INDIAN MARKET: PUSHED IN, PULLED OFF
India is fast becoming the destination for investment preference and emerging as one of the best performing economies in the world. According to the Ernst and Young report 2016, “India is ranked 3rd in investment destinations globally.” Another Morgan Stanley report quotes, “by digitization India GDP to hit $ 6 trillion &it will achieve the status of upper middle class by 2027.” In the previous three years, there has been an inflow of $65.35 billion into the Indian market. These FPI’s had invested $42.66 billion in debt markets and $22.69 billion in equity markets. During 2016-17 FPIs have purchased stocks worth Rs.56123 crore and, FIIs a stock worth of $26.9 billion in which $6.6 billion is in equity and $20.3 billion is in debt market. Domestic investors in India have started to invest heavily in mutual funds because people lost their interest in pouring their money into real estate sector.
India is a large and potential market with a high growth and low political risk. This is exactly what many MNCs and investors look at. India provides favorable conditions for doing business with flexible FDI regulations, comparatively low inflation rate, introduction of bankruptcy laws, GST, rising skilled labour, increase in per capita income among other benefits. In 2016 there was an inflow of $ 46 billion FDI in to the market. After the implementation of GST and Bankruptcy law, FDI has risen up to 18% in which the Manufacturing sector has a major share followed by Renewable Energy. Within the next eight to 10 years, India has the potential to receive FDI three
Indian economic activity is underestimated because of the huge unaccounted trade that occurs in the informal sector. For example, milk production and its subsequent selling to households in rural areas involve cash transactions in large amount but no apparent trade. In other words, there is both production and consumption happening in the informal sector but not trade. Many economic activities in India thus go undetected which leads to low GDP growth.
Due to the introduction of GST and Demonetization, Indian economy saw disruption in the past year. India still struggles to become an export-driven market like other emerging markets (South Korea, Indonesia, Taiwan etc.). The Modi government have initiated conversion of the unorganized sector into formal economy where it contributes nearly 50% of GDP, cracking down the identified 13000 shell companies and started providing investor friendly initiatives to increase positive sentiment. Let’s hope the government to increase formal economy and bringing down the corruption in corporate and increase transparency in governance.
CHINNA VENKAT REDDY
Christ Institute of Management, Lavasa