Why foreign investment matters for India The government recently approved investment proposals by UK retailer Tesco and telecom major Vodafone in India. There are also numerous reports of companies like Idea and HDFC Bank seeking shareholder approval to increase the foreign institutional investment or FII limit in their companies. In 2014, India needs more of foreign direct investment or FDI like that in Tesco and Vodafone and FII investment like in Idea or HDFC Bank. Here are few key takeaways from these developments: Confidence : Investment by foreign companies in India reflects their confidence in the market. It shows that they expect better prospects for growth. In anticipation of this future growth, they move to increase their shareholding. Vodafone is one of the top telecom players in India. With data and voice consumption on the rise and falling costs, the sector holds great potential. Similarly, Tescos entry into Indias retail industry shows its optimism. Global consumer goods major Unilever too announced plans in 2013 to increase stake in its India unit -- Hindustan Unilever. This will, in turn, boost overall confidence in the economy, and send a good signal to other investors. Boost economy: Investments have an important role to play in the economic growth of a country. Without investments, companies cannot start new projects or expand operations. According to government data, investments, when measured as a ratio of the overall economys size, fell from a peak of 38% in 2007-08 to 35% in 2011-12. As a result, economic growth slowed from 9% to sub-5% levels. The economy is now expected to grow by 4-5% in the current fiscal. However, this growth rate is likely to improve in FY14-15 led by an increase in investments and exports. Hiring impact: Investment has a direct impact on the job market. Since 2010, the job market has shrunk, as per some estimates. It is expected that 380 lakh new jobs would be created in non-agriculture sectors over the next five years, according to Firstpost, an online news website. This is 25% less than the 520 lakh jobs created between 2004-05 and 2011-12. More investments are needed to create more jobs going forward. Public investments: Investments are down from the previous year. But, on a quarterly basis, new investment in projects is up to 4.9% of the GDP in the quarter ended December from 3.6% in the September quarter. However, this has largely been led by government spending. Investment in the private sector is down to 0.6% of the GDP in the December quarter from 1.3% in the previous quarter. Valuations relatively lower: Since the 2008 financial crisis, Indias economy has slowed. Indian companies have grown at a slower pace too on the back on a fall in industrial activity, investments, and demand, while inflation and interest costs have risen. However, there are indications that the slowdown has bottomed out. Valuations are relatively lower as there is still no certainty on the timing of the recovery and that makes the current levels ideal to invest for the long term. A key reason for the fall in investments was the lack of or delay in clearances from the government. As a result, projects were either stalled or cancelled altogether. Nearly $38 billion-worth projects were stalled in three years by the end of December 2013, according to a report in the Business Standard. However, the government has cleared projects worth Rs 1-1.5 lakh crore ($16-24 billion), especially in the infrastructure sector. ibis...
Posted on: Fri, 17 Jan 2014 06:54:04 +0000
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