In 2018, India has overtaken China in FDI inflows for the first time in 20 years led by business reforms, a stable economy and huge growth opportunities in futuristic sectors.
But populist moves in the run up to elections could impact investor sentiment in the coming months. For most of past few decades, the India vs China debate has raged on. While initially perceived as a serious competitor to China, India’s economy has grown in fits and starts, compelling analysts to rubbish all comparisons, even as GDP growth has begun to better China in the past few years.
The year 2018 has seen India overtake China on another key parameter. FDI inflows to India have reached US$ 37.76 billion during the year across 235 deals, overtaking China’s US$ 32 billion for the first time in 20 years. The rise is attributed to economic fundamentals, technological evolution, the bankruptcy code and the plethora of opportunities in emerging sectors. On the other hand, China’s FDI has seen a slowdown, largely attributed to its face-off with the US on trade issues.
Top sectors in India in terms of FDI inflows were services, computer hardware and software, construction development, trading, automobile, pharmaceuticals, chemicals, and power. According to Suresh Prabhu, Minister of Commerce & Industry, the government is targeting US$ 100 billion of FDI into India in the next two years.
Despite General Elections in 2019 bringing a layer of uncertainty, investors see India as a strong and stable growth economy despite the fiscal deficit reaching 115% of its target already in December. Even though the Indian economy slowed down to 7.1% growth in Q2, it still remained the fastest growing major economy in the world with China growing at 6.5%. The rupee has fallen alarmingly by 8.84% this year, which is worse than other major currencies across Asia. But with oil prices dropping once again, 2019 is expected to be a much better year for the rupee.
The new Insolvency and Bankruptcy Code has brought a number of distressed assets on the block. Out of 9,000 cases in the past few years under IBC, a fourth have been resolved out-of-court, leading to liquidity of Rs 1.2 lakh crore according to reports. India’s improvement in ranking on the World Bank’s Ease of Doing Business Index from 142 in 2014 to 77 in 2018 has also made a major difference to the perception of its economy in the eyes of global investors.
The highlight of the year was Wal-Mart’s US$ 16 billion acquisition of Flipkart. Consumer facing companies in India’s tech space will continue to be firmly on the radar of global investors. With India’s billion-plus consumer market, the competition among major global investors/businesses including Alibaba, Tencent, Softbank, Tiger Global and the FAANG (Facebook, Apple, Amazon, Netflix, Google) to acquire lucrative assets is only expected to increase.
However, populist moves like changes in the e-commerce policy introduced by the government and farm loan waivers introduced by different state governments could impact investor sentiment in the coming months in the run up to the General Elections 2019.