There have been many reasons to invest in India in the last two decades, but I personally never felt as compelled to participate in the India story before. In many ways India today is where the US was in the 1950s. There is something fantastic happening in India today that is not being reflected in the slowing GDP growth numbers (even pre-Covid). This is certainly not reflected in the articles in The Economist or The Financial Times, whose reporters, I am convinced, play the archaic snake-charmer’s tune in the background when they write about India!
God could not be everywhere, and therefore he made mothers – Rudyard Kipling
The one common thing in the background of successful Indian business leaders like Sundar Pichai, Indra Nooyi, Sanjay Mehrotra and Narayana Murthy is that they hailed from humble beginnings. Their parents had modest means but strong values which they imparted to their children. This is probably true for most Indians that you would have come across in your esteemed organisation. While this is heart-warming it is not surprising – there’s enough research that suggests that a loving, happy, and healthy family environment goes much further in the all-round development and positive outcomes of a child than anything else.
But even this simple living was a privilege in India. I only needed to step out of my house in India to realise this. My extended family in the village, the household-helps, and the people I saw in the shops, the roadside and by the countryside led much harsher lives – most had no access to a toilet, water supply, electricity or cooking gas. Bank accounts didn’t exist for this lot. The diligent mother’s savings hidden in the folds of her saree at the bottom of an aluminium trunk box didn’t stand a chance against inflation even if it was protected against thieves or a drunken husband.
So, I hope you will excuse my exuberance and optimism when I learn that in the last five years the ‘privileges’ enjoyed so far by only a few have been extended to more than a hundred million households – let that number sink in for a second. India has 1.3 billion people and approximately 260 million households, 190 million of which are in rural India. I personally struggle with the financials of Japanese companies as they are in trillions of yens, a few zeroes too many for me! Similarly, it’s a challenge to fathom the numbers coming out of India. The best way is to comprehend these in human terms rather than as cold statistics. Mothers in 26 million families will no longer have to go to the village well or handpump to carry bucketloads of water every day – think about how easy it would have been for these families to wash their hands this year! Children across 2.5 million families will now be able to study after sunset as their houses got connected to the grid. 40 million mothers and wives are no longer inhaling the fumes of the wooden stoves as they got subscription to the cooking gas cylinder. Some 90 million households no longer need to suffer the unspeakable indignity of defecating in the open, not to mention the discomfort and infections suffered by the women as they waited until dark to relieve themselves to guard their modesty. What does this mean for their health and associated medical bills going forward? 400 million people, more than half being women, have started safeguarding their modest savings in their newly opened bank accounts and they are getting paid an interest for their troubles as well!
Put simply, the government actions of the past five years have improved the chances of some 200 million children! I see myself in these children and I have never felt more optimistic about their future. It’s hard to quantify what this means for the GDP of the country in the years to come but empowered mothers can change the destiny of a nation!
Corruption is paid for by the poor — Pope Francis
As the bottom of the pyramid is getting used to their new amenities and the possibilities that these accord them, the top of the pyramid has been going through tough times as reflected in the slowing GDP growth numbers.
In the last five years, the Indian banking system has been forced to acknowledge their longstanding balance sheet troubles and the corporate world is being punished for its toxic culture of crony capitalism, wilful defaults, poor governance, and I-am-above-the-law mindset. Prime Minister Modi’s tough stance on corruption has left the corrupt scrambling for cover, in London if I might cheekily add! The self-serving politicians, the crooked bureaucrats and the tax-evaders who used to display their wealth brazenly and unabashedly are getting unwelcome visits by the Income Tax department officials. To add to the disruption were the demonetization in 2016 aimed against black money and the implementation of a nationwide taxation system called the Goods & Services Tax which replaced India’s byzantine, rent-seeking tax system. The new taxation hurts those businesses, particularly in the medium, small, and micro enterprises, whose business models were based on avoiding taxes. The Government’s push towards curbing cash transactions and pushing digital transactions to bring transparency and traceability has threatened the cosy nexus between the businessmen, their accountants, and the taxmen on their payrolls! But the prize for putting the brakes on the GDP goes to the reforms in the real estate sector. In the past the builders, squandered away the customer booking deposits as per their whim without any obligation to deliver residential units, their friends in non-banking financial companies were always ready with another round of funding. This is also a sector where many a politician had parked their ill-gotten wealth. When the music stopped this sector found itself with years’ worth of inventory, no availability of credit and declining prices.
The structural reforms and the associated turmoil have resulted in the GDP slowing from some 8-9% growth to 5% in the last five years (pre-COVID).
I believe Indian business are adapting to the new reality in one of the following two ways:
1) Those led by the promoters aged 50 years or above with no succession planned have no incentive to mend their ways. They will struggle to grow henceforth but will be weeded out only with time
2) Those led by promoters who want to hand over their business to their next generation are looking for ways to become compliant. The reason for this is that the younger generation of business owners wants to afford a more lavish lifestyle than their parents and would like to sport expensive cars, go on foreign holidays, shop online and post pictures of the same on social media. This makes it very difficult to ‘cook the books’!
If corruption is a disease, transparency is its treatment — Kofi Annan
India is a democracy and democracies are chaotic. I often worry if the reforms happening in India can be unravelled overnight by an unscrupulous bunch of politicians who gain control of the Parliament. I have concluded that it is going to be hard to do so for two reasons:
- The policy actions seen in the last five years have been underpinned by the smartphone revolution. It is helpful that in India you can get 1GB of mobile data for as low as 2c a month! The digitisation of government auctions, processes, applications, monitoring mechanisms, and benefits disbursements is a structural change that cannot be undone with a decree
- It’s frankly quite sad and rather shocking, in hindsight, that half the population accepted the lack of basic amenities for seventy years post India’s independence from the British in 1947. But I don’t think people will take it lying down if any politician wants to throw their village back into the dark ages. After all India is a democracy!
The best foreign policy is to grow at 10% – V. kelkar, an indian economist
Economists and financial commentators spend much energy trying to forecast the growth rate of “The Elephant”, as India is popularly called, and contrast it to its northern neighbour, “The Dragon”, as China is popularly called. I will leave such forecasting to them. Prime Minister Modi’s GDP target of $5 trillion GDP by 2024 was punchy even in 2019 without the unwarranted help from the pandemic.
It can take many years for the old economy firms to fade away thus dragging the growth rate down. In contrast to this, India has the third biggest start-up ecosystem in the world, behind US and China with some 35 unicorns as of 2020 (vs USA’s 136 and China’s 120). These will have a positive impact on growth. India is leapfrogging the world in healthcare, insurance, mobile banking, education, supply chain logistics and many other fields because the new digital way is the most economical and the most scalable way to make these services available to the diverse population.
I don’t think anyone can predict with any accuracy what happens when more than a billion young people are given the foundation of basic amenities, rule of law and a level-playing field. Comparison with China is futile even if it were a democracy and globalisation was still in vogue – as you can’t extrapolate from a single data point.
However, I will submit that the best for India is yet to come.
Sachee Trivedi
December 2020