India Led Market
Jenette Bregantini
Indian government FDI initiatives are concentrated in sectors such as information technology services, software, business services, pharmaceuticals, and industrial equipment. U.S. stock of FDI reached $103 billion during IFY22-23, and the U.S. remained the largest single source of FDI in India for the second consecutive year.
Despite market access concerns, India remains an attractive destination for many U.S. exporters. Many Indian conglomerates stand on par with their international counterparts in sophistication of operations and market prominence. In sectors like information technology, telecommunications, pharmaceuticals, textiles, and engineering, Indian companies are renowned for their ability to innovate and compete. U.S. companies operating in India emphasize that success requires a long-term planning horizon and the ability to adapt strategy to regional conditions. While complex and challenging, the Indian market offers significant opportunities for U.S. companies.
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When doing business in India, U.S. exporters and investors often encounter non-transparent or unpredictable regulations and tariffs. Likewise, U.S. goods and services in some sectors have limited access to the market. India has the highest average applied tariff of any G20 country, and some of the highest bound tariff rates among WTO members.
Indian companies and consumers are quite price sensitive. U.S. companies must evaluate whether they can sell at prices that Indians are willing to pay and may need to adjust their pricing models accordingly. For example, some consumer-packaged goods companies make their products in smaller sizes or with fewer features to reflect price sensitivities of Indian customers.
Since 2010, two full service carriers have ceased operations in India. Kingfisher Airlines shut in 2012 after it could not pay its outstanding dues to aircraft lessors, oil companies, airports and salaries to its staff. Jet Airways met with the same fate in 2019 due to similar reasons.
The latest casualty is low-cost carrier Go First. It filed for voluntary insolvency in May and its bankruptcy filing showed that it owes $798 million to its financial creditors although the company said that it had not defaulted on any of its dues. The airline had a market share of 6.4% in April, the month before it stopped flying, which fell to 0.4% in May. After being grounded for nearly three months, the Directorate General of Civil Aviation said on July 21 that the airline could resume operations provided it met certain conditions. As of publication of this piece, it had canceled all its flights until July 25.
The last long-standing competitor SpiceJet is not without its problems. Its market share decreased to 4.4% in June 2023 from 13.4% in January 2019. Its financials have not been too rosy either as it has posted a loss in eight of its last 10 quarters, and its share price has fallen by 18% in 2023. Currently, its share trading has been suspended. It also faces insolvency pleas from lessors.
The United States and Brazil are two other major domestic aviation markets in which private carriers operate. And the market is evenly split among three or more airlines in both countries. In the U.S., four major airlines - American Airlines, Delta Airlines, Southwest Airlines and United Airlines - occupied around 67% of the domestic market between April 2022 to March 2023 while other smaller and regional airlines accounted for the rest. In Brazil, the three major airlines were LATAM Brasil, Gol Intelligent Airlines S.A. and Azul, which had market shares of 37%, 33% and 29%, respectively.
Directorate General of Civil Aviation of India; Airbus, SpiceJet company statements; National Stock Exchange of India Limited; National Company Law Appellate Tribunal of India; Bureau of Transport Statistics; U.S., National Civil Aviation Agency; Brazil, Reuters research and reporting
India is a hub for wind manufacturing and has an existing annual capacity of 10-12 GW. Due to a slowdown in the domestic market in the last few years, this capacity has remained under-utilized. This is going to change as the domestic market is expected to see an increase in tender volumes. Also, the country has an opportunity to translate the projected global supply chain crunch to its advantage by boosting manufacturing capacity in the country.
By the end of 2022, total renewable energy installed in India stood at 121 GW of total installations with wind contributing 35% of this, making India the fourth-largest wind market in the world, in terms of cumulative installed capacity.
India needs accelerated deployment and commissioning of wind power projects if it is expected to achieve 140 GW of wind capacity by 2030, and advance towards the long-term goal of net zero by 2070. The three major drivers of wind growth in India are:
India can play a critical role in supplying the global wind industry. India must address key priorities like technology alignment, convergence in costs, and a supportive tax and incentive regime to enhance its competitiveness in the global wind supply chain.
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Under Modi, whose premiership began in 2014, reforms across banking, manufacturing, inflation management, coupled with a focus on physical and digital infrastructure, have boosted the medium and long-term growth potential of the economy. Efforts to broaden access to bank accounts and financial services, particularly in rural areas, have shown positive outcomes, including the formalization of the economy, increased financial literacy among citizens, and improvements to government fiscal spending and tax gathering. We expect a continued focus on reform measures, irrespective of the political backdrop.
India is not immune to geopolitical disruptions, major conflicts, and their repercussions. However, the country is a potential long-term beneficiary of a more fractured global economy. Perhaps the biggest opportunity for India to spur economic growth in the next decade is to develop globally competitive manufacturing hubs as more companies make decisions about producing goods outside China and Russia. If India can capitalize, new manufacturing ecosystems may emerge with more employment and training for workers, along with opportunities for public and private capital to support infrastructure investments.
India has embraced innovation over the last decade. The country now has over 750 million internet users and about half a billion smartphone users.9 Mobile data usage in India has seen a 20x increase in five years and is among the highest in the world today. This has been spurred by a sharp drop in mobile data costs. There has been a rapid increase in internet access, fintech, e-commerce, education, and healthcare technology in recent years. We expect this to continue.
The country experienced extreme weather events, such as heatwaves, storms, and heavy rains, almost every day in the first half of 2023.16 Variability in monsoon patterns coupled with temperature changes affect crop production and food security. Authorities have stated that climate risks can no longer be overlooked and acknowledged sustainable finance is a tool to mitigate them. The RBI established a 'Sustainable Finance Group' (SFG) in 2021. India issued its first sovereign green bond at the start of 2023.17
India stands out for its macroeconomic stability. Its long-term growth potential is underpinned by cross-sector reforms, efforts to attract foreign capital, maturing capital markets, demographics, supply chain realignment, and digitalization. India is also unique given its neutral geopolitical position around trade and engagement. The country has a newly influential and complex geopolitical role. It will be important for investors to monitor changes in geopolitics, supply chain shifts, as well as domestic politics in an election year.
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Emerging markets investments may be less liquid and are subject to greater risk than developed market investments as a result of, but not limited to, the following: inadequate regulations, volatile securities markets, adverse exchange rates, and social, political, military, regulatory, economic or environmental developments, or natural disasters.
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