India is an emerging market and offers multiple opportunities to the diaspora to invest
By Rajesh Mehta & Uddeshya Goel
“The sword of revolution is sharpened on the whetting stone of ideas.”
As we celebrate the 73rd year Republic Day, these words by the charismatic Indian revolutionary, Bhagat Singh, strongly beholds the versatile mindset of Indians and the magnificent growth as a nation we have achieved over the years. In the 21st Century, India has emerged as the harbinger of the IT, Agritech, Space Tech, Healthcare, and Manufacturing revolution with a sustainable edge over the others.
Even though the last two years have been a conundrum for businesses across nations, what came out crystal clear was the high confidence in countries like India with robust capabilities and great minds to steer the economic growth curve. This is evident from the fact that besides the fragile global economy, investments in the Indian private equity in 2021 were at a record $63 billion, a 57 percent growth from the previous year. Interestingly, 15 Indian start-ups became unicorns in the first half of 2021, while 29 more reached unicorn status in the second half. That is, more new unicorns were created in India than the eight that emerged in 2020. It brings the country’s total to 57, closing the gap with China, which boasts about 160 unicorns, which in turn is second only to the US with roughly 400.
The Sunrise Sectors
Just as covid-19 has caused major dislocation in the Indian economy, it has also acted as a tailwind for digital and technology-enabled businesses, thus making it a big criterion for private equity firms that are looking to bet on the next set of high growth companies in India. It became clear that sectors like Ed-tech, Fintech, SaaS, and Health-tech would become more prominent amongst investors as they demonstrated resilience, while other sectors bled during the pandemic. Besides this, in India, the future holds to be promising for deep-tech start-ups in space and drone technology after the government liberalized these industries; AI-VI technology catering to the metaverse and biotechnology.
Despite being one of the largest consumer markets, India’s share of global electronic manufacturing has been a mere 3.6 percent, even though domestic manufacturing itself has grown at a CAGR of 23 percent over the last five years. This has been a consequence of snubbed opportunities in the last decade. When the trade wars began and companies were exiting China, many turned to ASEAN countries, including Vietnam, Taiwan, and Indonesia. However, India failed to attract them, again. The policies that were incorporated by these South-Asian countries in the last decade are finally being introduced in India with an indigenous flavor.
Today, India has another opportunity and it is paramount to not miss it. Small calibrated steps would go a longer way than grand gestures. Digitization in India at a mass level, with the lowest broadband rates in the world, could captivate MNCs and open millions of manufacturing and services jobs. The production linked incentives (PLI) scheme launched by the government is one such step in this direction.
The PLI scheme for the electronics and telecom market is designed to trigger an impulse for both Indian companies and those from outside that wish to manufacture in India at very competitive costs. They are designed to have a domino effect creating pools of ancillary firms and services, and a wealth of jobs.
Green Initiatives
Another interesting innovation where India could capitalize on is e-waste. India is the world’s third-largest e-waste generator, producing over 3.23mn metric tons per year. This e-waste can be reengineered to make 5G equipment in a cost-effective manner. If India wants to incline towards becoming the 5G equipment hub, a fair bit of careful innovation would be required to elevate the manufacturing of next-generation radio access networks, IoT devices, customer premises equipment, routers, and switches.
While the covid-19 pandemic had a total setback on the entire Indian automobile sector, with annual sales falling 13% and retreating by six years, it gave a digital boost to the segment with a special focus on electric innovations. In fact, PEs and VCs pumped in around $672 million between 2019 and 2021 in the EV sector, compared with just $200 million in the preceding three years, according to EY consultancy.
Global Medicine Factory
The tectonic shift induced by the pandemic and the change in the government stance towards the pharma industry, along with the confidence of MNCs in the country, has generated a plethora of opportunities in multiple sub-sectors, namely, API & generic drug manufacturing, vaccine development, and production, clinical trial market, and bioinformatics. India currently exports vaccines to about 150 countries and meets around 50-70 percent of the world’s vaccine demand. An estimated two out of every three immunized persons in the world have received a vaccine manufactured in India. Moreover, the best benefit of conducting clinical trials in India is the potential for cost savings.
Clinical trials account for over 40 percent of the costs of developing a new drug. In India, the cost of conducting a trial is lower by 50 percent than in western countries. The expertise gained in manufacturing generics through reverse engineering has helped Indian pharma companies to streamline the process for getting the manufacturing industry up and running. Costs here are just two-fifths of those involved in setting up and running a new manufacturing facility in the West due to significantly lower margins, given the low development and labor costs. To facilitate the storage, management, retrieval, and analysis of large pools of data, a new subsector of the IT sector has emerged – bioinformatics. India’s existing knowledge capital in IT provides a natural base for the development of bioinformatics research and operations.
Space Tech
India currently stands on the cusp of building a space ecosystem. With ISRO being the guiding body, India can now evolve as a space start-up hub for the world. India has less than 2 percent share in the $440bn global space sector and is still in the embryonic stage where the possibilities are limitless to build a feasible business model. Already 350 plus start-ups like Agnikula Cosmos, Skyroot Technologies, Dhruva Space and Pixxel have established firm grounds for home-grown technologies with a practical unit of economics.
The pandemic has proved to be an inflection point in the growth of Indian industry where, for the first time, India is following the East-first policy to embrace self-reliance and explore the untapped markets. The Indian Diaspora like any other investor is now looking at investing their brains in the growing Indian economy, which provides much better opportunities for growth in emerging markets. Many will return and build companies that will employ thousands, with a difference that this time the jobs will be in Hyderabad or Pune, and not in the Silicon Valley. It’s time for Indians to sit in the front seat and drive the growth engine.
(Rajesh Mehta is a leading consultant & columnist working on Market Entry, Innovation & Public Policy. Uddeshya Goel is a financial researcher specializing in international business and capital markets.)
