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.

This article was originally published in Firstpost on 31 January 2024 Co-written by: Danish Kazi, Partner; Neha Pilay, Senior Associate; Rajat Sinha, Associate. Click here for original article

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