Financial Services

India's financial sector is undergoing rapid expansion, characterized by strong growth in existing financial services firms and the entry of new entities into the market. The sector comprises various components, including:

Predominance of Banking

The financial sector in India is predominantly banking-oriented, with commercial banks accounting for more than 64% of the total assets held by the financial system. Recently, the banking regulator has allowed the creation of new entities such as payment banks, adding to the diversity of entities operating within the sector.

Government Reforms and Initiatives

The Government of India has introduced several reforms to liberalize, regulate, and enhance the financial industry. Key initiatives and measures include:

Vibrant Capital Markets

With a combined push from the Government and the private sector, India is undoubtedly one of the world's most vibrant capital markets. The ongoing reforms and supportive measures have significantly contributed to the liberalization and regulation of the financial sector, enhancing its overall growth and efficiency.

FMCG

The Fast-Moving Consumer Goods (FMCG) sector in India has experienced significant expansion driven by consumer demand and higher product prices, particularly for essential goods. This sector provides employment to around 3 million people, accounting for approximately 5% of the total factory employment in India. In the fiscal year 2022-23, FMCG sales in the country grew by 7-9% in revenue.

Key Growth Drivers

Banking

According to the Reserve Bank of India (RBI), India's banking sector is well-capitalized and well regulated. The financial and economic conditions in India are notably superior to those in many other countries. Studies on credit, market, and liquidity risks indicate that Indian banks are generally resilient and have managed to withstand global economic downturns effectively.

Innovations and Expansions

The Indian banking industry has recently seen the introduction of innovative banking models, such as payments banks and small finance banks. India has also made significant strides in expanding banking sector reach through initiatives like the Pradhan Mantri Jan Dhan Yojana and the establishment of post-payment banks. These schemes, combined with major banking sector reforms —including digital payments, neo-banking, the rise of Indian NBFCs, and fintech—have significantly enhanced financial inclusion and fueled the credit cycle in the country.

Growth of the Fintech Industry

Advancements in Digital Payments

India's digital payments system has evolved more than those of 25 other countries. The Immediate Payment Service (IMPS) in India is the only system at level five in the Faster Payments Innovation Index (FPII). Additionally, India's Unified Payments Interface (UPI) has revolutionized real-time payments and has been striving to increase its global reach in recent years.

Retail

The Indian retail industry has emerged as one of the most dynamic and fast-paced sectors due to the entry of several new players. It contributes over 10% to the country’s gross domestic product (GDP) and around 8% to employment. India is the world's fifth-largest global destination in the retail space and ranked 63rd in the World Bank’s Doing Business 2023 report.

Market Potential and Consumer Dynamics

The sizeable middle class and nearly unexplored retail market in India are key enticing factors for international retail giants seeking to enter new markets. This influx will further accelerate the growth of the Indian retail business. The urban Indian consumer's purchasing power is increasing, with branded goods in categories like apparel, cosmetics, footwear, watches, beverages, food, and jewellery becoming popular. The retail sector in India is expected to reach a value of US$ 2 trillion by 2032, according to a recent analysis by the Boston Consulting Group (BCG).

Investment and Market Attractiveness

India ranks among the top countries for investment in the retail space. Key factors contributing to its attractiveness include:

E-commerce Growth

As of December 2022, there were 7.8 billion daily e-commerce transactions. The number of online shoppers in India is expected to reach approximately 500 million by 2030, up from 150 million in 2020. The e-commerce market is projected to touch US$ 350 billion in Gross Merchandise Value (GMV) by 2030.

Retail Space Development

India is experiencing exponential growth in retail development, not only in major cities and metros but also in smaller cities. Nearly 60 shopping malls, encompassing a total retail space of 23.25 million sq. ft, are expected to become operational during 2023-25.

Government Initiatives

To improve the business climate and simplify the process for foreign companies to register fully owned subsidiaries in India, the Indian government has implemented numerous rules, regulations, and policies. These initiatives are aimed at fostering a conducive environment for the retail sector to thrive.

Factors Driving Growth

Healthy economic growth, a changing demographic profile, increasing disposable income, urbanization, and evolving consumer tastes and preferences have been some of the key drivers of growth in the organized retail market in India.

Real Estate

The real estate sector is one of the most globally recognized sectors, comprising four main sub sectors:

The growth of this sector is strongly complemented by the expansion of the corporate environment and the rising demand for office space as well as urban and semi-urban accommodations.

Economic Impact

The construction industry, a significant part of the real estate sector, ranks third among the 14 major sectors in terms of direct, indirect, and induced effects across all sectors of the economy. This highlights its extensive impact on economic growth and development.

Employment Generation

In India, the real estate sector is the second-highest employment generator, following the agriculture sector. It plays a crucial role in providing livelihoods and supporting economic stability.

NRI Investment

The sector is also a magnet for non-resident Indian (NRI) investment, attracting significant capital both in the short term and the long term. Among the various cities in India, Bengaluru is expected to be the most favoured property investment destination for NRIs, followed by:

The influx of NRI investments underscores the sector's attractiveness and growth potential.

IT Product and Services

The IT products and services sector in India is a pivotal component of the nation's economy, contributing significantly to GDP growth, employment, and innovation. The sector encompasses a broad range of activities and offerings, including software development, hardware solutions, IT enabled services, and cutting-edge technologies such as artificial intelligence, machine learning, and blockchain.

Key Segments

Economic Impact

The IT sector is a major contributor to India's GDP and export earnings. It also plays a crucial role in employment generation, providing millions of jobs directly and indirectly. The sector's growth has catalyzed other industries, fostering innovation and driving productivity improvements across the economy.

Artificial Intelligence and Machine Learning

Artificial Intelligence (AI) and Machine Learning (ML) are rapidly transforming industries worldwide, and India has emerged as a key player in this dynamic field. The country's expertise in AI and ML spans research, development, application, and adoption across various sectors.

Growth and Development

Government Support and Initiatives

Talent Pool and Skill Development

Future Outlook

The future of AI and ML in India looks promising, driven by continuous innovation, strong industry collaboration, and supportive government policies. As technology adoption accelerates, India is poised to emerge as a global leader in AI and ML research, development, and application.

Challenges and Opportunities

While India has made significant strides in AI and ML, challenges such as infrastructure gaps, data privacy concerns, and talent retention need to be addressed. However, these challenges also present opportunities for innovation and growth, positioning India at the forefront of the global AI revolution.