Unlocking potentials of mutual benefits

“I don’t think the things have ever been strong or as good between India and UK as they are now,” said UK Prime Minister Boris Johnson during his two-day maiden visit as PM to India. What remained highlight of British PM’s visit to India was New Delhi’s and London’s major push towards the conclusion of the Free Trade Agreement. This FTA has the potential to double out trade and investment by the end of the decade. The third round of talks begin next week,and negotiators seems to have been given a target to it done by Diwali.

India and the United Kingdoms enjoy a long and historical relationship which was elevated to a comprehensive Strategic Partnership during the India-UK virtual summit in 2021. India’s multi-faceted bilateral relations with UK witnessed a significant stride in the recent past and now the two vibrant democracies are set to give major push to its elevated trade ties with the finalization of the FTA. The agreement will expand India-UK cooperation in different sectors ranging tourism, technology, startups, education, climate change among others. Expected results on both sides are of creating jobs, increasing wages and driving innovations. This will also contribute in integrating value chains and help augment mutual efforts to strengthen the resilience of supply chains. The finalization of ambitious trade deal will also give major boost to Indian exports in labour intensive sectors like Leather, Textile, Jewellery and processed Agri-products. With UK currently as India’s 17th largest trading partner, the total trade between India and UK stood at USD12.5 billion FY 2021-22 (April-Dec).

From describing India-UK ties as ‘beacon in stormy seas’ to describing Prime Minister Narendra Modi as Britain’s ‘khaas-dost’, the British Prime Minister Boris Johnson has spelt out a better understanding between two vibrant democratic countries. The signing of the India-UK FTA will usher in a new age of cooperation and open the way for huge trade and investment opportunities for UK and Indian companies.

Government Bonds in Retail Portfolio

Equities and Bonds are two of the most traded asset classes and are often combined together as part of a well-diversified portfolio. When buying equity in a company, the investor becomes a shareholder and can participate in the distribution of profits. When buying a bond, the investor becomes a creditor to the issuer and is entitled to a fixed interest along with the ultimate repayment of the principal. Equity gives high returns mainly because of the risk involved in it. Whereas bonds provide low but fixed returns with lesser or zero risk to the capital. In the current situation where the equity markets have become very volatile, investors are looking to diversify their portfolios with a good combination of equity and debt.

Government bonds with long-term maturities are finding takers who are looking for safe debt instruments that are liquid and more tax efficient. Sovereign papers that mature 25 to 40 years from now would fetch them returns of 7.25-7.35 per cent annually. Currently, 10 years fixed deposit with the State Bank of India gives returns of up to 5.5 per cent. After 10 years, investors face reinvestment risks due to uncertainty over the interest rates then. Similarly, post office deposits offer an annual return of 6.7 per cent but have a tenure of five years. Debt mutual funds offer indexation benefits if the investment is held for more than three years, but there are very few schemes that invest with a maturity period of more than 10 years. In all these cases, Government of India bonds appear to be a good option for long term debt investment.

On November 12, 2021, Prime Minister Narendra Modi released the Reserve Bank of India (RBI) Retail Direct Scheme. The scheme provides investors with an opportunity to invest in government securities in the primary and secondary markets in a safe and hassle-free manner. Government securities under the scheme include Government of India Treasury Bills (T-Bills), Government of India Dated Securities (Dated G-Secs), State Development Loans (SDLs), and Sovereign Gold Bonds (SGBs). The Retail Direct scheme offers retail investors the opportunity to buy securities directly and free of charge. These securities can be purchased on the Reserve Bank of India’s Retail Direct Platform with a minimum capitalization of Rs 10,000. There is no upper limit. Investors can buy these securities without the aid of brokers. This is a major development for retail investors and direct investment in long tenor government bonds has become real possibility for this group.

Evolution of EV Ecosystem in India

NITI Aayog released the Battery Swapping Policy to bring greater efficiency in the EV Ecosystem. The idea was indicated in the Budget 2022 where considering the constraint of space in urban areas for setting up charging stations at scale, central government had promised to roll out a battery swapping policy and formulation of inter-operability standards to come up the sector’s efficiency. The move will also encourage the private sector to develop sustainable and innovative business models for ‘Battery or Energy as a Service’. Under the plan, Data Centres and Energy Storage Systems including dense charging infrastructure and grid-scale battery systems will be included in the harmonized list of infrastructure. This will facilitate credit availability for digital infrastructure and clean energy storage.

Earlier, July 2019 had witnessed a whopping Tax boost for EVs as the central government slashed down the GST rate on electric vehicles (EVs) from 12% to 5%. In the same year, the government also mandated green license plates for battery-operated vehicles. In its efforts to further promote use of EVs, centre also issued notifications to state govts to exempt permit and minimise road tax for EVs in 2021. This was followed by another unprecedented development where a PLI scheme was approved for manufacturing of Advanced Chemistry Cell (ACC), a move to reduce the prices of batteries in the country, and ultimately bringing down total cost of production of Electric Vehicles. The scheme worth Rs 26,000 crore was announced to boost the production of electric vehicles and hydrogen fuel vehicles in the country and it was estimated that the scheme will create as many as 7.5 lakh jobs for the auto sector. The collective efforts of all the stakeholders have resulted in a significant increase in the number of electric vehicles in the country. According to the Ministry of Road Transport and Highways, the number of electric vehicles registered in 2018 in the country as per the e-Vahan portal was 1,31,554. The number rose to 1,61,314 in 2019. Cumulatively, as of July 2021, there were a total of 5,17,322 registered electric vehicles in the country.

Besides, India is also all ready to work on solutions and provide the world with innovative initiatives & vital alternatives. Earlier, India had joined hands with Israel’s start-up company Phinergy to set up a factory in India to manufacture aluminium-air batteries for electric vehicles and stationary applications. Lithium-ion batteries are in widespread use for electric vehicles and various gadgets globally. Finding and switching to an alternative becomes imperative because unlike Aluminium, lithium’s availability is scaringly finite on Earth. In the case of e-vehicles, aluminium-air batteries are also expected to offer a much greater range of 400 km or more per battery compared to lithium-ion batteries which currently offer a range of 150-200 kilometres per full charge. However, use of Aluminium batteries would also require the setting up of battery swapping stations as these cannot be recharged like lithium-ion batteries. The new battery swapping policy rolled out by the centre may provide solution for this problem as well.

Electronic Vehicles (EVs) are being endorsed as the future of transportation sector as the near total reliance on fossil fuels for automobiles is wringing a huge cost out of the environment. To decarbonize the transport sector, a major contributor of CO2 emissions), transition to clean mobility has become essential, which the government has already started to ensure through more and more endorsement and induction of Electric Vehicles. Electric vehicle (EV) charging stations have also expanded by two-and-a-half times across nine megacities, in the last four-five months only. Each of these 9 major cities have a population of over 4 million. As many as 1.8 lakh electric vehicles were sold in the country during this period.

Tale of Indian UniqueCORNS

The new India is rapidly snowballing into a unicorn hub. Year 2021 proved to be a blockbuster year for startup funding as the country saw creation of 42 unicorns, a three times jump from 11 new unicorns in 2020 and nine in the previous year. More than $10 billion were raised by Indian startups in Q3 CY21 ( approx. 41% increase) driven largely by three sectors: FinTech, EdTech and SaaS. This was the first time that funding into privately-held Indian start-ups crossed $10 billion in a single quarter (Q3 CY21) across approximately 350 deals. What is most surprising on top of this is the fact that entrepreneurs, the government and the likes have started transitioning from the age of Unicorn to the age of Decacorn already. Every move and strategy of all the stakeholders involved, is now swirling around the same as India emerges as the third largest ecosystem for start-ups globally – after the US and China. As of January 2022, 46 companies globally have attained the decacorn status. India has four startups namely Flipkart, BYJU’s, Paytm and Swiggy – that have achieved this status.

A recent report named ‘Tech Unicorns Market landscape Report IV’ by venture growth investor – Iron Pillar, predicted that India will have more than 250 Unicorns by the year 2025. The report also highlights that the Unicorns in India include 58 global cloud companies, 59 B2C companies and 13 B2B companies. Indian companies are building cloud products for the world and are proving to be capital-efficient, as they have attained unicorn status with 42% less capital as compared to business-to-consumer (B2C) businesses. Iron Pillar expects more Indian companies to expand outside the subcontinent over the coming years and focus on the Middle East & Southeast Asian regions. The public listing of 12 unicorns is another indicator of the increasing maturity of the Indian tech ecosystem.

In January 2022, Union Commerce and Industry Minister Piyush Goyal had expressed hope that the startup community of India should nurture 75 more unicorns in 2022. His optimism was based on the massive funding the Indian startups were getting. Certain factors have led to such a rapid growth of Unicorns across the country. During the peak of the pandemic, Indian Entrepreneurs encashed the opportunity to not only contribute to the economy but also to contribute toward Covid-19 relief efforts. “It is raining Unicorns” has been the motto of the year 2021 with 44 unicorns joining the star status. The contributing factors for fueling such growth include – a thriving digital payments ecosystem, a large smartphone user base, digital-first business models, attractive government schemes and policies, and investors’ interest in India. Today, 1 out of 10 unicorns globally have been born in India. Overall, 2021 experienced an exceptional boom in this sector. Soonicorns too are waiting in line to contribute to the shining startup ecosystem of India.

India’s evolution as Electronics Manufacturing Hub

Semiconductors and displays are the foundation of modern electronics that will drive the next phase of digital transformation under Industry 4.0. Couple of favourable factors for India in this challenging industry are talented manpower and now a clarity of vision of policy framers. Indian origin engineers and scientists make upto 20 percent of global talent pool of this complex and tech-challenging industry. In terms of policy, what seems to have changed now is that there is a focused engagement of SMEs into this domain.

India recently announced the ambitious PLI scheme for semiconductor and display board production in the country and also passed approval of Rs. 2,30,000 crore to make India the global hub for electronics manufacturing (with semiconductors being the foundational building block). The initiative will assist firms engaged in silicon semiconductor companies (also known as fab), display fabs, sensor fabs, silicon photonics, semiconductor packaging & design, etc. through incentives & other provisions. Under the scheme, the cabinet cleared Rs 76,000 crore for semiconductor production and will also allow setting up of more than 20 semiconductor design, components manufacturing and display fabrication (fab) units over the next six years. Such a subsidy is expected to drastically bring down the cost of production and encourage more players across the country to set up semiconductors producing and related facilities. With several countries including the US, Taiwan, South Korea and Japan trying to leverage the opportunity created by the fast-growing global demand for semiconductors, India is also aiming to grab a slice of the $500-billion business (2021-22).

Domestic semiconductor consumption has been consistently growing at a healthy rate and need of the hour is accelerated progress on setting up chip manufacturing companies. In addition to meeting the challenges of technical complexity, Investment requirement is huge for any semiconductor fab unit. Electronic sector is one of the domains where 100% FDI is allowed under automatic route. Chipmakers are likely to get support beyond normal PLIs if they are really committed to India.

So far India manufacture chips for defence and space research at fab present within IISc, SCL Mohali, and few others places. Large scale manufacturing for consumer electronics and other high tech industries though is altogether a different ball-game. Technical complexity of the domain, Huge Investment requirements, availability of purest form of silica (raw material), very stringent cleanliness requirements at manufacturing site as well as huge water and uninterrupted power supply needs of this industry pose real challenge for India to match the competition of Taiwan, South Korea and China.