Saturday, February 28, 2015

New India Budget Aims to Boost Growth

IndusView, Saturday 28 February 2015 (London): Asia’s third-largest economy unveiled its annual budget today saying it is aimed at a high-growth trajectory. The budget is focusing on improving infrastructure, cutting the fiscal deficit and boosting investment so that growth would accelerate to 8%-8.5% in India’s next financial year starting in April.

“The budget gives an opportunity to the increasingly young, middle-class and aspirational India to realize its full potential,” said Bundeep Singh Rangar, Chairman of London-based consulting firm IndusView. “The time was ripe for long-awaited reforms to kickstart the economy.”

Presenting the budget in parliament Mr. Jaitley said the country was growing at a strong rate, inflation was down and foreign exchange reserves were high. Falling global oil prices have given the government the room to spend on creating infrastructure without increasing inflation or messing with fiscal deficit targets.

He further announced a panoply of economic and tax reforms and promised $11.36 billions of dollars of investment towards infrastructure. Five ultra-mega power projects of 4,000 MW capacity each are planned. The government will introduce tax-free infrastructure bonds for road, rail and irrigation projects. The focus will be on additional road and ports projects.

To the delight of business, Mr. Jaitley said a nationwide general sales tax (GST) system – “a state-of-the-art indirect tax system” – would be put in place by April 1 next year, replacing a jumble of local fees and taxes that prevent India from being a single market for goods and services.

“This is not a ‘big-bang’ budget, but a good budget more focused on smaller issues, and ironing out a lot of irritants to investors in the process,” said Rangar. “Neither the financial markets, nor most analysts, detected the dramatic reforms that Mr. Modi’s supporters have been urging.”

Manmohan Singh, who served as India’s prime minister for 10 years under the Congress Party, faulted the budget as too cautious, arguing that the new government had missed a chance to cut spending or increase tax revenues.
Corporate taxes, meanwhile, will drop from 30% to 25%, which could increase Indian firms’ compliance.

This is a positive budget for the Private Equity (PE) industry as it addresses some of the key pain points of the industry. The removal of distinction between FPI and FDI is welcome as it is not really possible to differentiate between the two and has caused delayed response from investors. Foreign Investment is now allowed in alternative investment funds, which will stimulate the environment of foreign investment and private equity interest in India.

There are 200 plus active fund managers operate in India while 100 are domestic fund managers. The PE industry claims over 12% employment growth in PE/Venture Capital (VC) backed companies against 3% employment growth in non PE-backed companies.

Modi didn’t take further steps today to wind up fertilizer, cooking gas and liquid petroleum gas subsidies. Jaitley repeated pledges to provide homes, toilets and electricity for India’s 1.2 billion people by 2022, which would be the 75th anniversary of the country’s founding.

India’s economy is projected to expand as much as 8.5% in the next fiscal year, according to the latest Finance Ministry estimates, the fastest pace among the world’s biggest emerging markets. The ministry cautioned, however, that the forecast is based on a revised method for calculating gross domestic product and India’s economy is still recovering.

Friday, February 27, 2015

India’s 2015 Union Budget Expected to Boost Annual GDP Growth to 8% from 6.9%

IndusView, Friday 27 February 2015 (London): The new Indian government will unveil more reforms in its 2015-2016 Union Budget on Saturday, to woo foreign investment and make India a manufacturing destination, in order to boost Gross Domestic Product (GDP) growth to 8% or higher. Mumbai’s stock exchanges, that have seen its benchmark Sensex index rise about 20% since Prime Minister Narendra Modi came to power last May, will exceptionally be open on Saturday.

The Modi government’s “Make in India” initiative is being closely followed by Indian companies and foreign investors. A lot of hope rests on the new government’s first full-year budget following its victory in last year’s general election.

The announcements to be made by Finance Minister Arun Jaitley will impact the investment cycle that the world’s tenth largest economy needs to lift GDP growth to an expected revised target of 8% or more from current projections of 7.4% in the current fiscal year 2015-16. India grew 6.9% in its previous fiscal year.

“Foreign investment and better collection of taxes is needed to fund the $1 trillion requirement outlined by Prime Minister Modi to build the country’s infrastructure over the next five years,” said Bundeep Singh Rangar, Chairman of London-based advisory firm IndusView. “Better infrastructure is pivotal to increase India’s GDP as it will shear waste and inefficiencies in agricultural and industrial output. Widening its direct tax base beyond the current 3.3% of India’s population that pay tax and increasing the 15.5% contribution of tax to GDP is critical.”

India recently announcement investment plans of about $137 billion to upgrade its rail network. The state-owned Indian Railways operates one of the world's largest railway networks comprising 115,000 km of track that carry more than 13 million passengers a day and 1 billion tons of freight annually generating more than $26 billion in annual revenue.

Most corporate leaders and economists believe that there could be no better time to push through the reform agenda than now, given that the macroeconomic scenario has largely turned favorable, with inflation showing signs of coming under control, oil prices declining and growth in some of the more significant global economies showing signs of serious slowdown.

India's Wholesale Price Index (WPI) fell for the second time in three months in January as oil prices slumped, bolstering prospects for further interest rate cuts by the Reserve Bank of India (RBI) that unexpectedly cut rates for the first time in two years in January. WPI unexpectedly fell 0.39% last month from the same period a year earlier, its biggest decline since June 2009.

India's Current Account Deficit (CAD) is estimated to come down to 1.3% of GDP in the fiscal ending March, helped by moderation in petroleum and gold imports that were significantly lower than earlier projections.

“The new government is committed to development with transparency and good governance,” said Rangar. “A number of reforms have been implemented, paricularly via ordinances and more changes are expected to be announced in the upcoming budget announcement.”

To attract foreign investments, the government should best amend its controversial tax law and not impose tax with retrospective effect on overseas deals involving local assets.

“The Indian tax man’s potential treatment of low cost intellectual capital work allocated by India to multinationals, as being a higher value service and therefore, taxable at higher rates, will give reason to multinationals to seek other jurisdictions where taxation is simpler and the cost advantages are as good, if not better than India,” said Rangar. “The tax man should focus its efforts to widen the tax base and harmonsing its Goods and Services Tax and thereby, increase revenue.”

India, currently the world’s tenth-largest economy, is vying to be among the top five by 2022, according to the London-based Centre for Economics and Business Research (CEBR).

Monday, February 09, 2015

M&A Deals Jumps to 1,177 in 2014

India saw a merger and acquisition boom in 2014. The total number of M&A deals of Indian companies in 2014 rose to 1,177 the highest ever in a decade and the momentum is set to pick up this year as well, said a report by London-based advisory company IndusView on Friday. M&A deals contributed close to $38 billion from 573 deals and PE deals contributed $12 billion from 604 deals, according to report by advisory firm Grant Thornton. E-commerce within IT space was the major contributor for PE investments with about $4 billion being raised from over 100 deals.
“Last year’s deal value at $50 billion has been a fantastic year for deal making with a very strong foreign investor interest in India,” said Bundeep Singh Rangar, chairman IndusView. “It is expected that 2015 deal-making will grow higher”.
Domestic M&A deals are riding on the consolidation wave with Sun Pharma acquiring Ranbaxy, Kotak merging with ING Vysya and others, it said.