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Revamping an economy

PK Vasudeva |

Amartya Sen has recently observed that despite the fact that India boasts the fastest-growing economy in the world, the country has taken a “quantum jump in the wrong direction” since 2014 ~ the year the BJP-led NDA government assumed power.

And because of this movement in reverse, India’s economy is now the second worst in the region that comprises Pakistan, Bangladesh, Sri Lanka, Nepal and Bhutan.

The main reasons for this backwardness, according to Sen, is the issue of inequality among the castes especially the SCs and STs, whose demands and needs have been neglected. This has been happening despite the quota system in education and jobs in accord with Constitutional provisions.

On the other hand, Nilesh Shah, Managing Director Kotak-AMC, contends that the Indian economy is maintaining a fast pace and the urban consumption is growing at a reasonable pace. He has substantiated his claim statistically in one of his presentations.

India retained its position as the world’s fastest growing major economy in the January-March quarter, well ahead of China. India’s GDP or gross domestic product accelerated to 7.7 per cent in the March quarter ~ the fastest pace of growth in seven quarters. Robust growth in agriculture (4.5 per cent), manufacturing (9.1 per cent) and construction sectors (11.5 per cent) contributed to the overall growth.

The growth rate for Asia’s third-largest economy, reported by the Ministry of Statistics, trumped forecasts in a Reuters poll for annual growth of 7.3 per cent. GDP had grown at a revised 7 per cent in the October-December quarter.

Updated World Bank figures for 2017 show that India is now the world’s sixth-biggest economy, having surpassed France, which was pushed to the seventh spot. India’s GDP stood at $2.597 trillion at the end of 2017, compared to $2.582 trillion for France.

The US continued to be the world’s biggest economy, followed by China, Japan and Germany. Britain remained the world’s fifth-biggest economy with a GDP of $2.622 trillion at the end of 2017.

Backed by government spending and investment, India’s economy grew at a seven-quarter high of 7.7 per cent in the January-March quarter of the financial year 2018. But this did not prevent GDP growth, at 6.7 per cent in 2017-18, from falling to its lowest rate in four years of the Narendra Modi government.

There is one segment where the opportunity is the largest among the three spaces ~ lending, protection and wealth management. The top 45 business houses in India represent 50 per cent of the nation’s banking debt even after nationalisation. The top 20 per cent of India is well banked and opportunities are now on the lower ticket size retail lending (80 per cent of the population).

With the upsurge of MFI, SME lending, consumer finance, affordable home loans, retail credit is a typically growing trend. These envisage small-ticket size loans with higher net interest margins (NIM). India’s credit needs will grow at the rate of 15-16 per cent, whereas smart private bankers/NBFC can grow faster at 20-30 per cent for the next 7-8 years.

This again is a multi-layer theme, from life to auto insurance to health to crop to even cellphone. Not only can the growth be forecast at the rate of 15-17 per cent in the general market, but also there will be a large shift in the market share from PSU insurers to private companies. It is believed that private insurers can grow at the rate of 20 per cent plus for a long time.

It is estimated that markets are underestimating the savings as a theme, the total profit pool of the top five asset management companies (57 per cent market share) in India is just Rs 1800 crore in FY2017. The profit pool is so meagre that one midsized popular hedge fund, Pershing Square, earned a profit that was higher than the entire Indian Asset Management Industry. Stallion Asset has predicted that the profit pool will grow substantially in the next 5-10 years and there will be a massive wealth creation.

Putting all these figures together, it has been proved that the economy’s momentum is picking up. In the last four months IIP was above 7 per cent. It is reflected in GST collections, which have crossed Rs 1 lakh crore for the first time resulting in a sound economy. The government is therefore likely to reduce the GST on certain products and services which have 28 per cent GST to provide relief to the consumers and industry.

It has taken 70 years for India to become a $2.5 trillion economy, though the country will take only 7-8 more years to reach the $5 trillion mark, i.e. the total amount of money that was generated in the last 70 years would be mopped up again in the next 7-8 years.

There is little doubt that those who can take advantage in the next 7-8 years are going to be really affluent. China took five years to double, the US 10 years to double from $2.4 to 5 trillion. It has been estimated that India will take 7 years to reach the target.

The idea is simple. There will be hundreds of entrepreneurs who will increase their profit from current levels; they will grow at the rate of 30-40 per cent and the government needs to back them. Modi’s mission of ‘make in India’ and ‘start up’ should be made attractive to encourage the young educated and vocationally trained entrepreneurs to grab these opportunities.

India will achieve double digit growth soon, says Bombay Stock Exchange (BSE) Chief Executive and Managing Director Ashish Kumar Chauhan. Despite the volatility in the global equity market and the problems of the banking sector, the macro-economic scenario is extremely positive in India, says Chauhan. According to him, the ongoing strength of the Indian economy and growth was evident in GDP figures, which was recently released.

Conclusively, more money will be created in the next 7-8 years than what was generated in the last 70 years. There are opportunities to make it larger than what it is now. There will be cyclical ups and downs but smart investors would easily make huge profits in the next 10 years.

The writer is retired senior professor of International Trade. He may be approached at [email protected]