India beat all forecasts to become the world’s fifth largest economy way ahead of the 2020 prediction. The growth of the economy is led by Government initiatives like ‘Make in India’ and surging foreign direct investment.

Fifth Largest Economy – India was finally able to overpower its colonial rulers and move ahead atleast in the terms of the size of the economy. India now has the fifth largest GDP in the world after United States of America (USA), China, Japan and Germany. This dramatic shift has been driven by India’s rapid economic growth over the past 25 years as well as Britain’s recent woes, particularly with the Brexit. Once expected to overtake the UK GDP in 2020, the surpasso has been accelerated by the nearly 20% decline in the value of the pound over the last 12 months. This gap is expected to widen as India grows at 6 to 8% p.a. compared to UK’s growth of 1 to 2% p.a. until 2020, and likely beyond. Even if the currencies fluctuate that modify these figures to rough equality, the verdict is clear that India’s economy has surpassed that of the UK based on future growth prospects.

Interestingly, economic think-tank Centre for Economics and Business Research (CEBR) had, in December 2011, forecasted that India would become the “fifth largest by 2020” but India has crossed this significant milestone much sooner. On October 8, this year, International Monetary Fund (IMF) too had predicted India to surpass Europeans by the end of the fiscal. “India is the seventh largest economy worth $2.29 trillion – just $50 billion less than the current UK’s GDP, which will be bridged by end of this fiscal,” IMF had said. “India is the seventh largest economy worth $2.29 trillion – just $50 billion less than the current UK’s GDP, which will be bridged by end of this fiscal,” IMF had said.

FDI Crosses $300 billion milestoneIndia crossed the $300 billion foreign direct investment (FDI) milestone between April 2000 and September 2016, firmly establishing its credentials as a safe investment destination in the world. Thirty three per cent of the FDI came through the Mauritius route, apparently because the investors wanted to take advantage of India’s double taxation avoidance treaty with the island nation. India received $ 101.76 billion from Mauritius between April 2000 and September 2016. The other big investors have been from Singapore, the USA, United Kingdom and the Netherlands. India’s services sector topped the table, receiving 18 per cent of the cumulative equity FDI inflows followed by construction development, computer software & hardware, telecommunication and automobile. According to the World Investment Report 2016, global FDI flows rose by 38 per cent to $ 1.76 trillion, the highest level since the global economic and financial crisis began in 2008. However, they still remain some 10 per cent short of the 2007 peak.

Apple Boosts Make in India Apple has plans to locally manufacture iPhones for the Indian market. The facility, being set up by Wistron, a Taiwanese OEM maker for Apple, will start production from next April. Local manufacture will help in competitive pricing of the product which currently attracts 12.5% additional duty by way of full import. The importance of India is clear from the revenue data which show that Apple sold 2.5 million iPhones in India from October 2015 to September 2016, a rise of more than 50% over the year-ago period. This is certainly a huge boost to the ‘Make in India’ initiative of the present Government of India.

Large Indian FDI transactionIn the largest inflow of foreign direct investment, Russia’s state-controlled oil giant Rosneft and its partners recently took over India’s second biggest private oil firm Essar Oil in an all-cash deal valued at about USD 13 billion. Rosneft bought a 49 per cent stake in Essar Oil’s refinery, port and petrol pumps, while Netherlands-based Trafigura Group Pte, one of the world’s biggest commodity trading companies, and Russian investment fund United Capital Partners split another 49 per cent equity equally. The remaining 2 per cent will be held by minority shareholders after delisting of Essar Oil.

Posted by Sourish Mohan Mitra

Sourish Mohan Mitra is an India-qualified lawyer from Symbiosis Law School, Pune and currently working as an in-house counsel with a global research firm in Delhi, India; views expressed are personal; he can be reached at sourish24x7@gmail.com; Twitter: @sourish247

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