SAPM Assignment

On
Economic Analysis of India

by
Siddharth Parashar (1062220063)
Submitted to

Dr. Varsha Nerlekar

(School of Business (SOB)

(MBA: 2022 – 2024)

MIT-World Peace University’s

School of Management (PG)
Pune
Economic Analysis of India
According to figures issued by India's National Statistical Office, the country's GDP growth
rate increased to 7.8% y/y in the April–June 2023 quarter from 6.1% y/y in the January–
March 2023 quarter. After GDP growth of 13.1% y/y in the April–June quarter of 2022, the
robust growth rate was despite high base year effects.
In real terms, private consumption increased by 6.0% y/y in the April–June quarter of 2023,
outpacing the 2.8% y/y growth rate seen in the prior quarter. With growth of 8.0% y/y in the
April-June 2023 quarter compared to 8.9% y/y growth in the January-March 2023 quarter and
brisk growth of 20.4% y/y, gross domestic fixed capital formation remained solid.
After growing by 16.0% y/y in the April-June quarter of 2022, construction production
increased by 7.9% y/y in the April-June quarter of 2023 compared to the 10.4% y/y growth
rate in the January-March quarter of 2023, nonetheless indicating strong expansion despite
high base year impacts. Key service sector categories also experienced rapid expansion, with
output in the commerce, hotels, transportation, and communications services sectors
increasing by 9.2% y/y in the April–June quarter and output in the financial, real estate, and
professional services sectors increasing by 12.2% y/y. However, compared to the April-June
quarter of 2022, when manufacturing growth was 6.1% year over year, the April-June quarter
of 2023 saw manufacturing growth at a more modest pace of 4.7% year over year.
A number of other recent economic indicators for India continue to point to an expanding
economy supported by domestic demand. In the April to June quarter, steel consumption
increased by 10.2% y/y while steel output increased by 11.9% y/y. In the April to June
quarter, cement production increased strongly by 12.2% y/y, and coal production increased by
8.7% y/y. Commercial vehicle sales increased significantly in FY2022-23, rising by 34.3%
year over year, while sales of private automobiles increased by 18.7% year over year.

The April–June quarter saw rise of 4.5% y/y for the industrial production index, which
typically exhibits significant monthly volatility, and 4.7% y/y growth for manufacturing
output. From April to March of FY2022-23, industrial production increased by 5.2% year
over year, with manufacturing output rising by 4.7% y/y over the same period. Production of
capital goods increased by 12.9% y/y in FY2022-23, while production of products for
infrastructure and building increased by 12.5% y/y. According to the National Statistical
Office, consumer durable production expanded at a meagre pace of 0.6 y/y in FY2022-23-23,
while consumer non-durable production increased by 0.5% y/y. However, both types of
consumer product production were sluggish.

Output of capital goods increased by 4.9% year over year in the April to June 2023 quarter,
while output of products for infrastructure and building increased by 14.0% year over year.
Although consumer non-durables output showed high momentum, expanding by 6.7% y/y,
consumer durables output remained poor, declining by 2.8% y/y.
Inflationary conditions
According to the most recent data on India's consumer price index (CPI), the headline CPI
inflation rate increased further in July, from 4.8% y/y to 7.4% y/y. An additional strong
increase in the food and beverage CPI subindex was a major contributor to the increase in the
headline CPI inflation rate. In July, the food and beverage CPI subindex increased by 10.6%
y/y as opposed to 4.6% y/y in June, driven primarily by an increase in the price of vegetables
as well as notable price increases for cereals and pulses.
After decreasing by 6.5% y/y in April, the veggies CPI subindex experienced a sharp decline
of 8.2% y/y in May. But vegetable prices increased by 37.3% year over year in July. The
sharp increase in tomato costs because of crop loss in some locations was a significant
contributor to the sharp increase in vegetable prices. Pulses prices also showed a significant
increase in July, jumping by 13.3% year over year. Rapid price increases for rice, which have
increased by 13.0% y/y overall in the cereals sub-index, have also been a major source of
worry for the Indian government.
Over the past year, high energy costs have been a major contributor to India's CPI inflation
pressures; however, these pressures have begun to ease recently, helped by some moderation
in the price of crude oil globally as well as the impact of base-year effects because of the
spike in the price of crude a year ago, in the second quarter of 2022. In July, the fuel and light
subindex increase slowed down even more to 3.7% y/y from 3.9% y/y in June. This is a
considerable decrease from the 8.9% y/y pace seen in March.
In contrast to the 5.1% year-over-year prediction given in the June Monetary Policy
Statement, the Reserve Bank of India (RBI) increased its projected CPI inflation rate for the
current fiscal year (2023–24) to 5.4% in its August Monetary Policy Statement. Despite this,
the inflation rate has moderated significantly from the fiscal year 2022–2023's 6.5% increase
in the CPI. In the RBI's August Monetary Policy Statement, the near-term trajectory of CPI
inflation is predicted to be 6.2% y/y for the quarter of July through September, 5.7% y/y for
the quarter of October through December of fiscal 2023–24 and moderating to 5.2% y/y in
the quarter of January through March of 2024, based on the assumption of a normal
monsoon.
The RBI had predicted in its August Monetary Policy Statement that delays in food
production caused by unfavourable weather would likely result in a rise in the headline CPI
inflation rate in the coming months. The RBI also observed pressure on food prices due to a
potential El Nio event, geopolitical conflicts, and threats to food production from the
influence of the so far skewed south-west monsoon.
In its Monetary Policy Statement from August, the RBI projected real GDP growth of 6.5%
for the fiscal year 2023–2024. According to the RBI, domestic economic activity was robust
in the April-June quarter of fiscal year 2023–24 as evidenced by high-frequency indicators
including passenger vehicle sales and domestic manufacturing air passenger traffic, steel use,
and cement production are all examples. The core industries' output increased by 8.2% y/y in
June, while the index of industrial production climbed at a rate of 4.5% y/y in the April-June
quarter.
Foreign investment climate
Net new FDI into India has increased significantly over the past several years, hitting a new
record amount of USD 85 billion in the fiscal year 2021–2022, up from FDI inflows of USD
82 billion in the fiscal year prior, 2020–21. Even while FDI inflows slowed to USD 71 billion
in the fiscal year 2022–2023, they were just USD 4 billion in the fiscal year 2003–2004. The
continuous significant FDI inflows over the past ten years have increased India's foreign
exchange reserves and reduced the vulnerability of its external accounts.
The last ten years have seen significant FDI inflows, with FDI connected to technology being
a significant source of investment. With over 25% of the total inflows, the computer software
and hardware sector received the most foreign direct investment stock during the fiscal year
2021–2022.
Recent FDI inflows into India have primarily come from US technology companies.
Announcing plans to invest USD 10 billion in India over seven years through a combination
of equity investments, partnerships, operational, infrastructure, and ecosystem initiatives,
Google formed the "Google for India Digitization Fund" in 2020. Additionally in 2020,
Facebook disclosed a USD 5.7 billion investment in Jio Platforms, a subsidiary of Reliance
Industries Limited.
FDI inflows have also been significant in infrastructure investments. The USD 3.7 billion
investment by Singapore's GIC and Canada's Brookfield Asset Management in the purchase
of Tower Infrastructure Trust, which controls Indian telecom tower assets, was a significant
FDI deal in 2020. FDI from Saudi Arabia also increased significantly in the 2020–21 fiscal
year, reaching USD 2.8 billion. In 2020, Jio Platforms and Reliance Retail were each
purchased by the Public Investment Fund of Saudi Arabia for USD 1.5 billion and USD 1.3
billion, respectively. In 2020, Reliance Retail also got investments from other foreign
companies, including USD 1 billion from US private equity company Silver Lake Partners
and USD 1 billion from Singapore's GIC and TPG Private Capital.

Industry Analysis
IT Industry Outlook
Singapore/Hong Kong Fitch Ratings for August 2023: According to Fitch Ratings, the
average annual revenue growth for the Indian IT services sector will drop from 16.5% in
FY23 to 8% to 10% in FY24 and FY25 (financial years ending in March), on a constant
currency basis, as a result of reduced global IT investment due to weaker economic growth in
the US and Europe. According to Fitch's June 2023 global economic outlook, US real GDP
growth would decrease from 2.1% in 2022 to 1.2% in 2023 and 0.5% in 2024. It is
anticipated that 2022's 3.5% GDP growth in the eurozone will slow to 0.8% and 1.4% in
2023 and 2024, respectively. In 4Q23–1Q24, we anticipate a modest recession in the US as
well.
We anticipate that Indian IT services companies' FY24 EBITDA margins would stay constant
year over year and somewhat below historical averages as easing cost pressures are countered
by a worsening demand environment. Because of their robust net cash positions and excellent
FCF generation, we anticipate that major Indian IT services businesses will continue to have
significant rating headroom.
Due to constant EBITDA profitability, low working-capital and capex requirements, and our
rated big Indian IT services businesses' ability to achieve pre-dividend FCF margins of 12%–
17%, we anticipate this trend to continue. We anticipate that Wipro Limited (A-/Stable), HCL
Technologies Limited (A-/Stable), and Tata Consultancy Services Limited (A/Stable) would
distribute between 40% and 90% of their pre-dividend FCF to shareholders in the form of
dividends and share repurchases.
Moderate rating headroom is available for CA Magnum Holdings (BB-/Stable) and its
95.5%-owned subsidiary, Hexaware Technologies Limited (BB-/Stable). According to our
predictions, CA Magnum will probably keep its EBITDA net leverage below 4.7x in FY24–
FY25, which is reflected in the Stable Outlook.

Agricultural Sector Outlook

The Ministry will get Rs 1,25,036 crore in 2023–24, which is an increase of 5% above the
updated estimates for 2022–23, 2.8% of the Union Budget goes to the Ministry of
Agriculture. Due to a slight increase in funding for programmes like the Pradhan
Mantri Fasal Bima Yojana (10%) and the Modified Interest Subvention Scheme (5%)
the expenditures have increased. Three schemes are funded with 7% of the projected
Ministry expenses. The funding for Pradhan Mantri Kisan Samman Nidhi (PM-
KISAN), the largest scheme under the Ministry, has remained constant at Rs 60,000
crore from the revised estimates for 2022–2023. From the budgeted spending for 2022–
2023 and the actual expenditure for 2021–2022, allocation has decreased.
The finance minister suggested the following changes to agriculture in her address for
2023–24:
 It will be developed as an open source, open standard, and interoperable public
good. Through pertinent information services for crop planning and health, as
well as enhanced access to agricultural inputs, loans, and insurance, this will
enable inclusive, farmer-centric solutions.
 Agriculture Accelerator Fund: The Fund will be established to support young
entrepreneurs' agri-startups in rural areas. The purpose of it is to introduce
contemporary technologies to raise agricultural productivity and profitability.
 Agriculture Credit: With an emphasis on dairy, fisheries, and animal husbandry,
the agriculture credit objective would be raised to Rs 20 lakh crore.
 Matsya Sampada Yojana, by the PM: A new programme has been introduced
with a planned investment of Rs 6,000 crore has been launched enable activities
of fishermen and fish vendors and improve value chain efficiencies.
Investment Opportunities
IT Industry
The information technology (IT) sector in India is booming as a result of strong consumer
demand and supportive governmental regulations. Foreign investors now have very profitable
prospects to profit from the industry's tremendous expansion in revenue, labour, and
innovation. India still attracts investment due to its significant influence in the world's IT
scene.
India is the third largest and fastest-expanding startup centre in the world. More than 1300
companies were founded in the nation in 2022. India was the second-highest source of
unicorn additions that year behind China, with 23 of these achieving unicorn status.
The IT industry makes up 7.5% of India's GDP and acts as a global hub for IT and software
firms. The Indian government has built Software Technology Parks and Centres of
Entrepreneurship, launched efforts under the Digital India Scheme, and put in place several
sector-specific incentives to support production and exports. The IT and telecom sector will
get $11.7 billion from the federal budget for fiscal years 2023–2024.
Agricultural Sector
The agricultural sector in India is at a turning point. When India gained its independence
from Britain 75 years ago, agriculture dominated the economy and accounted for more than
50% of its GDP. India continues to be one of the greatest and most diverse food producers in
the world, and agriculture—which accounts for more than 20% of India's income—remains a
key sector of the country's economy. However, serious issues prevent the country from
reaching its full potential. If the problem could be resolved, a thriving agriculture sector
would benefit the economy and greatly enhance farmer livelihoods and revenue. A 50% rise
from its contribution in 2020, agriculture could contribute almost $600 billion1 to India's
GDP by 2030. To get there, though, India needs boost the sector's production and growth.
Agricultural technology, or agtech, is the secret to accelerating India's transformation into a
farming powerhouse. India behind developed agricultural nations in agtech. India's farmers,
to put it simply, are at a competitive disadvantage: half lack basic farming equipment, three
out of every four farms are susceptible to crop damage from pests and weather, and 50% lack
access to conventional funding sources. Those who can obtain credit frequently pay inflated
interest rates that are 10 to 25% higher than market rates.

Risk associated with Investing in India

1. Governmental Risk
After more than 50 years of political liberation from British control, India is a vibrant
parliamentary democracy. The threat of a significant revolutionary movement that may bring
down the governmental apparatus does not really exist for the nation. Thus, there is no
sovereign risk in India for either "foreign direct investment" or "foreign portfolio
investment." Due to the insecure environment, several industrial and business establishments
have refrained from making investments in the country's northeast. However, due to the
region's rich mineral riches and high literacy rate, investing here can be very profitable.
Investment is prohibited in the state of Kashmir by law since it is located on the northernmost
tip of the country and is a militantly affected region.
 2. Political Danger
At both the federal and union levels, India has experienced years of elected representative
government. India had political unrest for a while because no party was able to win a clear
majority, which resulted in the formation of coalition governments. However, since the 1999
general elections, political stability has been firmly restored, and strong and healthy coalition
governments have been formed. However, although delaying some economic decisions,
political unrest did not alter India's promising economic trajectory. All political parties,
including the Communist Party of India (Marxist), which is adamantly opposed to a free
economic world, have recognised the necessity of economic liberalisation, which mostly
attracted foreign investors.
3. Business Risk
Any enterprise a nation engages in involves some level of commercial risk. Not every good
or service is commercially viable in the market. Therefore, it is wise to research the supply
and demand situation for a specific good or service before making any significant
investments. For a professional charge, one can use the services of many market research
companies in India to investigate the situation of supply and demand for any good. As things
are, joining the consumer market entails taking a chance and is therefore financially risky.
4. Threat From Terrorism
India has recently experienced a number of terrorist strikes on its soil, which could be
detrimental to investor trust. FDIs are influenced by a country's general security situation as
well as the business environment and return on investment. Nevertheless, other financial
gurus have a different opinion. They think that terrorist strikes would have a short-term
negative effect. The flow of foreign investment would be determined in the long run by the
micro and macroeconomic characteristics of the Indian economy, and India would thus
continue to be a desirable investment location.
Conclusion
India's economy has become one of the fastest-growing in the world, and it currently provides
a growing and thriving environment for both domestic and foreign investments. Because it
has the greatest youth population in the world, it can offer potential investors a workforce that
is highly skilled and has a good work ethic.
India's massive domestic consumption, driven by the private sector, has been crucial to the
development of the nation. There are 400 million middle-class individuals in India, who are
the country's biggest consumers. The main causes of India's rising domestic consumption are
the country's developing middle class and rising disposable incomes. By 2025, the private
consumer market in India is anticipated to grow by a factor of four. The current government
is also focusing on rural areas and farmers, as rural India is also emerging as an upcoming
market for all types of consumer goods.
India's investment growth has also been made possible by a number of government efforts,
including the improvement of infrastructure, the development of the country's financial
system, and a relaxation of FDI regulations. The government has promoted an FDI policy that
is favourable to investors, with the majority of sectors accepting 100% FDI via the automatic
method. To keep India a desirable and welcoming place for investors, the FDI policy is also
revised frequently.
References
https://www.oecd.org/economy/india-economic-snapshot/
https://nasscom.in/knowledge-center/publications/technology-sector-india-2023-
strategic-review
https://tradingeconomics.com/india/manufacturing-
production#:~:text=Manufacturing%20Production%20in%20India%20averaged,perce
nt%20in%20April%20of%202020.
https://www.ibef.org/industry/agriculture-india
https://indiainvestmentgrid.gov.in/sectors/food-processing-and-agriculture
https://daulat.co.in/types-of-investment-risks/