Union Budget: Upcoming M&A trends in India and how fiscal policy impacts mergers and acquisitions

The mergers and acquisitions (“M&A”) activity in India took a nosedive in 2023. As per the data collected by Bloomberg, while 2022 was record-breaking and the deal value had reached to $192 billion in India, it plunged by 63 per cent in 2023 to $70.9 billion. The plunge is largely attributable to several geo-political factors including a sluggish global economy, high interest rates by the US Federal Reserve and several international conflicts. While 2024 is likely to see a reversed trajectory and the Indian M&A market is expected to bounce back from the slump of 2023, the upcoming general elections and the 2024 budget have held back market players from making significant moves. The budget to be announced on 1 February, 2024 is merely a vote on account and is unlikely to contain any policy initiatives. While the full budget for FY 2024-25 is still months away, its provisions are being anticipated to assess the potential impact on various sectors and consequential increase in M&A activity, some of which are highlighted below: Infrastructure spending: Increased government spending on infrastructure projects such as airports, roads and railways could spur M&A activity in related sectors like construction, engineering, and materials. This could lead to consolidation among players to compete for larger contracts or joint ventures for specialized projects and further investments in this sector. Bank privatisation and disinvestment of PSUs: The budget is anticipated to announce the privatisation of public sector banks and disinvestment by the government in several public sector undertakings. This move is likely to lead to an increased M&A activity in this space. PLI scheme: The production-linked incentive (“PLI”) scheme was launched by the government in 2020 to boost domestic manufacturing and attract investments in crucial sectors. It provides financial incentives to companies for producing goods in India. It covers several sectors including electronics, telecommunication, pharmaceuticals, renewable energy, textiles and automobiles and auto components. The upcoming budget is expected to expand the PLI scheme to labour-intensive sectors, resulting in significant employment benefits. The government is also running incentive schemes for the domestic manufacturing of semiconductors in India. The budget may further expand these schemes with the intent to attract more investment in the semiconductor industry. This initiative could lead to M&A activity among existing electronics manufacturers, contract manufacturers, and raw material suppliers as they position themselves to participate in the burgeoning domestic supply chain. Tech infrastructure: The budget is expected to allocate significant funds for developing India’s tech infrastructure, including data centres, fiber optic networks, and cloud computing capabilities. This could lead to M&A activity among telecom companies, infrastructure providers, and technology service providers as they aim to capitalise on the growing demand for digital services. Renewable energy: India’s goal to achieve 500 GW non-fossil-based electricity generation capacity by 2030 and the government’ s commitment to enhance renewable energy solutions is likely to see allocation of significant funds to this sector. Investments in renewable energy infrastructure and incentives for electric vehicles and allied industry could lead to consolidation within the sector and acquisitions of smaller players by larger ones. Defence: An increase in capital allocations for modernisation of the defence sector is expected in the 2024 budget. The Ministry of Defence has set a target of achieving a turnover of Rs1.75 lakh crore in aerospace and defence manufacturing by 2025, which includes exports of Rs35,000 crore. Till April 2023, a total of 606 industrial licenses have been issued to 369 companies operating in the defence sector. It is expected that the government will streamline investment inflow and delicense and deregulate aspects of defence manufacturing in India, thereby leading to investments and M&A in the defence sector. Overall, the 2024 budget has the potential to significantly impact the M&A activity in India. The specific provisions of the budget, coupled with global economic conditions, will determine the direction and pace of M&A deals in the coming year. Danish Kazi – Partner - General Corporate, Neha Pilay - Senior Associate and Rajat Sinha – Associate at Shardul Amarchand Mangaldas & Co. Views expressed in the above piece are personal and solely that of the author. They do not necessarily reflect Firstpost’s views. Read all the Latest News , Trending News , Cricket News , Bollywood News , India News and Entertainment News here. Follow us on Facebook, Twitter and Instagram.