MUMBAI -- Expectations for the new government's economic reform have reignited business investment in India, as big corporations start gearing up for business expansion.
The first change of the government in 10 years, thanks to the election victory of Prime Minister Narendra Modi in May, has sparked optimism in the South Asian country. The new government's first budget, to be unveiled in July, may help to revitalize the country's stagnant business investment further.
Reliance Industries announced a plan to invest 1.8 trillion rupees ($32.6 billion) over the next three years.
Chairman and Managing Director Mukesh Ambani unveiled the plan at a general shareholders meeting earlier this month. The scale of planned investment is unprecedented for RIL, as its cumulative investment since its stock listing 37 years ago stands at 2.4 trillion rupees.
Reliance Industries is the core business of major local conglomerate Reliance Group. With its sales in the year ended March reaching roughly 4.3 trillion rupees, Reliance Industries is one of the biggest Indian private-sector enterprises.
The announcement at the general shareholders meeting translates to a 300 billion rupee upgrade from a plan unveiled last year that put the company's business investment in the coming three years at 1.5 trillion rupees.
Reliance Industries plans to spend the money in the fields of petrochemicals and retail, as well as on rolling out 4G (fourth-generation) mobile phone services by 2015.
The company operates a large-scale oil refinery plant in the western state of Gujarat, where Modi served as the chief minister before running for national office. His industry promotion policy benefited many local businesses, including Reliance Industries. It is apparent the company decided to boost its investment out of expectations for good things to come from the new government led by Modi.
Foreign firms on board
Among foreign businesses, Volkswagen Group announced a plan to invest 100 million euros ($136 million) in India. The revelation came in mid-May, when it was becoming clear that Modi's Bharatiya Janata Party would win the upcoming national election. The German automaker aims to spend part of the money for launching a new model.
"Following the birth of the new government, consumer sentiment in India will improve over the medium- to long-term," an executive at General Motors' Indian unit said.
The U.S. auto giant plans to ramp up production in India for meeting demand in the domestic market, as well as for beginning full-scale export during the current fiscal year.
For now, Volkswagen and GM are not seeing robust domestic sales, but India's passenger car sales in May recorded the first year-on-year increase in nine months. Both companies have no intention of slowing down their investment and business expansion there.
Japanese companies are also jumping on the bandwagon.
Tadashi Yanai, chairman and president of Japan's Fast Retailing, met with Modi in Delhi on June 25. The company, which runs the Uniqlo fast fashion chain in multiple countries, has been considering expanding into the Indian market for some time. The meeting suggests it is finally the time for the company to make the move.
The stars seem to be aligned for Fast Retailing's market entry. The Indian stock market is already pricing in a domestic demand recovery, with the Sensex index rising a little more than 10% since early May.