Is it Really India’s Moment?

India is known for being mobile and dynamic. The average Indian as well as India’s economy is fast-moving, spending much of it’s time commuting. Therefore, a lot of the information flow happens through stories and conversations shared while on the move. Being a proud average Indian, I too use my commute time for information intake. I am also ever curious about the happenings within and outside the country and tend to use the benefits of fast internet connectivity for the same. While I was trying to understand why the world is constantly talking about the Indian economy, especially during the recession, I came across a talk by Mr. Saurabh Mukherjee on the ‘Unusual Rise of Modern India and its economy’. The simple story that Mr. Mukherjee talked about, helped me understand a lot about the Indian economy today and I would like to share the major points from this talk with readers who may be interested in the same. 

Mr. Mukherjee starts with the most important fact. That sustained growth is most important for investors’ trust and over the last 20-30 years, India has been one of the best-performing markets in the world. Mr. Mukherjee says that 1880-1930 was the heyday of the American economy. The country came of age and saw the emergence of giant brands which would take over the world market as well. India is going through a similar phase of growth with brands growing within a national logistics and distribution network, and an organized financial system to provide them with capital and investment in large-scale R&D.   

The two editions of The Economist in 2022, hailing the arrival of ‘India’s moment’ are a testament to this. According to that magazine, India is forecast to be the world’s fastest-growing economy for the next few years. Although the world is reeling under a recession, India is growing at 6-6.3%, higher than any other country. 

So what is the reason for India’s sustained growth and transformation? Mr. Mukherjee explains this by highlighting four sets of changes that have taken place in the Indian economy. These four sets of changes are: 

1. the huge growth of physical infrastructure, 
2. reform in taxation especially through the implementation of Goods and Service Tax (GST), 
3. reform in the banking structure leading to improved health of the sector and
4. development of India Stack leading to a digitalized India. 

Infrastructure is the backbone for growth in any country. The extent and quality of infrastructure will be key criteria for India to utilize its advantage as an emerging market and increase its competitiveness. In the last 10 years, India has built more roads, and airports, developed port infrastructure, and deployed more fiber optic cables than in the preceding 60 years put together. Thus physical infrastructure has seen huge growth which has boosted the optimism of foreign Investors. In the latest budget, the government has given a massive push to the infrastructure sector by allocating Rs. 10 lakh crore (US$ 130.57 billion) which raises high hopes for the future of the Indian economy. The above achievements have also raised India’s ease of doing business ranking which has jumped from 142 in 2014 to 63 in 2022 – leading to overall investor confidence. With the recently launched PM Gati Shakti yojana, for integrated planning and coordinated implementation of multimodal infrastructure connectivity projects, logistics in India is set to see a further boost. 

One of the major transformations in the Indian economy has been due to a simplified tax regime. With the introduction of the Goods and Service Tax (GST) regime in 2014, the time taken for transactions and ease of doing business has been much simplified. Prior to GST, up to 14% of the value of goods was spent on logistics, mainly transportation. Earlier, trucks in India traveled only 200-220 km per day. Now that the E-waybill system has been introduced, trucks spend less time at interstate check posts and travel a minimum of 300km per day. (As per Ministry of Finance) thus reducing the overall cost of products. The streamlined logistics sector has also led to Foreign Direct Investments (FDI) in the sector – especially warehousing.  The simplified tax regime has led to increased tax inflows with tax revenues growing twice as fast as GDP growth. This is an incredible feat that has massive ramifications. The biggest examples are the rise of Unicorns such as Delhivery – a logistics tech behemoth. 

What has further built up India’s economic strength is the Digitization of the economy. With a population of 1.4 billion, ensuring banking for all would have been a challenge. However, with the introduction of the Jan Dhan- Aadhaar-Mobile (JAM) trinity by the Central government has ensured that banking is at the fingertips of a large percentage of Indian citizens, especially the marginalized. Jan Dhan was especially vital during the COVID pandemic to provide a safety net to vulnerable sections through cash transfers to women in the household directly to their bank accounts. It has been in line with the government’s motto of ‘Sabka Saath Sabka Vikas’. The Indian digital economy has grown 2.4 times more than the overall economic growth rate in the past 5 years. This has enabled faster transactions enabling a ‘whitification’ of the Indian economy. The Prime Minister’s promise of removing black money from the Indian economy is coming to fruition slowly, with more digital transactions leading to a larger share of the national income coming under formalized banking structures and scrutiny. Further, the digital economy opens up a huge array of employment opportunities for the vibrant youth of the country.

Despite these improvements, a robust banking structure is essential for the health of an economy. India’s banking sector, despite being historically reliable, had entered into a rut of huge Non-Performing Assets (NPA). The Indian government has brought in a slew of reforms especially the Insolvency and Bankruptcy Act thereby encouraging banks to publish their actual NPAs and stressed assets. The recent Economic Survey has reported that since 2015, the Capital Adequacy Ratio has continuously improved from around 13% to 16.84% in 2021. The banking system is like the heart of the Indian economy. A healthy banking system can lead to improved corporate confidence and improved economic flow. The recent run in the stock price of PSU banks in India shows the changing confidence of investors in the Indian Banking Sector.

These four changes are interlinked and have been interplaying with each other. Mr. Mukherjee in his talks brings this together beautifully. Starting with the tax reforms; the more the government ensures compliance with the tax regime, the more business and savings will grow. This combined with the improved infrastructure ensures that the cost of capital goes down. This leads to the possibility of big Indian brands like Titan, ITC Ltd, Maruti Suzuki Ltd, Dr. Lal Path Labs, etc growing tremendously. The bright prospects of these companies make the Indian market inviting for all sorts of Foreign investors. This leads to the possibility of this being India’s Century and not the American one, because of sustained economic growth opening huge opportunities for the young Indian demography.