stimulus package that included tax cuts for producers coupled with easing of borrowing costs and rising consumer confidencein the first 10 months of 2009-10. The domestic auto industry is set to hit an all-time high sales figure of 12.2 million units in 2009-10, surpassing the previous sales record of 10.1 million units in 2006-07 as per the Society of Indian Automobile Manufacturers (SIAM).
Furthermore, the natural gas industry has entered a high investment phase to create infrastructure to handle increasing volumes. GAIL (India) Limited plans to invest nearly US$ 11.2 billion in five years with nearly 70 per cent of it going towards expanding the natural gas pipeline network. As a result, its cumulative investments in fixed assets (gross block), which was growing at a CAGR of 5.3 per cent in the past five years, will grow at a CAGR of over 30 per cent in the next five years.
Gujarat State Petronet LNG Limited has expanded its pipeline network aggressively within Gujarat over the past five years. It operates an over 1,500-km pipeline network with a gross block of US$ 625.1 million and volumes expected to touch 40 MMSCMD by end March 2010. The company's current expansion plans envisage investment of around US$ 335 million in FY11.
Several companies are also investing in the city gas distribution (CGD) projects across the country. Mumbai's Mahanagar Gas will double its gross block in the next three years from current US$ 157.4 million as it expands beyond Mumbai and suburbs to adjoining Navi Mumbai and Thane districts.
Delhi's Indraprastha Gas has planned a capex of US$ 357.2 million in the next three years, effectively tripling its US$ 182.4 million of gross block as it moves beyond National Capital Region (NCR) to nearby satellite towns.
Significantly, the central government is envisaging an investment of US$ 21.89 billion in the food processing industry by 2015. The government plans to attract the private sector and financial institutions to set up mega food parks and cold storage chains. An Expression of Interest (EoI) has been floated for setting up a total of 30 mega food parks across India by end of the 11th Five Year Plan (2007-2012), said Union Minister for Food Processing Industries, Mr Subodh Kant Sahai, on the sidelines of a CII Retail Summit. The allocation for the 11th Five Year Plan is US$ 1.09 billion with a plan of setting up 30 mega food parks. The Centre is also setting up cold storage chains. Ten mega food parks are already sanctioned, of which six are operational.
Further, investment in the infrastructure sector is expected to be around US$ 429.1 billion during the Eleventh Five Year Plan (2007-12), as against US$ 193.1 billion during the Tenth Plan. Meanwhile, private investment into the sector is also projected to increase to US$ 158.76 billion in the Eleventh Plan, as compared to US$ 48.27 billion in the Tenth Plan. This investment is likely to be fulfilled through public private partnership (PPP) projects that are based on long-term concessions.
India's economy may be entering a new investment cycle going by expansion plans across industry sectors, a move that could create more jobs, boost demand for machinery and supporting infrastructure, and portend a strong pick-up in the growth momentum in the years ahead.
Life Insurance Corporation of India (LIC) is planning to invest more than US$ 4.28 billion in the equity market. The company has decided this after the strengthening of the economic environment in India. They are likely to invest in the public sector enterprises that have huge potential of earning profits in the long run.
Maruti Suzuki, Daimler and Mahindra & Mahindra plan to invest around US$ 30 billion in the next four years. The auto makers are supplementing the investment in order to meet demand in the global marketplace. Global auto companies are attracted by the growing demand in India. By investing in the country, they will like to reach out to smaller cities and rural areas.
Hinduja Group is planning to invest US$ 10 billion to US$ 15 billion in over the next five years for developing power projects. These projects will have the capacity to generate 10,000 megawatts (MW) of electricity. Presently, the company is in the midst of setting up a 1,000 MW thermal power plant in Visakhapatnam. Additionally, the group has been holding discussion with Gujarat, Maharastra and Uttar Pradesh Government for setting up power projects.
BEML Ltd, an earth moving equipment maker, plans to invest US$ 148.4 million for developing new and existing facilities by the year 2012-13. The company expects to garner a turnover of US$ 916.7 million from the investment from the current fiscal. In the recent past, the company has invested more than US$ 21.83 million in the 18-MW wind energy project. The investment has been made in Gadag, which comes in the wake of increasing demand of energy needs.
In a 50:50 joint venture, Reliance Broadcast Network Ltd (RBNL) and CBS Studios International plan to launch television channels in India. The proposed investment of US$ 100 million has been planned over the five years. The firm plans to launch channels in English language which would focus on general entertainment.
Suryalakshmi Cotton Mills Limited plans to set up 25-Mw thermal power plant. The project is estimated to cost around US$ 28.85 million and has been envisaged to improve the profits in the denim division. The power plant is likely to be commissioned by 2011-12.
Accord Communications Ltd plans to invest more than US$ 6.5 million in a manufacturing facility for producing mobile handsets. The company has been discussing with Chinese manufacturers to provide raw materials.
- Foreign Direct Investment:
India has been ranked at the third place in global foreign direct investments in 2009 and will continue to remain among the top five attractive destinations for international investors during 2010-11, according to United Nations Conference on Trade and Development (UNCTAD) in a report on world investment prospects titled, 'World Investment Prospects Survey 2009-2011' released in July 2009.
The 2009 survey of the Japan Bank for International Cooperation released in November 2009, conducted among Japanese investors continues to rank India as the second most promising country for overseas business operations, after China.
A report released in February 2010 by Leeds University Business School, commissioned by UK Trade & Investment (UKTI), ranks India among the top three countries where British companies can do better business during 2012-14.
According to Ernst and Young's 2010 European Attractiveness Survey, India is ranked as the 4th most attractive foreign direct investment (FDI) destination in 2010. However, it is ranked the 2nd most attractive destination following China in the next three years.
Moreover, according to the Asian Investment Intentions survey released by the Asia Pacific Foundation in Canada, more and more Canadian firms are now focussing on India as an investment destination. From 8 per cent in 2005, the percentage of Canadian companies showing interest in India has gone up to 13.4 per cent in 2010.
India attracted FDI equity inflows of US$ 2,214 million in April 2010. The cumulative amount of FDI equity inflows from August 1991 to April 2010 stood at US$ 134,642 million, according to the data released by the Department of Industrial Policy and Promotion (DIPP).
The services sector comprising financial and non-financial services attracted 21 per cent of the total FDI equity inflow into India, with FDI worth US$ 4.4 billion during April-March 2009-10, while construction activities including roadways and highways attracted second largest amount of FDI worth US$ 2.9 billion during the same period. Housing and real estate was the third highest sector attracting FDI worth US$ 2.8 billion followed by telecommunications, which garnered US$ 2.5 billion during the financial year 2009-10. The automobile industry received FDI worth US$ 1.2 billion while power attracted FDI worth US$ 1.4 billion. during April-March 2009-10, according to data released by DIPP.
In April 2010, the telecommunication sector attracted the highest amount of FDI worth US$ 430 million, followed by services sector at US$ 355 million and computer hardware and software at US$ 172 million, according to data released by DIPP. During the financial year 2009-10, Mauritius has led investors into India with US$ 10.4 billion worth of FDI comprising 43 per cent of the total FDI equity inflows into the country. The FDI equity inflows in Mauritius is followed by Singapore at US$ 2.4 billion and the US with US$ 2 billion, according to data released by DIPP.
During April 2010, Mauritius invested US$ 568 million in India, followed by Singapore which invested US$ 434 million and Japan that invested US$ 327 million, according to latest data released by DIPP
Investment Scenario
In May 2010, the government cleared 24 foreign investment proposals, worth US$ 304.7 million. These include:
- Asianet's proposal worth US$ 91.7 million to undertake the business of broadcasting non-news and current affairs television channels.
- Global media magnate Rupert Murdoch-controlled Star India holdings' investment of US$ 70 million to acquire shares of direct-to-home (DTH) provider Tata Sky.
- AIP Power will set up power plants either directly or indirectly by promotion of joint ventures at an investment of US$ 24.4 million.
Sembcorp Utilities, a company based in Singapore, has picked up 49 per cent stake in the 1,320 mega watt (MW) coal-fired plant of Thermal Powertech Corporation India Ltd, a special purpose vehicle and subsidiary of Gayatri Projects Ltd, for US$ 235.1 million.
Cinepolis, a Mexico-based multiplex operator, is looking at expanding its footprint in India. The company which started operations in India last year plans to invest US$ 350 million in the next five years to operate 500 screens in 40 cities.
According to a study released by global consultancy Bain & Company, private equity (PE) and venture capital (VC) investments are projected to reach US$ 17 billion in 2010. The report includes a survey conducted across leading PE investors globally. The survey revealed number of respondents planning to invest in the range of US$ 200-500 million in 2011 has risen nearly four-fold to 27 per cent. Further, as per figures released by Grant Thornton, the food processing and agri-based companies have attracted US$ 300 million PE investments during January-June 2010. In 2009, PE investments in these sectors were about US$ 398 million.
IL&FS Investment Managers (IIML) plans to invest US$ 300 million, in real estate and urban infrastructure projects by the end of 2010.
“We are in the advance stages of finalising 3-4 deals in residential real estate and urban infrastructure space like roads and hospitality,” said Shahzaad Dalal, Vice-Chairman and MD, IIML.
Investments by French companies in India is expected to touch US$ 12.72 billion by 2012, and would focus on automobile, energy and environment sectors among others, according to Jean Leviol, Minister Counsellor for Economic, Trade and Financial Affairs, French Embassy in India.
Japanese pharmaceutical major, Eisai plans to invest US$ 21.25 million in India to expand its manufacturing capacity and research capabilities. The investment will be used for increasing the manufacturing capacity of Active Pharmaceutical Ingredients (APIs) and product research at the Eisai Knowledge Centre in Visakhapatnam.
Japan's Kobelco Cranes, a subsidiary of Kobe Steel, is planning to invest US$ 12.7 million to set up a plant near Chennai to produce crawler cranes. The plant will begin production in 2011.
Franco-American telecom equipment maker, Alcatel-Lucent plans to shift its global services headquarters to India. The headquarters would need about US$ 500 million in investments over three years, according to Ben Verwaayen, Chief Executive Officer, Alcatel-Lucent
Policy Initiatives
The Government of India has released a comprehensive FDI policy document effective from April 1, 2010. The Circular 1 of 2010 consolidates into one document all the prior policies/regulations on FDI which are contained in FEMA, 1999; RBI Regulations under FEMA, 1999 and Press Notes/Press Releases/Clarifications issued by DIPP and reflects the current 'policy framework' on FDI.
Furthermore, the government has allowed the Foreign Investment Promotion Board (FIPB), under the Ministry of Commerce and Industry, to clear FDI proposals of up to US$ 258.3 million. Earlier all project proposals that involved investment of above US$ 129.2 million were put up before the Cabinet Committee of Economic Affairs (CCEA) for approval. The relaxation would expedite FDI inflow, according to Mr P Chidambaram, Union Home Minister.
Foreign Institutional Investors:
Foreign institutional investors (FIIs) poured inflows heavily to bet on the India growth story.
As per data released by the Securities and Exchange board of India (SEBI), FIIs invested US$ 2055.74 million in equities between July 1 and July 21, 2010, and US$ 1566.98 million in debt between the same period.
During January to June 2010, FIIs invested US$ 6878.50 million in equity and US$ 6083.90 million in debt.
Data sourced from SEBI shows that the number of registered FIIs stood at 1713 and number of registered sub-accounts rose to 5,426 as of June 30, 2010.
Moreover, India accounted for more than one-fifth of the US$ 22.1 billion private equity (PE) investments received by the emerging markets across the globe in 2009, according to a report by Emerging Markets Private Equity Association (EMPEA). In 2009, emerging markets accounted for about 26 per cent of global PE investment. In addition, the report added that global PE investment in emerging markets totalled US$ 22.1 billion with a total of 674 deals in 2009. Furthermore, Asia captured 63 per cent of total emerging market PE investments in terms of value in 2009, with India capturing US$ 4 billion, according to the report.
According to advisory firm Grant Thornton, 439 corporate merger & acquisitions (M&As) and PE transactions have been announced during January-May 2010 compared to 179 during the same period in 2009. The total deal value during January-May 2010 topped the US$ 30 billion mark, as compared to US$ 8.1 billion recorded in January-May 2009.
May 2010 alone witnessed 59 deals worth US$ 8.33 billion against 35 deals valued at US$ 1.85 billion in 2009. Out of this, 44 were M&As and the remaining 15 were PE transactions. Some of the key sectors that attracted significant investor interest in the M&A space were pharma and healthcare, banking and finance, mining, fast moving consumer goods (FMCG) and information technology (IT)/ information technology enabled services (ITeS), while PE firms struck deals in cement, education and real estate sectors, among others.
Investment Scenario
According to 'India PE Report 2010', released by global consultancy Bain & Company, PE and venture capital (VC) investments are projected to reach US$ 17 billion (around Rs 80,000 crore) in 2010.
The report includes a survey conducted across over 75 leading PE investors globally. The survey revealed that the number of respondents planning to invest in the range of US$ 200-500 million in the next two years has risen four-fold to 27 per cent in 2010.
According to Grant Thornton, the food processing and agri-based companies have attracted US$ 300 million PE investments during January-June 2010 in comparison to US$ 398 million in 2009 in the same sectors.
Infrastructure projects have also attracted significant PE investment in 2010. During January-May 2010, there have been 19 deals in the infrastructure sector, involving an investment of close to US$ 1.07 billion, according to Venture Intelligence data. In the same period in 2009, there were 14 deals with a cumulative value of around US$ 257.5 million.
As per Grant Thornton data, PE firms have invested over US$ 225 million in the IT and business processing outsourcing (BPO) space between January and April 2010.
Value-added service firm, One97 Communications has entered into an agreement with Mauritius-based PE firm SAIF Partners to launch a US$ 107.9 million fund to provide seed capital to start-up technology companies, according to a company executive. Both partners have ventured into a fund referred as One97 Mobility Fund to invest between US$ 431,600 and US$ 6.32 million in startups in the mobile value-added services (VAS) space.
Olympus Capital, the Asia-focussed PE fund will invest about US$ 600 million in India in big and established companies in infrastructure supply chain management, within the next two-three years.
IL&FS Investment Managers (IIML) plans to invest US$ 300 million in real estate and urban infrastructure projects by the end of 2010.
Government Initiatives
The Securities and Exchange Board of India (SEBI), in January 2010, allowed equity investors to lend and borrow shares for 12 months compared with the current limit of one month. The new norms will also allow a lender or a borrower to close his position before the agreed-upon expiry date.
The Reserve Bank of India (RBI) has ruled that foreign VC funds will have to provide their financial statements for regulatory approval to invest in India.
According to a SEBI circular dated June 29, 2010, FIIs will now have to disclose information on Indian securities lent by them to overseas entities (for the purpose of short selling) on a weekly rather than a daily basis.
