September 3, 2018 Yes Institute

Defining Economic Narrative for Sustained Growth

Author : Rana Kapoor, MD & CEO, YES Bank and Chairman, YES Global Institute

This article appeared in DNA, July 28, 2018

Building a powerful economic narrative is critical to develop and sustain growth momentum in the democratic emerging world. The ‘India Story’ has taken several turns over the last decade. From a scenario of a ‘decoupled’ high growth economy fuelled by consumption in 2007, it was counted among the ‘fragile five’ in 2013 due to precarious macros. We are again entering a period where there are divergent narratives emerging on the horizon: the first sees India as a USD 5 trillion economy in waiting with GDP growth likely to exceed 8% per annum coupled with the virtues of low inflation, benign interest rates and continuously improving investment climate.  On the other hand, is a narrative replete with massive disruptions in the industry due to broad and countrywide reforms in the shape of demonetisation and GST coupled with growth, which has not seen a significant rise in jobs created, deteriorating macros due to rising crude oil prices, CAD and an extremely volatile currency. It becomes imperative to take stock of the fundamentals, understand the ethos of India to take a balanced view towards the prevailing economic scenario and make informed business decisions.  If we can get past the short term implications and look at the bigger picture, we shall arrive at the real India story which is nothing if not an opportunity for growth. Some key markers include:

  • Bankruptcy Code: A functional and result oriented insolvency and bankruptcy code is probably the biggest gain for the long term health of India Inc.
  • Formalization of the Economy:The most permanent gains have been made in the formalisation of the economy. Both GST and demonetisation have hit the cash economy hard, and forced the hand of the SMEs and micro enterprises to join the formal sector. The chain of crony capitalism and the black economy has hopefully been damaged beyond repair. We can also reasonably expect to touch 20% peak corporate tax rate and substantially lower tax incidence for the salaried class over the long term.
  • Private Sector Capex: The last four years have seen efforts on a war footing to revive the investment cycle. It is evident that the ‘Make in India’ initiative, huge concessions on affordable housing and compensatory investments by the Government in roads and railways among several other steps, could finally make 2018 as the first year of increase in private capex after 2011.
  • Efficiency Gains through Open Data, JAM and Technology: The JAM trinity has created a wealth of usable data which has the potential to transform governance over the medium to long run. A push through financial inclusion (310 million new accounts), direct benefit transfers (1183 million beneficiaries) and elimination of ghost entries across Government schemes are some of the early benefits, with many more to follow as India fully embraces open data.
  • Social Sectors:After a slow start in social sectors, the election year has seen the announcement of a potentially game changing healthcare scheme – Ayushman Bharat – promising half a million worth coverage to ~400 million people. A well implemented scheme shall lead to a paradigm shift in terms of health seeking behaviour, out-of-pocket expenditure, healthcare infrastructure and quality of care. Higher Education is also at an inflection point.
  • Ecosystem around Innovation and Entrepreneurship: Another irreversible change has been made in the ecosystem around promoting entrepreneurship and innovation. The personal energy and focus of the Hon’ble PM almost in a mission mode through the NITI Aayog in this direction (‘Start-up India’, ‘Digital India’, Stand-up India’) has meant that the ecosystem would continuously improve over time with elements of tax concessions, incubation and celebrating the entrepreneurship spirit become the new norms.

While, rising oil prices, and an uncertain geopolitical situation are potential risks, more so in an election year but they are unlikely to undo the structural gains encapsulated above. Coupled with new, visionary policies, bold and courageous reforms, the new India is both resilient and self-confident, for the onward journey towards a USD 5000 per capita economy over the next decade. As an industry champion, the sector can only ask for a stable long-term industry friendly policy and regulatory environment, which promotes investment and facilitates innovation. It is therefore heartening to see that there is not just a firm unwavering commitment to reforms but the Government has followed a consultative process, which takes on board all views, is pluralistic in its approach and recognises that when it comes to India, there is no ‘one size fits all’ solution.  India, has emerged as one of the best stories in the world today with a billion plus consumers, professional entrepreneurs, well informed policy makers and rising per capita incomes. Therefore, plan to build and invest in a long term business, India will challenge, inspire and reward you, many times over as there has never been a better time than nowIndia has arrived. Carpe Diem!


To read the original article as appeared in print – click here

To read the original article as appeared online – click here