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India-UAE Partnership SummitSetting the scene for delegates

October 2017

kpmg.com

Contents1 Foreword 2

1.1 Overview of the Indian economy 2

1.2 Government’s reform drive 3

1.3 Investment scenario in India 5

1.4 UAE–India economic corridor 6

2 Infrastructure scenario in India 8

2.1 Present state 8

2.2 Government initiatives and investments,, 9

2.3 Subsectors 10

2.3.1 Roadways and highways 10

2.3.2 Housing and urban development 11

2.3.3 Shipping and ports 13

2.3.4 Railways and airports 14

2.3.5 Power and renewables 14

2.4 Growth drivers for infrastructure 16

2.5 Way forward 17

3 Non-infrastructure investment scenario 18

3.1 Healthcare 18

3.2 The start-up landscape 19

3.3 Education sector 20

3.4 Food processing sector 21

3.5 Tourism 22

4 Investment opportunities in infrastructure 24

4.1 Airports 25

4.2 Roads 25

4.3 Petroleum and natural gas 26

4.4 Railways 26

4.5 Ports 27

5 Conclusion 28

1India-UAE Partnership Summit

1. Foreword

As the investment flows between the UAE and India grows steadily from year to year, both countries are embracing fresh avenues for opportunities. The India-UAE Partnership Summit is an apt platform to brainstorm, explore and decode new horizons where both economies can benefit from strengthening bilateral ties, especially in commerce and foreign direct investment (FDI).

Business relations between the UAE and India have been going through a rapid, transformative phase in recent years. This is largely the result of India’s maturing political and economic partnership with the Emirates.

At the same time, having a substantial Indian population of 2.8 million residing in the UAE,2 India’s FDI contribution towards the UAE has shown considerable expansion lately.

Continuous trade and inward investment growth between the two nations would allow them to emerge more strongly as mutually beneficial business hubs – regionally and globally.

India has been making progress in identifying key sectors that could give the UAE investment opportunities that can provide rich reward. This white paper, India–UAE Partnership Summit: setting the scene for delegates, provides macroeconomic background about the Indian economy and recent investment by the UAE. It also points out potential areas of investment in ten specific sectors of priority for both, particularly in infrastructure, food processing, tourism, healthcare, education and start-ups. The report also summarizes the reasons that make them attractive and highlighting the advantages.

1.1 Overview of the Indian economyOn the back of healthy macroeconomic indicators such as inflation, Current Account Deficit (CAD) and foreign exchange earnings, the Indian economy has the potential to deliver a long-term growth trajectory. The significant demand potential, owing to favorable demographics and increased pace of urbanization, has lent further credibility to India’s growth story. The measures of demonetization and implementation of Goods and Services Tax (GST) could additionally help establish an improved economy in the near to medium-term.

The commercial and social links between India and the UAE not only imparts a strong spine to these economies, but also increases the scope for mutual development. Bilateral trade between the two countries reached as much as USD 53 billion in 2017, and the two countries have pledged to grow this by 60% in the next five years.1

Source: MOSPI press release, MOSPI, 31 May 2017

India GDP growth (%)

FY13 FY14 FY15 FY16 FY17

5.56.4

7.5 8 7.1

Source: Investor Presentation, EXIM, September 2017

India retail inflation (Consumer Price Index based inflation %)

FY13 FY14 FY15 FY16 FY17

10.1 9.3

5.8 4.9 3.8

Note: The GDP projections are based on IMF’s WEO in October 2017

India retail inflation (Consumer Price Index based inflation %)

2017 20222018

6.7 7.4 8.2

Although there are high hopes from the economy, India finds itself in the midst of global challenges such as protectionist policies, Industry 4.0 revolution, rise in income inequality in recent years and increase in the debt level. However, the current government’s reform agenda and infrastructure push are expected to provide an enabling ecosystem for businesses, promote job creation and propel domestic manufacturing.

1.2 Government’s reform driveSince 2014, the government has undertaken several reforms with the following broad objectives:

– Driving structural changes in the economy

– Simplifying business regime

– Addressing indigenous challenges of the economy

– Developing infrastructure

– Promoting domestic manufacturing

– Creating employment opportunities

– Reviving investment cycle

To transform the fundamentals of the economy, the government embarked on a structural reform agenda through initiatives such as demonetisation, Unique Identification (UID)-based Aadhaar card, GST and the Jan Dhan Yojana. These measures are aimed at bringing systematic changes in the economy to achieve holistic growth for the country.

In a move to promote financial inclusion in the country, the government launched Pradhan Mantri Jan-Dhan Yojana (PMJDY) in 2014. The initiative was aimed at providing credit access to the unbanked population, plugging the subsidy leakages and facilitating socio–economic development of the country.

– Under the programme, almost 300 million bank accounts have been opened, of which nearly 60 per cent belong to rural areas3

With the twin objectives of curbing the peril of a parallel black economy and bringing a digital transaction revolution in the country, the demonetisation drive was carried out in November 2016. It was envisioned that this initiative could translate into higher tax revenues for the government and lead to a formalised economy.

– The initiative witnessed traction, as the total digital transactions in the country are close to 900 million, with the gross value crossing the USD1.5-trillion mark4

To introduce a major overhaul of the indirect taxation regime in the country, the GST was launched in July 2017, to simplify tax structure, expand existing tax base, establish a unified common market in the country and streamline supply chain issues.

– According to NITI Aayog — the government think tank - tax collection in India post GST implementation is expected to reach a cumulative value of USD405.5 billion by FY205


Furthermore, the UID-based Aadhaar card with the coverage of 1.1 billion6 is expected to iron out the inefficiencies and leakages in the Direct Benefit Transfer (DBT) scheme. The JAM (Jan Dhan–Aadhaar–Mobile) Trinity is anticipated to foster financial inclusion, bring down the cost of digital transactions and link all Indians into a unified financial, digital and economic landscape.7

– The Aadhaar linkage with the bank accounts has enabled the Indian government to save about USD7.7 billion during FY15–168

These reforms are expected to bring foundation-level changes to the economy, fostering inclusive growth, providing an improved regulatory environment for businesses and facilitating socio–economic development of the country. Furthermore, the country has also witnessed a number of reforms pertaining to Foreign Direct Investment (FDI) regulations, abating inflation and addressing the stressed balance sheet of the banking system.

To effectively target reduction of high inflation level and achieve higher transparency in the interest rate-setting regime, the government has amended the RBI Act to set up the Monetary Policy Committee (MPC). Furthermore, to meet the Capital Adequacy Ratio (CAR) as per BASEL-III norms and resolve the high NPA situation of Indian banking system, the government announced Indradhanush scheme in 2015, for bank recapitalisation.

– Under the scheme, government announced plans to invest USD1.1 billion across public sector banks, over a period of four years9.The government is also mulling the option of diluting its stake in some banks to 52 per cent, to raise more capital10

It also passed the Insolvency and Bankruptcy Code (IBC) in 2016, accelerating the process of stressed asset recovery.

– This step led to India’s central bank identifying 12 large Non-Performing Asset (NPA) accounts with a cumulative sum of USD27 billion, which would be addressed under the ambit of the IBC11

The government has targeted to break into the top-50 rankings of the World Bank’s EODB index. To achieve this goal, the government has undertaken 7,000 steps since 2014.12 The government has also abolished the Foreign Investment Promotion Board (FIPB) and relaxed FDI norms in defence, civil aviation, pharmaceuticals, media and food retail sectors to attract higher investment inflows.

While these reforms are expected to improve the business climate, streamline some indigenous challenges and further boost India’s credentials as an attractive investment destination, the government has simultaneously laid stress on infrastructure development. It has launched several flagship programmes to augment the existing state of infrastructure in the country across roads, highways, ports and housing sectors.

The rise in urbanisation and population, is increasing the stress on urban infrastructure, prompting the government to introduce the Smart Cities Mission. The mission entails transformation of 100 cities into smart cities by redeveloping and retrofitting urban infrastructure, with technology as a nodal point across segments such as mobility, waste management, housing and e-governance.

– As of June 2017, work had been initiated in 60 of the proposed 100 cities13

Housing for all by 2022 initiated in 2015, targets unmet housing needs of urban and rural population. These two programmes are anticipated to attract high investments from public and private sectors, delivering the next phase of growth in the infrastructure sector.

To counter the challenges of high logistics cost and last-mile connectivity, the government embarked on various measures to boost the logistical infrastructure spanning roads, highways and ports. The Sagarmala programme was launched to boost port-led development through 415 projects, with a cumulative investment potential of USD122.4 billion.14 The programme also aims to increase the share of coastal shipping in the nodal transport mix to bring down the cost of logistics.

With the aim to boost the highway infrastructure in the country, the Bharatmala project was initiated in 2017 to oversee the construction of almost 20,000km of highways in its first phase, entailing an investment of USD153 billion. The proposed highways are to be constructed along the economic corridors, coastal roads, inter-corridor and border connectivity routes.15

Through these programmes, the government plans to revamp India’s infrastructure and draw higher investments in the sector, which could have a multiplier effect on various sectors of the economy.

The government is also focussed to revive the domestic manufacturing industry and up-skill the workforce via its flagship programmes Make in India and Skill India, respectively. The Make in India programme envisions to project India as a global manufacturing hub and an

attractive investment destination across 25 sectors to boost the GDP, export potential and employment opportunities. The ‘Skill India’ initiative targets up-skilling of 400 million people by 2022 by imparting relevant skill-sets.16

– As of May 2017, almost 120 million people had been trained under the programme17

The government’s reform drive has already started bearing results, as there has been a rise in FDI inflows, manufacturing proposals, construction of roads, renovation of urban infrastructure and a decline in subsidy leakages.

Moving forward, the economy may encounter some headwinds in the short term, such as changing price dynamics, for Micro Small Medium Enterprises (MSMEs), as it undergoes a major structural overhaul. However, the long-term benefits are expected to outweigh these concerns, as the economy is expected to emerge as a stronger and resilient unit, owing to formalisation and digitisation of the economy. Furthermore, these reforms, while allaying the current issues, are expected to deliver a long-term growth road map, drawing greater investment inflows into the economy, augmenting the infrastructure, and delivering a holistic and empowering environment for businesses to flourish.

1.3 Investment scenario in India The government reforms have increased the FDI and PE / VC funding possibilities, along with record levels of Sovereign Wealth Fund (SWF) holding Indian equities and debt instruments. The cumulative FDI equity flow during FY15–17 was USD114.4 billion, 40 per cent more than the USD81.8 billion registered during the preceding three years — FY12–14, on the back of progressive government FDI reforms.18 Furthermore, in FY17, the country received the highest-ever FDI flow worth USD43.5 billion.19

India also witnessed an increase in PE / VC investments led by its growing start-up segment. Between January and September 2017, India received USD17.6 billion of PE / VC capital spread across 402 deals.20

FDI investments (USD billion)CAGR: 21.4%

FY14 FY15 FY16 FY17

24.3 30.940.0 43.5

Source: FDI Factsheet-June 2017, DIPP, accessed on 23 October 2017, FDI Factsheet-April 2015, DIPP, accessed on 23 October 2017

PE/VC investments (USD billion)CAGR: 34.7%

Jan-Sep’ 14 Jan-Sep’ 15 Jan-Sep’ 16 Jan-Sep’ 17

7.2

13.410.7

17.6

Source: PE firms invest $17.6 bn in Indian companies over first 9 months of 2017, Business Standard, 30 September 2017

Furthermore, SWF’s holdings crossed 10 per cent share in the total Foreign Portfolio Investor (FPI) assets in India, as of May 2016. In the equity market, its holdings reached USD33.7 billion, while they accumulated USD5.1 billion across debt instruments.21

Investment landscape in infrastructure – According to the Asian Development Bank (ADB), the infrastructure sector in India requires USD5.2 trillion of investments to sustain the economic growth and lend support to several government flagship programs

– The country is witnessing increased investments into the sector on the back of reforms and higher budgetary allocation by the government, greater funding support from international lending institutions and several MoUs being signed with several countries - These measures could help the country meet the investment requirements

– In addition, government’s measures such as introducing asset recycling and hybrid annuity model and launching of the National Highway Authority of India (NHAI)-masala bonds could enhance investments into the sector - The asset recycling model such as the Toll–Operate–Transfer (TOT) for the highways, essentially revolves around leveraging existing revenue generating assets for operational and maintenance work, ensuring low risks for infrastructure developers, pension funds and SWF22

– Driven by roads and power sector, the private market transactions in FY17, comprising M&A and PE deals, were recorded at USD3.5 billion in the infrastructure sector. This was an increase of about 17 per cent from the FY16 value of USD3 billion.23


Going forward, the investments in the infrastructure sector are expected to accelerate, as the real estate sector is anticipated to draw more than USD4 billion in PE investments by the end of 2017.24 Furthermore, several foreign pension funds and SWFs have expressed interests to invest in TOT-based highway projects in India.

– Asian Infrastructure Investment Bank (AIIB) is considering to invest USD1.5 billion across six projects in the infrastructure sector - The bank is currently reviewing these projects to assess the financial viability, environmental sustainability and social impact25

Furthermore, ADB is contemplating to increase its annual fiscal support towards India to USD4 billion, for the 2018–22 period, vis-à-vis the current average of USD2.7 billion26

– In addition, higher capital infusion in the infrastructure sector is expected from several countries, as they have signed MoUs and entered into agreements with India - For instance, Russia signed an MoU with India for cooperation in the implementation of the ‘Smart Cities Mission’27 - Furthermore, South Korea has entered into an agreement with India to lend USD10 billion infrastructure funding28 - Japan has announced plans to fund (81 per cent) USD17 billion bullet train project between Ahmedabad and Mumbai.29

The accelerated push for infrastructure development by the government and the higher influx of private and foreign capital, bodes well for the Indian economy. This could revive the investment cycle in the country and have a multiplier effect across several segments of the economy, such as job creation and poverty alleviation.

1.4 UAE–India economic corridor In recent years, the countries of Gulf Cooperation Council (GCC) and India have reinforced partnerships across economic, political and trade segments. Driven by 8.5 million Indians residing in the GCC countries, they have developed a high appetite for Indian products. In addition, with India focusing on infrastructure upgrade and seeking greater collaboration in defense, energy and manufacturing, with a significant influx of capital from the GCC region. FDI flows from the GCC region reached USD1.4 billion in 2016, with the UAE accounting for nearly 90 per cent of the total capital. India’s share of total investments into the GCC states grew from 4.7 per cent in 2011 to 16.2 per cent in 2016; while GCC investment into India rose from 0.7 per cent to 2.95 per cent, during the same period.30

Stronger political ties between India and the UAE have led to deeper economic collaboration. With 2.8 million Indians residing in the UAE, India’s FDI contribution towards the UAE increased with a CAGR of 12.9 per cent during 2011–16, to reach USD2.5 billion25. Furthermore, well-built infrastructure, tax-friendly policies and FTZ have prompted 36,000 Indian companies, including Multi-National Companies (MNCs), to establish their presence in the UAE32.

During 2015–17, the economic ties between the UAE and India received a significant boost, as 21 Memorandum of Understanding (MoU) were signed and a USD75 billion infrastructure investment fund was announced. As the bilateral trade between the two countries is expected to cross the USD100 billion mark by 2020, from the current levels of USD53 billion in FY1733, there is an expectation that both the countries will realize a closer economic partnership.

India has emerged as one of the leading investment destinations for UAE-based firms, as it received USD1.2 billion FDI flows from the UAE in 2016, forming almost 90 per cent of the total investments received from the countries of the GCC. In addition, during 2011–16, FDI from the UAE increased at a rapid CAGR of 39.7 per cent, reaching a cumulative value of almost USD2.8 billion.34 UAE-based firms are expected to invest significantly in India’s infrastructure, with greater emphasis on sectors such as ports, railways, logistics, retail, hospitality and healthcare.35

The proposed USD75 billion infrastructure investment fund is expected to invest in projects across railways, ports, defence equipment, space technology and nuclear energy. Furthermore, India has witnessed several corporate investments from the UAE in the recent years, e.g., a Dubai-based retail conglomerate announcing plans to invest USD1.1 billion across shopping centres and hotels in India.36

Another UAE-based professional services firm in the construction sector announced plans in 2016 to invest USD459 million across the infrastructure, health and education sectors in India. Furthermore, the infrastructure sector in India is set to witness additional investment of USD1 billion across logistics and container terminals from an UAE-based firm. The same firm had previously invested USD1 billion in India’s logistics sector, including international ports.37

Apart from increased bilateral trade and growth in investments in the infrastructure sector, India has also received high participation across the real estate sector from the Non Resident Indian (NRI) population in the UAE with USD1.7 billion capital inflows during January–September 2016, UAE-led NRI investments in the Indian real estate sector gained a market share of more than 20 per cent.38

As India requires almost USD5.2 billion of investments in the infrastructure sector, several UAE firms are expected to leverage this opportunity.39 This is in line with the investment horizon of the largest SWF in the UAE, which seeks to divert its Private Equity (PE) investment towards India and China amidst falling long-term returns elsewhere.40 The SWFs is contemplating to invest in India’s housing and infrastructure projects.41 In addition, another Dubai-based SWF, is contemplating to invest in India’s renewable energy sector.

On the back of stronger political ties between the two countries, and India’s improving business environment and long-term economic potential, it is expected that investments from the UAE to India will increase. Furthermore, the Indian government’s several flagship programmes in the infrastructure sector, such as Bharatmala, Sagarmala, Smart Cities Mission and Housing for All by 2022, could witness increased traction from the investor community, along with other vital infrastructure segments, such as power and the railways.


2. Infrastructure scenario in India

This sector, however, would need to keep pace with the rapidly developing economy and its global counterparts. As per the World Economic Forum’s Global Competitive Report 2016–17, India’s overall infrastructure has been ranked at 68 amongst 138 economies. It lags considerably behind other Asian countries — Malaysia (24), China (42) and Thailand (49) — in terms of infrastructure development.46

The increasing population and growth in the Indian economy have also been increasing stress on the physical infrastructure of the country. Subsectors such as electricity, railways, roads, ports and airports are experiencing the pressure of rising demand due to rapidly growing urbanisation. India is also coping with widespread regional disparities in infrastructure development.47 While the states of Telangana and Andhra Pradesh have witnessed rapid infrastructure

development, there are a number of states that have lagged behind. Furthermore, funding by public–private partnerships in infrastructure projects have faced challenges due to flawed risk-sharing and trust-deficit issues between the government and private sector.48

To keep up with the pace of development, the sector will need a significant financial investment over the next five years, with 70 per cent of funds to be spent on power, roads and urban infrastructure segments. In addition, higher spending in infrastructure could partly offset the constraints.49 However, it would need a more holistic approach — coordination between centre and states, partnership between the government and private players, etc., — to improve accessibility of all regions and achieve balanced development across the country.

Source: The Economic Survey 2016-17, India Budget, accessed on 23 October 2017

2.1 Present state The infrastructure sector is one of the key drivers of the Indian economy. India’s infrastructure market, currently the third-largest in Asia, is anticipated to reach USD6.6 trillion by 2025, constituting 12.5 per cent of the Asia-Pacific region.42 As of 2016, the sector contributes nearly 8 per cent to India’s GDP.

Its subsectors — airways, railways and energy — have been responsible for incentivising growth and making

India competitive in the global market.44 The accessibility and quality of infrastructure in a region helps shape domestic firms’ investment decisions and determines the region’s attractiveness to foreign investors. The sector presents encouraging opportunities for the government to invest and develop the existing infrastructure and achieve the desired growth during the next five years.45

Growth in infrastructure-related activities(April–September 2016)

Power generation

Highway construction

Rail freight traffic

Railway earnings

Cargo at major ports

Export cargo

Import cargo

6.6%

9.8%

1.8%

-3.9%

5.3%

10.0%

5.8%

2.2 Government initiatives and investments 50,51,52 The International Monetary Fund has pegged India’s economic growth projections at 7.2 per cent for FY18 and it is likely to increase to 7.7 per cent in FY19.53 Higher infrastructure spending will likely play a vital role in achieving overall economic growth.

12th Five-Year Plan target

Sector Target (USD billion)

Estimated achievement (USD billion)

Electricity 229.6 174.5

Roads and bridges

139.3 122.4

Telecom 143.9 67.3

Railways 79.6 61.2

Irrigation 76.5 61.2

Water supply and sanitation

38.2 29.0

Renewable energy

49.0 27.5

Mass rapid transport system

18.3 13.8

Ports 29.0 10.7

Airports 13.4 4.6

The government acknowledges the importance of promoting the infrastructure sector and has adopted several initiatives, flagship programmes and investments, which have been entailed in the Union Budget.

– In the Union Budget 2017–18, the government allocated USD60.6 billion towards the sector, the highest-ever amongst all the previous Budgets. The 12th Five-Year Plan (FY13–17) witnessed the government investing significantly in infrastructure, industrial parks and residential buildings - Within the 12th Five-Year Plan, a target of USD0.85 trillion in 12 specified sectors has been set to be achieved by the government till 2017

– A number of flagship programmes viz., ‘Smart Cities Mission’, ‘Housing for All by 2022’, ‘Pradhan Mantri Gram Sadak Yojana’, ‘Power for All’, ‘Atal Mission for Urban Rejuvenation and Transformation’, ‘Sagarmala Programme’, etc., have been initiated to benefit the sector

– The sector witnessed nearly 33 deals in FY17 involving USD3.5 billion as against USD3.0 billion raised across 31 deals in FY16 - A majority of deals were formalised in power, roads and renewable energy sectors.

Source: Infra investments lower by 31.8% during 12th five year plan, CMIE, 20 April 2017


The sector has been gathering significant attention from a number of foreign countries due to its immense scope of development and relaxations offered by the government in FDI policies. The sectoral reforms in 2015 allowed the construction sector to let go of the floor area restrictions and minimum capitalisation norms, and made the exit and repatriate process easier for the foreign investors.54

Some of the major foreign investments announced for the sector are:

– In 2017, a global infrastructure investment company, announced plans to invest up to USD4.0 billion in the infrastructure assets in India55

– In 2017, an India-based infrastructure development and finance company and a global PE firm Lone Star jointly planned to invest USD552.6 million in infrastructure projects in India56

As previously stated UAE has been showing interest in India’s infrastructure sector. In 2016, the UAE invested USD1 billion into the Indian infrastructure projects.

2.3 Subsectors 2.3.1 Roadways and highways Roadways and highways are key to the development of the infrastructure sector as they offer the required base for intra- and inter-state connectivity. The government has been trying to provide the necessary impetus to boost up the sector.

Budget allocation: In the Union Budget 2017–18, the government has allocated USD9.8 billion for national highways (an increase of 11 per cent from the previous year). The states are expected to provide an additional USD1.2 billion for road development. In addition, the government has also announced the construction of 2,000km coastal connectivity roads.

Government initiatives: The government has made a number of investments to improve the existing roadways and highways, as well as develop new ones:57

– The Cabinet Committee on Economic Affairs (CCEA) has approved the project to widen the Handia–Varanasi section of National Highway-2 in Uttar Pradesh. The project would require an investment of approximately USD300 million

– The government has announced plans to build 8,000km of pavements and lay more cycle tracks in 106 cities till 2022, with an investment of USD12.2 billion. The project would reduce carbon footprint in urban areas

– The monetisation of 75 publicly funded highway projects of about USD540 million, via toll–operate–transfer (TOT) mode, is likely to receive adequate funds to finance road construction of 2,700km length

– The government and the Asian Development Bank (ADB) have signed USD375 million in loans and grants for developing 800km Visakhapatnam–Chennai Industrial Corridor. The project is the first phase of a planned 2,500km East Coast Economic Corridor (ECEC).58

Major UAE investments in the roadways and highways sector in India:

– In 2017, the union cabinet approved of the MoU between India and UAE involving bilateral cooperation in the road transport and highway sector - The MoU is to be signed between the Ministry of Road Transport and Highways, India and the Federal Transport Authority Land and Maritime, UAE59

– In 2016, a UAE-based SWF, expressed interest in taking up 50 highway projects on a TOT basis.60

Key flagship programmes within roadways and highways

Pradhan Mantri Gram Sadak Yojana (PMGSY) 61,62,63

Road length completed (lakh km)

2013 3.71

2014 4.06

2015 4.43

2016 4.78

2017E 5.16

Objective: The Pradhan Mantri Gram Sadak Yojana was launched in 2000 with an objective to provide all-weather road connectivity to unconnected rural habitations.

Progress achieved: According to the Ministry of Rural Development, in 2011–12, 21,750km of rural roads had been constructed. After a decline in the construction rate in 2012–13 (18,080km till January 2013) as well as 2013–14 (16,914km till January 2014), the pace of construction picked up in 2014–15 with the laying of more than 26,000km of road until January 2015. The government is hopeful of laying down 49,000km of roads in 2017, with an average rate of 133km/day.Source: Online Management, Monitoring and Accounting System

(OMMAS), OMMS, accessed on 23 October 2017

2.3.2 Housing and urban development With rapid urbanisation and a large section of the rural population living below the poverty line, the provision of housing and urban development becomes an utmost necessity. The government has set a target of bringing 10 million households out of poverty and making 50,000 villages poverty-free by 2019.64

Budget allocation: In the Union Budget 2017–18, the government accorded affordable housing infrastructure status. It announced that the National Housing Bank will refinance individual housing loans worth USD3.06 billion in 2017–18. Furthermore, the previously allowed 100 per cent tax deduction on profits for the houses up to 30 sqm (top-four cities) and 60 sqm (other cities) built-up area, was changed to carpet-area basis in the current Budget. The government extended the commencement timeline to five years from three years for the projects to meet the eligibility criteria. The allocation for Pradhan Mantri Awas Yojana-Gramin was also increased to USD3.5 billion from USD2.3 billion in 2016–17.65


Government investments / initiatives: Some of the investments and measures that have been taken by the government in the housing and urban developments are as follows:66

– In June 2017, the government launched the City Liveability Index, which would measure the quality of life in 116 major cities on a set of 79 parameters

– In 2017, the government approved an investment of USD10.3 billion towards urban development in Maharashtra

– In April 2017, the Ministry of Housing and Urban Poverty Alleviation launched 352 affordable housing projects worth USD5.8 billion in 53 cities across 17 states.

Major UAE investments in the housing and urban development sector in India:

– In 2016, an Abu Dhabi-based investor group announced plans to invest USD0.15 billion to develop a shopping mall, convention centre and five-star hotel in Uttar Pradesh67

– In 2016, Uttar Pradesh government announced the signing of an MoU with five India-owned businesses in the UAE that would invest USD3.7 billion in infrastructure and industrial development initiatives in the state.

Key flagship programmes within housing and urban development

– Housing for All by 2022

Objective: In 2015, the union cabinet announced the launch of ‘Housing for All by 2022’ aimed at the urban areas.68 The scheme is targeted to cover the entire urban India consisting of 4,041 statutory towns with an initial focus on 500 Class 1 cities.69

Progress achieved: The government has been investing in implementing agencies and urban local bodies to build nearly 20 million affordable houses for the urban poor by 2022. However, the implementation progressed at a slow pace between 2015 and March 2017, when only 1.7 million houses received approval from the centre based on the proposals sent by states. This has led to the government setting strict targets for states to ensure

that all houses approved for construction in 2015–16 and 2016–17 need to be completed before the end of 2017–18.70

For achieving this objective, the government needs to fast track the approval process, encourage private participation, allocate the required funds and monitor closely the execution.71

– Atal Mission for Rejuvenation and Urban Transformation (AMRUT)

Objective: In June 2015, the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) programme was launched by the Ministry of Urban Development, including 11 reforms and 54 milestones that are to be implemented by all 500 mission cities in four years.72 The mission aims at providing basic civic amenities such as water supply, sewerage, urban transport and parks in order to improve the quality of life for all, especially the poor and the disadvantaged.73

Progress achieved: It is a centrally sponsored scheme with a total investment USD7.7 billion during the period 2015–16 to 2019–20. The fund is divided equally amongst the urban population of each state / UT and the number of statutory towns. As of 2016, a total of 490 projects have been undertaken with an investment of USD1.0 billion. These include 102 projects to determine success of water supply connectivity to all households and 41 sewerage management projects. Furthermore, the development of open air and green spaces have been undertaken in almost all 500 mission cities.74

2.3.3 Shipping and ports

The sector comprises 12 major and 200 minor ports in the country. The utilisation rate of major ports in India such as Jawaharlal Nehru Port Trust, Kandla port and Ennore port are highly competitive in the global market. A large share of India’s imports, especially coal, arrives through shipping. The government understands the importance of developing this sector and has made a number of investments apart from launching initiatives to further benefit the sector.

Budget allocation: The allocation to the shipping ministry has increased from USD200 million in the Union Budget 2016–17 to USD0.3 billion in 2017–18. For the Sagarmala programme, USD91.8 million has been allocated. The ministry has invested nearly USD12.24 billion since 2015 to develop shipping infrastructure in the country.75

Government investments / initiatives:

– The Ministry of Shipping has announced plans to undertake the development of 37 national waterways (NWs), out of the 111 NWs, during the course of three years - On completion, it would have a positive impact on the reduction of overall logistics cost

– Under the Make in India initiative, the government received investments worth USD0.65 billion in the shipping sector up to May 2016.76

Flagship programmes within shipping and ports

– Sagarmala

Objective: In March 2015, the union cabinet approved the concept and institutional framework of the Sagarmala project. The project aims at developing the port infrastructure by enhancing the capacity of major and non-major ports, and modernising them to help manage the goods movement efficiently and effectively. The project proposes developing of 14 Coastal Economic Zones (CEZ) across major and non-major ports.77

Investment: The CEZs would embrace 12 industrial clusters, which require USD122.4 billion of industrial investment and USD2.3 billion of investment in basic infrastructure. The implementation of the projects identified under Sagarmala would be taken up by relevant ports, central line ministries, state governments and state maritime boards through private sector or PPP route.

FY2015–16 FY2016–17 FY2017–18

Project theme Number of project

Project cost (USD billion)

Number of project


Number of project


Port Modernisation

62 4.2 46 3.5 13 0.3

Connectivity Enhancement

30 2.4 58 4.4 28 2.5

Port-Linked Industrialisation

2 0.05 1 0.46 2 0.8

Coastal Community Development

4 0.01 4 0.08 3 0.02

Total 98 6.73 109 8.4 46 3.7

Source: “Projects Under Sagarmala”, Sagarmala, accessed on 23 October 2017

Projects under Sagarmala:78


Future projections: The government has identified more than 415 projects to be implemented between 2015 and 2035. With the implementation of Sagarmala project, the Ministry of Shipping has projected to save up to USD6.1 billion per year that is spent on logistics by key industries. In addition, India’s cargo traffic handling capacity is expected to increase from 1,550 million tonne per year to 3,000 million tonne per year by 2025.79

2.3.4 Railways and airports Upgrading the present infrastructure and incorporating the latest technologies can play a crucial role in the overall development of India’s infrastructure sector.

Budget allocation

In the Union Budget 2017–18, the total capital and development expenditure of railways has been estimated at USD20 billion, which includes USD8.4 billion provided by the government.80 The Airport Authority of India (AAI), has been allocated USD400 million apart from a budgetary support of USD10 million.81

Government investments / initiatives: Some of the investments undertaken by the government are as follows:

– The government announced plans to commission railway lines of 3,500km in 2017–18 with the redevelopment of 25 identified stations

– The government has announced to start Rashtriya Rail Sanraksha Kosh with a corpus of USD15.3 billion over a period of five years

– The Airports Authority of India (AAI) announced plans to increase its capital expenditure for 2017–18 by 25 per cent to reach USD0.4 billion - The investment is likely to expand the capacity at 12 airports to accommodate the increase in air traffic.

Flagship programmes within the airport segment

– Ude Desh ka Aam Nagarik (UDAN)

Objective: In October 2016, the aviation ministry launched the UDAN scheme with an objective to provide air connectivity to unserved and under-served airports in the country. A total of 70 airports are expected to get connected under the scheme.82 The AAI followed the transparent bidding process, and offered the routes and networks to the bidders and airline operators who submitted valid proposals and quoted the lowest viability gap funding (VGF).The commute is provided at a subsidised rate of USD38.2 / seat of the flight (one hour journey of approx. 500km).83

Progress achieved: The inaugural UDAN flight was launched in April 2017 connecting Shimla and Delhi. The flight connecting Hyderabad already commenced operation in August, which would be followed soon by flight services from Puducherry to Bengaluru, Kochi, Tirupati and Coimbatore.84

2.3.5 Power and renewables India has the fifth-largest power generation portfolio, and the renewable energy contribution stands at 44.8 Giga Watt (GW). The sources of power generation range from conventional ones — coal, lignite, natural gas, oil, hydro and nuclear power — to the non-conventional sources — wind, solar and agriculture and domestic waste.85 The sector’s growth is crucial for overall infrastructure development. The country has managed to achieve steady progress in the sector and has moved up 73 levels to be ranked 26th in the World Bank’s list of electricity accessibility in 2017.86 The government, through its various investments and budget allocations, has helped the sector to develop significantly.

Installed capacity for different sources of power (GW, FY17)

Thermal Hydro Renewable Nuclear

218.4

44.557.2

6.8

Electricity generation (billion units)

FY2013 FY2014 FY2015 FY2016 FY2017

912.1

967.21048.7

1107.8 1160.1

Source: All india installed capacity (in mw) of power stations, CEA,

Source: Power Sector at a Glance, Power Ministry, accessed on 23 October 2017

Source: All india installed capacity (in mw) of power stations, CEA,

Budget allocation In the Union Budget 2017–18, the overall budget of the Ministry of Power has been raised to USD2.1 billion from USD1.9 billion budget estimate. The total expenditure of the Ministry of New and Renewable Energy has been increased to USD800 million from the budget estimate of USD0.77 billion.87

Government investments / initiatives: Some of the investments undertaken by the government are as follows:

– The Cabinet Committee on Economic Affairs (CCEA) has approved the enhancement of capacity of the Scheme for Development of Solar Parks and Ultra Mega Solar Power Projects from 20,000 Mega Watt (MW) to 40,000MW – It would lead to setting up of at least 50 solar parks, each having a capacity of 500MW and above in various parts of the country

– To reduce India’s carbon footprint, the government has set an ambitious target of generating 175GW of renewable energy by 202288

– The Central Electricity Authority (CEA) expects that the investment in India’s power transmission sector would reach USD39.8 billion during the 13th Five-Year Plan (2017–22).

Flagship programmes within power and renewables

– Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY)

Objective: In 2014, the government announced a programme for rural electrification under the DDUGJY to connect un-electrified villages and transform the lives of rural people. Under the scheme, the government has set a target to electrify 18,452 un-electrified households by May 2018.89

Progress achieved: As of May 2017, 13,469 villages have been electrified out of the total 18,452 un-electrified villages.90

Parameters 2013–14 2016–17 2017–18 target

Electrification of un-electrified villages

1,197 6,015 Balance un-electrified villages to be electrified by May 2018

Intensive electrification of villages

14,956 63,330 85,000

Free electricity connections to BPL households

0.9 million 2.2 million 4 million

Government of India grant released to states

USD0.45 billion USD1.2 billion USD0.7 billion

Source: “5 times more Villages electrified in 2016-17 under DDUGJY as compared to 2013-14”, Press Information Bureau, accessed on 28 September 2017


2.4 Growth drivers for infrastructure Rising urbanisation and growing income level India’s urban population contributes nearly 63 per cent to the country’s GDP (as of 2014).91 The country’s urban population is expected to increase from 26 per cent in 1991 to 36 per cent in 2020. The rising urbanisation and growing Indian economy have led to an increase in income level of people and their needs for advanced infrastructure facilities. Increasing migration of population from rural to urban areas makes it imperative for the government to enhance investments in the infrastructure sector.92 Further, with government targeting to increase India’s per capita income to USD5,000 within the next three years, the infrastructure sector stands to benefit, due to increase in demand.93

Housing requirement’s impact on infrastructure The growing concentration of people in urban areas has resulted in an increase in the number of people living in slums and squatter settlements. Skyrocketing prices of land and real estate in urban areas have induced the poor and the economically weaker sections of the society to occupy the marginal lands typified by poor housing stock, congestion and obsolescence. It is apparent that substantial housing shortage looms in urban India and a wide gap exists between demand and supply of housing, both in terms of quantity and quality.94

Source: Bridging the urban housing shortage in India”, Naredco, accessed on 3 October 2017, “Urban population to contribute 70-75% of India’s GDP by 2020-Barclays”, Business Standard, 20 March 2014

Urban population in India as a percentage of total population (2001–20F)

1991 2001 2011 2020F

26% 28%31%

36%

Urban–rural housing shortage (million)

2015

2014

2010

2008

2005

0 5 10 15 20 25 30 35

Rural Urban

14.8

19.721.7

2620.5

26.719.3

30.118.4

18.78

Source: Indian real estate sector, IBEF, 24 March 2017

Although the urban housing shortage remains substantial, it presents an opportunity to the government to involve private investors.

Growing tourism and supportive government measures

India has become an attractive tourism destination. The number of foreign tourist arrivals in the country has continuously increased due to growing focus initiated by the central as well as state-governments.95

Note: 2017 figure is a projected estimate

Source: India Tourism Statistics, Tourism Ministry, accessed on 23 October 2017; foreign tourist arrivals to grow 18% in 2017”, The Smart Investor, 6 September 2017

Number of foreign tourist arrivals in India (million, 2012–17)

2012 2013 2014 20162015 2017

6.6% 6.977.68

8.88.03

10

With the rising number of foreign tourists, infrastructure development in the country becomes a necessity. The Indian government has taken several tourism-friendly initiatives in the past couple of years, and is aiming to provide a conducive business environment to the country’s travel and tourism sector:96

– As of 2017, the government is working on a cruise tourism policy to increase the cruise liner traffic to 700 vessels a year

– In February 2016, the ministry launched the Incredible India helpline (a 24x7 toll free multi-lingual tourist helpline, providing support in 12 international languages) to assist domestic and international tourists

– In 2016, the Visa-on-Arrival scheme was extended to 161 countries

– Several state governments have started promoting homestays in partnerships with companies, primarily to involve locals in the tourism economy.

2.5 Way forward While the Indian economy offers several investment opportunities, it is also characterised by indigenous challenges such as inadequate financing channels, slow approval process like any large and complex economy,

transparency, rigid planning and processes, inappropriate dispute resolution and capacity limitation of private players.

With an objective to reduce the challenges and increase the investment, the government is considering the following initiatives:

– The government is initiating more involvement from private players and incentivise them to use capital more effectively, deliver a better incremental capital–output ratio and handle the assets effectively - In addition, the government is trying to boost strategic partnership between urban local bodies (ULBs) and foreign players by framing favourable FDI policies

– The government has requested project report from all the state governments to track the progress of various initiatives such as Housing for all and Smart cities - It is likely to speed up the progress of the ongoing infrastructure projects and meet the set targets

– A number of foreign countries such as Japan and South Korea have shown their interest investing in the infrastructure sector in India.


3. Non-infrastructure investment scenario

As UAE and India achieve closer bilateral ties, with trade and investment at the heart, certain sectors besides infrastructure can be explored further. Healthcare, start-ups, food processing, tourism and education sectors have significant potential for UAE-based firms and investors. These sectors with high-growth outlook, have significant investment requirement and the potential to help achieve the USD100 billion bilateral trade target by 2020.

3.1 Healthcare The healthcare sector has become one of the largest sectors in India, both in terms of revenue and employment. It is expected to grow at a CAGR of 16 per cent during 2015–20 to reach USD280 billion, which would make it amongst the top-three healthcare markets in terms of incremental growth by 2020.97 The sector’s strengthening coverage, services and increasing expenditure by public as well private players are driving the growth. Furthermore, the healthcare sector is expected to witness robust growth in the future on the back of rise in investments by the private sector, new government initiatives, and a rise in healthcare awareness and literacy rate.

Key government initiatives

The Government of India has launched key initiatives to improve the healthcare status of the country with major focus on disease prevention, primary healthcare infrastructure development, improvement in healthcare access to rural population and creation of a pool of skilled healthcare practitioners. Some of these initiatives are listed below:

– Launch of the National Health Policy 2017:98 This policy seeks to promote the quality of care, focus is on emerging diseases and investment in promotive and preventive healthcare

– New health protection scheme announced in 2016 Budget:99 This plan aims to provide a health cover of up to USD1.5 thousand per family

– Launch of e-health initiative:100 This initiative aims to provide effective and economical healthcare services to all citizens by leveraging technology, and portals using eKYC data of Aadhaar number

– Launch of Ministry of Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homoeopathy (AYUSH):101 This was done to ensure optimal development of the AYUSH systems of healthcare

– Launch of the National Rural Health Mission (NRHM), now a part of National Health Mission (since 2013):102 This was launched to address the healthcare needs of under-served rural areas, with focus on women, children and financial grants for grass-root level improvements in healthcare facilities

– Launch of Pradhan Mantri Jan Aushadhi Yojana:103 This aims to set up 3,000 medical stores across the country to provide quality medicines at affordable prices by end of 2017. Senior citizens are stipulated to get additional healthcare cover of USD450 under the new scheme

– Launch of Pradhan Mantri Swasthya Suraksha Yojana (PMSSY):104 This scheme includes the opening of new AIIMS hospitals in tier-II and -III cities to provide affordable and quality healthcare.

The government has taken certain steps to attract investors, such as:

– Increasing FDI limit:105 - In 2016, the government raised the share of FDI to 74 per cent from 49 per cent in brownfield pharma ventures and allowed 100 per cent FDI under the automatic route in greenfield pharma companies - In 2015, the government furthermore allowed 100 per cent FDI through automatic route for medical devices manufacturers

– The government has also allowed investors to register as Foreign Venture Capital Investor (FVCI) under the Securities and Exchange Board of India (SEBI). These entities are exempted from compliance with the pricing guidelines under the Consolidated FDI Policy for the acquisition of securities at the time of entering a market as well as transferring / selling the securities during an exit.105

3.1.2 Investments in the healthcare sector The growth potential of India’s healthcare sector is attracting both domestic and foreign investments. The government plans to increase the healthcare spend to 2.5 per cent of GDP by 2020 from 1.4 per cent of the GDP in 2017.106 In the last five years, the healthcare sector has also attracted approximately USD63.9 billion105 from VC and PE firms. In 2016, the sector experienced an investment of about USD1.1 billion, with nearly 88 deals.105 In addition, USD4.8 billion of FDI was received by the sector during 2012–16.105

Some of the recent UAE-based investments into India’s healthcare sector are listed below:

– July 2016: An integrated healthcare provider based in the UAE, has recently acquired majority stakes in several hospitals in India, with an investment of USD222 million107

– June 2016: One of UAE’s largest hospital chains announced the plan to pick up approximately 65 per cent stake in Hyderabad-based hospital chain, for an estimated USD60 million108

– May 2016: A UAE-based conglomerate announced plans to invest USD15 million in setting up multi-specialty hospitals in India109

– January 2016: A Dubai-based investment firm has agreed to buy a majority stake in one of the largest healthcare providers in India110

– May 2015: A Dubai-based healthcare firm launched the first phase of a medical township that is developing in Kochi with an investment of USD82.5 million.110

3.2 The start-up landscape India is the world’s third-largest and one of the fastest growing start-up ecosystems, having over 4,200 start-ups.111 A majority (66 per cent) of start-ups in India are located in Delhi, Mumbai and Bengaluru,112 which is one of the reasons for these cities emerging as some of the most dynamic ones in the world, according to the JLL City Momentum Index.113

The robust state of the Indian start-up ecosystem can be gauged from the fact that start-ups received USD4 billion worth of funding in a total of 377 rounds in the first half of 2017, which is almost 90 per cent higher than the total funding received by start-ups during the corresponding period in 2016.114

The Government of India attempts to sustain the upward momentum in the start-up ecosystem, as it sees it as one of the key drivers of economic growth, employment generation and source of innovation for the country. To this end, it has enacted several policies as a part of its Start-up India initiative launched in January 2016. Some of these policy domains include:

– Simplification and hand holding: The government is trying to ease the compliance regime based on self-certification, legal support and fast-tracking patent examination at lower costs, relaxed norms of public procurement for start-ups and provision for a faster exit

– Funding support and incentives: These include providing funding support through a ‘Fund of Funds’ with a corpus of USD1.5 billion, setting up a credit guarantee fund for start-ups, providing tax exemption for a period of three years as well as exemptions on capital gains and investments above fair market value

– Industry–academia partnership and incubation: Efforts in this domain include harnessing private sector expertise for incubator set-up, innovation-based programmes for students and promotion of start-ups in the biotech sector.115


Source: India’s education market to nearly double to $180 bn by 2020, VCCirle, 18 November 2016

3.3 Education sector The India education sector is poised to witness significant growth, driven by country’s demographic dividend and government’s focus on improving the quality of education. In FY16, the Indian education market was valued at USD100 billion and is expected to grow at a CAGR of 16 per cent to reach USD180 billion by 2020.120

Investments from public sector

– DIPP has approved 60 start-ups for availing tax benefits, as of August 2017

– The Start-up India corpus (of USD1.5 billion) has allocated USD92.3 million to Small Industries Development Bank of India (SIDBI) for the purpose of MSME incubation

– Total commitments to 17 Alternate Investment Funds stands at USD96.8 billion, from which 67 start-ups have received funding to date.

Start-up investments from the UAE

– In June 2017, the UAE Princess Sheikha Arwa Al Qassimi made an undisclosed investment in a Mumbai-based food start-up

– A UAE-based VC funding platform, plans to invest between USD200,000 and USD500,000 in early-stage start-ups118

– A Middle East-based payments and financial technology firm, has announced a dedicated fund for investing in India’s FinTech start-ups. The fund would invest a corpus of USD3 million towards start-ups that have been in operation for 12 months or less.119

Investments from private sector

– Indian start-ups saw USD4 billion in risk capital being deployed across 1,040 angel and VC / PE deals between January and December, 2016116

– As of first half of 2017, start-ups across 377 rounds of funding received USD4 billion

– India’s leading start-ups in e-commerce and mobile payments segments, raised USD1.4 billion apiece, constituting the largest deal of 2017 to date.117

100% = USD100 billion

K-12 (School)

Textbooks, e-learning & allied services

Higher education

Vocational education

52%

28%

15%

5%

India has one of the largest education ecosystems in the world with approximately 260 million students enrolled in over 1.5 million schools and about 760 universities and 38,498 colleges.121 A significant focus has also been laid on vocational training and skilling in order to provide livelihood to millions of youth.

On the digital front, India has become the second-largest market for online education after the U.S., driven by deeper penetration of high-speed internet; the market is expected to grow at an accelerated pace. During 2016–21, India’s online education market is set to grow at a CAGR of 51.3 per cent to reach USD2 billion by 2021.122

Key government initiatives The sector has seen strong support coming from the government in terms of initiatives and financial outlays, which has strengthened and expanded the sector. Some of the major government initiatives are as follows:

– In 2017, the government launched Study Webs of Active-Learning for Young Aspiring Minds (SWAYAM), an online education platform, to offer over 350 courses online. In addition, SWAYAM Prabha programme was launched to provide 32 Direct to Home (DTH) channels serving educational content123

– In 2016, the cabinet approved the establishment of Higher Education Fund Agency (HEFA) with an authorised capital of USD305.3 million to provide an impetus to creation of high-quality infrastructure in premier educational institutions124

– In 2014, the Skill India initiative was launched with an aim to provide vocational training to over 400 million citizens by 2022 that would enable them to find jobs. Several programmes have been launched under the Skill India initiative such as Pradhan Mantri Kaushal Vikas Yojana (PMKVY), National Skill Development Mission and Pradhan Mantri Yuva Yojana

– In 2010, Right To Education (RTE) was enacted to provide free and compulsory education to all children between six and 14 years of age, which has resulted in near universal enrolment in schools

– In 2017, the cabinet launched the Pradhan Mantri Gramin Digital Saksharta Abhiyan (PMGDISHA) to provide an impetus to digital literacy in rural India by providing training to over 60 million households.125

Investments in the education sector

– The Union Budget 2017–18 witnessed an increased allocation towards education and skilling: - Allocation of USD7.1 billion towards school education and literacy, an Y-o-Y increase of 5.6 per cent - Budget allocation towards higher education stood at USD5.1 billion, a Y-o-Y increase of 12.2 per cent, highlighting the government’s clear push for higher education - The Ministry of Skill Development and Entrepreneurship (MSDE) allocated USD464 million towards skilling, an increase from USD334.3 million crore in FY17

– Since 2012, the Indian education sector has registered 289 deals amounting to USD919 million. In 2016, the sector witnessed 42 deals worth USD208 million, registering a y-o-y increase of 25 per cent126

– During June 2014–June 2017, India’s education sector received FDI of worth USD514.2 million.127,128

3.4 Food processing sector India’s food processing sector has been amongst the focus sectors of the Indian government to ensure food security and sector’s significant contribution to the country’s economy. In FY15, the share of the sector in India’s Gross Value Added (GVA, at constant prices) stood at 5.8 per cent. The sector is also a major employment contributor, employing 1.5 million people in registered FPI units and about 5 million people in unregistered FPI units across the country.130 The food processing sector is primarily export-oriented, which contributed about 11.3 per cent of India’s total exports in FY16.

India, second-largest agricultural land in the world, is amongst the largest producers of food-grains, fruits and vegetables. India’s rich agricultural resource base coupled with its abundant livestock population, and vast coastline, resulted in the availability of fishes and other sea creatures offers immense opportunities for growth of the food processing sector.


Foreign Tourist Arrivals (FTAs) have shown consistent growth over the past few years on account of favourable government policies, including e-Tourist Visa and Visa-on-Arrival.

In line with FTAs, the Foreign Exchange Earnings (FEEs) from tourism have also witnessed a gradual rise in the recent past.

The tourism sector is the third-largest generator of foreign exchange for India.

Key government initiatives The government has rolled out several initiatives to provide an impetus to the development the food processing infrastructure to reduce food inflation, and curb food wastage. Some of the key initiatives include:

– In 2015, the government approved establishment of 42 Mega Food Parks (MFPs) across the country with an aim to provide modern infrastructure facilities along the value chain with strong backward and forward linkages - Financial assistance for units in MFPs is also provided in the form of grant-in-aid of 50 per cent of the eligible project cost131

– In 2015, food and agro-based processing units and cold chain projects have been classified as priority sector lending, ensuring greater flow of credit for setting up of food processing units for further capacity addition - A food processing fund has been set up by NABARD with a corpus of USD307.6 million to provide credit to food processing units in MFPs and other designated food parks at concessional rates

– A number of fiscal benefits have also been provided for setting up of food processing units in India, such as: - Hundred per cent income tax exemption to food processing units on profits for the first five years of operation and 25 per cent thereafter for next five years - Service tax exemption on pre-conditioning, precooling, ripening, waxing and retail packing, labelling of fruits and vegetables.

Investments in the food processing sector

– The food processing sector received USD1.7 billion worth of FDI between April 2014 and December 2016, with major focus towards establishment of manufacturing facilities to tap the Indian market132

– An Abu Dhabi-based hypermarket chain plans to invest about USD76.9 million to establish a fruit and vegetable processing unit, and an integrated meat processing unit in Hyderabad133

– Also, a Mumbai-based food technology start-up, is engaged in the production of vegan food products, has raised an undisclosed amount in funding from the UAE Princess, Her Highness Sheikha Arwa Al Qassimi.134

3.5 Tourism Growing domestic as well as foreign tourist arrivals is the primary driver of India’s tourism sector.135 It accounts for 7.5 per cent of the country’s GDP and was valued at approximately USD150.7 billion in 2015. It is expected to grow at a robust 16.1 per cent Compound Annual Growth Rate (CAGR) to reach USD427.6 billion in 2022.1

Source: India Tourism Statistics, Tourism Ministry, accessed on 23 October 2017

Foreign exchange earnings (USD billion, 2013–16)

2013 2014 2015 2016

18.4 20.2 21.1 23.1

CAGR: 7.9%

Government investments/initiativesThe government has made a number of investments to improve the tourism sector in India:

– In the Union Budget 2017–18, the government has allocated USD280 million, an increase of 15.8 per cent from the previous fiscal. The government would create five special tourism zones in partnership with the states — anchored on a special purpose vehicle (SPV).136

– In May 2017, the Ministry of Environment, Forest and Climate Change announced plans to revise India’s coastal regulation norms. The plan is to open up the 7,500km-long coastline for developmental activities like tourism and real estate137

– In February 2017, a tripartite Memorandum of Understanding (MoU) was signed amongst the Ministry of Tourism, National Projects Construction Corporation (NPCC), National Buildings Construction Corporation (NBCC), and the Government of Jammu and Kashmir for the implementation of tourism projects in Jammu and Kashmir.138

Investments in the tourism sector

– The amount of FDI equity flow in hotel and tourism was USD1,250 million from April 2016 to June 2017139

– In 2015, the Minister of Economy, the UAE, met the Prime Minister of India and expressed his interest towards investing in the tourism sector in India.140

Note: INR figures have been converted to USD at a rate of 65.20 (rate as on 6th October 2017)


4 Investment opportunities in infrastructure

The Indian government has accorded high priority to the infrastructure sector, owing to its high potential for propelling the economy. In addition, recently launched government programmes and PPP models are expected to help in meeting India’s significant infrastructure spending requirement.

Total investment potential till 2020-21, across ports, railways, industrial corridors, roads, housing, smart cities and power is USD932 billion. Further, almost USD90 billion worth of projects are in pipeline across airports, ports, railways, roads and oil & gas.

Note: The USD89.5 billion worth of projects under pipeline are not exhaustive

Source: “Key investment opportunities in India”, Embassy of India-Abu Dhabi, 8 March 2016

Source: “Opportunities in Indian Infrastructure Projects”, Make In India Mittelstand, 27 March 2017

Investment potential till 2020-21 across segments of infrastructure(USD billion)

Smart cities Housing Ports RailwaysIndustrial corridors

Power Roads

7.4 6.97

106.4151.1

106.4

266 266

Projects under pipeline across key segments of infrastructure(100 per cent=89.5 billion)

Ports

Roads

Oil & gas

Railways

Airports74.7%

14.1%

5.6%4.3% 1.2%

4.1 Airports Airport infrastructure is expected to receive a total investment of USD1.1 billion by 2020-21, for development and modernisation of airports and construction of new integrated terminal buildings. The Airport Authority of

India (AAI) is focusing on building airport infrastructure in Tier-1 and Tier-2 cities of the country, which would also help to provide impetus to the UDAN initiative in boosting regional connectivity.

S.No. Project name Project details Project cost in USD million

1 Modernisation of Chennai Airport Phase-II

Modernisation of terminal building, cargo terminal, etc. 439.5

2 Development of Agatti Airport Extension of runway, development of terminal Building, apron for aircraft, helicopter bays, etc.

225.0

3 Construction of New Integrated Terminal Building

Construction of integrated terminal building at Lucknow airport

154.0


Construction of integrated terminal building at Jaipur airport

154.0


Construction of integrated terminal building at Guwahati airport

143.0


4.2 Roads Highway infrastructure is expected to receive an investment influx of approximately USD12.7 billion, to cater to the funding needs of planned projects in the pipeline. The government is trying to solicit higher private

sector participation in building highways and expressways through new models such as Toll Operate Transfer (TOT), Build Operate Transfer (BOT) and hybrid annuity model

Top five airport projects by value

Top five road projects by value

S.No. Project name Project details Project cost in USD billion

1 Monetization of National Highways Bundled packages of National Highways of length approx. 5000km in operational phase

5.0

2 Vadodara – Mumbai Expressway Construction of 6/8 lane National Highway in three phases covering a total length of about 450km

3.85

3 Delhi – Jaipur Expressway A greenfield project which entails building a new super expressway with a total length of 195km

1.5

4 Bangalore – Chennai Expressway A green field alignment to construct an 262km long express way which will be operated with a closed toll system

1.0

5 Dharwad – Chitradurga Construction of a 6 lane National Highway with a total length of about 246km

0.4



4.3 Petroleum and natural gas The total investment required for the planned projects to be executed in the petroleum and natural gas sector within the next three years, is about USD5 billion. These

funds could be diverted towards modernisation of refineries, capacity expansion, setting up of gas pipelines, etc.

4.4 Railways India has the world’s fourth longest railway network with a total route of about 66,687 km. In a bid to further strengthen its rail network the country has planned various new projects in domains such as dedicated

freight corridors, suburban corridors, high speed trains and station development. The total cost of railway infrastructure projects in pipeline amounts to about USD3.9 billion.


1 CSTM- Panvel project Construction of an elevated corridor, for the harbour line, which would provide suburban connectivity to the proposed Navi Mumbai airport

2.0

2 Dankuni—Gomoho project Development of 282 km stretch of the eastern freight corridor

0.64

3 Kazipet—Vijaywada third line with electrification

Construction of 219.6 km long third line between Kazipet and Vijaywada

0.151

4 Re-Development of Chandigarh Railway Station

Includes commercial and station development/ re-development

0.13

5 Development of Bijwasan Railway Station

Entails commercial and station development 0.129


S.No. Project name Project details Investment required in USD billion

1 Visakh refinery modernisation project

Modernization and capacity expansion from 8.33 MMTPA to 15 MMTPA

1.755

2 Ennore LNG project Construction of Liquefied Natural Gas (LNG) import terminal with a capacity of 5 MMTPA

1.227

3 Propylene Derivatives Petrochemical Project (PDPP)

Entails development of three major process units for acrylic acid, oxo-alcohol and acrylates at Kochi refinery

0.437

4 Vijaipur—Auraiya—Phulpur pipeline project

Laying down of 666 km long pipeline with a capacity of 8.9 MMSCMD

0.431

5 Upgradation of process units in Mangalore Karnataka

Quality upgradation of Process Units to meet BS VI norms for Motor Spirit and High Speed Diesel by April 2020

0.429

Top five railway projects by value

Top five petroleum and natural gas projects by value


1 CSTM- Panvel project Construction of an elevated corridor, for the harbour line, which would provide suburban connectivity to the proposed Navi Mumbai airport

2.0

2 Dankuni—Gomoho project Development of 282 km stretch of the eastern freight corridor

0.64

3 Kazipet—Vijaywada third line with electrification

Construction of 219.6 km long third line between Kazipet and Vijaywada

0.151

4 Re-Development of Chandigarh Railway Station

Includes commercial and station development/ re-development

0.13

5 Development of Bijwasan Railway Station

Entails commercial and station development 0.129

S.No. Project name Project details Investment required in USD billion

1 Visakh refinery modernisation project

Modernization and capacity expansion from 8.33 MMTPA to 15 MMTPA

1.755

2 Ennore LNG project Construction of Liquefied Natural Gas (LNG) import terminal with a capacity of 5 MMTPA

1.227

3 Propylene Derivatives Petrochemical Project (PDPP)

Entails development of three major process units for acrylic acid, oxo-alcohol and acrylates at Kochi refinery

0.437

4 Vijaipur—Auraiya—Phulpur pipeline project

Laying down of 666 km long pipeline with a capacity of 8.9 MMSCMD

0.431

5 Upgradation of process units in Mangalore Karnataka

Quality upgradation of Process Units to meet BS VI norms for Motor Spirit and High Speed Diesel by April 2020

0.429

Top five port sector projects by value

4.5 Ports Indian has over 200 ports along 7,517 km of coastline spread across 9 states. The ports handled 1,073 million tonnes in FY16 and has a total cargo handling capacity of about 1,500 million tonnes. The Indian government has increased its focus on developing port infrastructure in a bid to double the port cargo handling capacity to 3,000 million tonnes by 2020. There are around 240

planned port infrastructure projects in the pipeline, with an estimate cost of USD66.9 billion. Sagarmala port and port-led development, and hinterland connectivity projects account for over 80 per cent of the total planned project cost in the ports sector.


Note: INR figures have been converted to USD at a rate of 65.95 (average rate of 2016 calendar year)

Euro figures have been converted to USD at a rate of 0.94 (average rate of 2016 calendar year)

S.No. Project name Project classification Project cost in USD billion

1 Development of greenfield refinery at Tamil Nadu

Sagarmala port led development 3.846

2 Expressway from Sanathnagar industrial cluster to Jawaharlal Nehru Port Trust

Hinterland connectivity and multi modal logistics 3.385

3 Development of greenfield refinery at Maharashtra

Sagarmala port led development 3.077

4 Expressway from Whitefield industrial cluster to Enayam


5 Expressway from Ahmedabad to Jawaharlal Nehru Port Trust



5 ConclusionThe private and foreign player participation in India’s infrastructure sector is expected to accelerate in the coming years. The rapid pace of urbanisation, port-led industrialisation and construction of highways and railway lines are the likely catalysts for infrastructure augmentation. Additionally, the government’s efforts towards promoting efficient models for private player participation, soliciting increased FDI inflows and establishing a sound ecosystem for the businesses, are expected to further boost the sector.

As the UAE is looking to find new partners to fuel its growth, outside relatively sluggish western economies, India presents itself in a positive light. For instance, renewable energy is one of the key focus areas of the Indian government and UAE-based firms could make use of their expertise in low-cost generation and transmission of solar energy to develop renewable energy infrastructure in the country.

With the Indian government’s continued efforts to improve the business and regulatory climate, UAE businesses could have significant scope for growth in the substantial Indian market. They could leverage their expertise in infrastructure, tourism, healthcare, education, food processing, and tap into investment opportunities in the Indian market for expansion and growth.

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