India – a front runner among emerging markets


Financier Worldwide Magazine

March 2017 Issue

March 2017 Issue

Emerging or ‘frontier’ markets are economies which are in a transition phase, where the financial and regulatory infrastructure is less mature compared to developed economies. Though characterised by low per capita income, these economies are growing at an unprecedented rate. Among all the emerging markets, it is India’s robust growth in manufacturing, business friendly reforms, infrastructural development and political stability that makes the country the most prominent emerging market to invest in for investors. According to the IMF World Economic Outlook, April 2016, India ranks fourth among the list of the world’s fastest growing economies with a growth projection of 7.2 percent for the fiscal year 2017 and 7.7 percent for the fiscal year 2018, surpassing China.  Moreover, January 2017 witnessed an investment of $3.3bn affirming India’s stable economic standing in the emerging market universe.

Legal and regulatory reforms

The government’s soaring ambition and regulatory reforms, such as an overhaul of the archaic company law regime, simplification of investment routes into India, the ‘Make in India’, ‘Startup India’ and ‘Digital India’ initiatives have all bolstered investor confidence.

Until a few years ago, India’s foreign policies were essentially defensive. Apprehending the need for relaxation in foreign investment policies, the government has made various changes to the foreign direct investment (FDI) policy to open up the economy and to make India an attractive destination for overseas investors. A few of the significant changes inter alia have been the enhancement of investment caps for sectors such as defence, civil aviation and pharmaceuticals, which have brought a greater number of industries/services like asset reconstruction, credit information, construction development, and so on, under the automatic route. Further, the relaxation of norms for investments allowed Indian companies to issue partly paid equity shares and warrants to foreign investors. All such changes, have transformed India into one of the most open economies in the world for the purposes of investment.

With the introduction of regulations governing real estate investment trusts, alternative investment funds and infrastructure investment trusts by the Securities and Exchange Board of India, the government paved the way for an internationally acclaimed investment structure in India. This has helped India to become an organised market for retail investors and provide a professionally managed, risk averse network at the same time. Also, with the notification of the Real Estate (Regulation and Development) Act, 2016, investors are required to make a smaller payment at the pre-construction stage, which has attracted greater investment in the process.

The government, to further fuel economic growth and attract foreign investment, introduced a slew of measures under the ‘Startup India’ and the ‘Make in India’ initiatives. Among several initiatives and benefits provided to start-ups, the most significant ones are single window clearance through a mobile application, formulation of Rs.10,000 crores fund to support the development and growth of innovation driven enterprises, a reduction of up to 80 percent in patent registration fee, tax exemptions for a period of up to three years and a free interactive online learning and development module to educate aspiring entrepreneurs.

Further, to promote manufacturing in India, obsolete and obstructive regulatory policies have been replaced with a transparent and business-friendly system under the ‘Make in India’ regime. Several measures were undertaken, such as the relaxation in procedures for incorporation of companies, removal of onerous conditions for FDI, setting up of an investor facilitation cell to assist the investors during the life-cycle of doing business in India, opening up of several sectors such as defence, railways, renewable energy, etc., and the availability of a single point for relevant information on non-tariff measures.

What makes India’s story work is the nation’s limited dependence on exports and being powered by domestic consumption and investment. A strong service sector, which accounts for 50 percent of India’s economy, further fuels India’s rapid economic progress, by supplementing industrialisation and the export of commodities and resources.

On 8 November 2016, the government took the momentous step of announcing demonetisation. After the initial shock, wherein the effect of the demonetisation exercise was difficult to assess, a picture is beginning to emerge. According to a report by Ambit Capital, the share of the shadow banking economy in India will shrink from 40 percent to 20 percent, aiding the formal organised sector to gain greater market share. The government’s sustained efforts on cracking down on black money through policies and amendments of existing legislations, has increased the flow of savings into the financial system, due to which the cost of debt in India is expected to reduce in the near future.

Demonetisation has generated a positive reaction from a number of global leaders. The Obama administration noted that the move was “an anti-corruption measure taken by the Modi government following a series of steps that the government has taken in the past years in an attempt to reduce counterfeit money or black money”. The Guardian reported, “the surprise move could hurt the Indian economy in the near-term but would ultimately prove positive, by cutting corruption and giving a badly needed boost to stretched government finances”.

The government announced the Union Budget on 1 February 2017 for the financial year 2017-18. One of the notable changes in the proposed budget is the reduction in corporate income tax rate from 30 percent to 25 percent for companies with a turnover up to Rs.50 crores. Also, startups have been provided with a relaxation in norms for availing tax exemption. To further facilitate ease of business, domestic transfer pricing provisions will now apply only if one of the entities is availing tax benefits. Additionally, multiple options are being considered to deal with FDI proposals and also for abolishing the Foreign Investment Promotion Board. The proposed Goods and Service Tax legislation will remove the cascading impact of multiple taxes rooted in the expenditure towards production of goods and services, and will provide credit throughout the value chain. This will considerably lower the cost of local goods and will help boost the ‘Make in India’ initiative. Such a steady, clear and conventional tax regime will help attract local and foreign investment into the country and will create job opportunities.

Risk factors in an emerging economy

Political instability plays a vital role in the progress of the emerging economy. Increasing geopolitical, changing societal attitudes and environmental risks affect the growth of an emerging economy. For instance, the Syrian refugee crisis has directly affected the economy of Turkey.

Emerging markets carry higher risks than the most developed economies since their stocks can be unpredictable and anything from inflationary pressures, increasing interest rates, to signs of a global economic cooldown could adversely impact the investment scenario in such markets. Nevertheless, such emerging markets also have the potential for rapid economic growth and higher returns on investment and moreover, India’s robust, diversified and well-regulated financial system, as well as favourable demographics,  have helped India to be a safe bet among its peers.


The current political, social and regulatory reforms are a boost to the future growth of India. Also, demonetisation could result in uprooting corruption and black market money, replacing it with a more transparent economy. Such positive reforms have resulted in moving India up 12 places in the World Bank’s Doing Business ranking 2016 and have thereby placed India on the world map of investments.


Tejasvini Shirodkar is a partner, Pearl Boga is a senior associate and Pooja Shah is an associate at Rajani Associates. Ms Shirodkar can be contacted on +91 (22) 4096 1000 or by email: Ms Boga can be contacted on +91 (22) 4096 1000 or by email: Ms Shah can be contacted on +91 (22) 4096 1000 or by email:

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