Seventy five years after Independence, India is in a unique sweet spot.
In geopolitics, never before have we been so wooed by the high and mighty. The US is looking for supporters in Asia to counter China, and we are an obvious choice. Europe may only reluctantly toe the American line, but the Ukraine war has made NATO, under US leadership, all the more powerful.
In the global economy, there are many signs that China is no longer the force it once was. Multinationals are moving parts of their supply chain away from the dragon kingdom. In America, China-bashing enjoys bipartisan support. The US is hell-bent on denying China access to cutting-edge technology. China’s property sector, which contributes around a quarter of the country’s GDP, is in trouble. The country has scored quite a few self-goals with its draconian COVID strategy, and clampdown on some of its leading private companies. Its demographics are an impending disaster. India is well placed to capitalise on the political and economic shift away from China. Just as the US built up China as a counterweight to the Soviet Union, India may well play that role against China.
At home, the economic recovery is picking up pace. The twin balance sheet problem plaguing corporate and bank balance sheets is behind us and, after almost a decade, we could be poised for a recovery in investment demand. Bank credit growth is rising rapidly. India’s domestic demand-driven economy is relatively insulated from the global slowdown, and in fact stands to benefit from lower commodity and oil prices. Our services exports continue to see robust growth. There are solid reasons for the valuation premium enjoyed by our equity market. India’s business cycle is turning up.
Most importantly, unlike the advanced economies, we have avoided going overboard with fiscal and monetary loosening on account of the COVID pandemic and indeed even earlier and have wisely built up our foreign exchange reserves. As a consequence, while our debt/GDP ratio too has gone up, it hasn’t reached the stratospheric levels of several advanced economies. And we owe very little to foreigners.
But the opportunity is not just short-term, we now have a once-in-a-generation chance to move to a higher growth trajectory. First, there have been a slew of reforms initiated by the government. The introduction of the GST, the bankruptcy law, lowering corporate taxes, the removal of the fuel subsidy, RERA, initiatives to reform labour laws and allowing contract labour in all industries and the focus on building infrastructure are some of them. Privatisation and the monetisation of public assets are works in progress. The Production-Linked Incentive scheme has been rolled out to attract investors to manufacture in India, and it has already started showing results. What’s more, the government has involved the private sector even in its social programmes, such as affordable housing or its health insurance scheme. Our vibrant start-up sector showcases our potential to attract capital.
In domestic politics, we have much-needed stability and the ruling party has shown it is adept at managing the contradictions between capitalism and a messy democracy.
To be sure, there are a multitude of tensions arising from the tussle in sharing the benefits and costs of development. Beneath the sleek offices of Corporate India lies the informal sector, the seedy underbelly of Indian capitalism. Providing decent jobs for the underemployed masses is a huge challenge. Many reforms need urgent attention, like in the power sector and the administration of justice. There are still vulnerabilities in our fiscal situation and contagion from abroad is a big worry.
It is also true that India has seen many false dawns in the past.
Nevertheless, this time we have an extremely promising conjunction of circumstances, both internal and external, that could take the nation to new heights. It is an opportunity that is ours to lose.
All we have to do is seize the moment.
Happy Independence Day,
Here are some Moneycontrol Pro stories, insights and analyses we published this week:
The Eastern Window: A semiconductor crisis in the offing?; Why India is worried about being left out of the US-led mineral supply partnership; FT: The US and China are decoupling, but not as fast as you think
The PM is right—government spending is too high; RBI survey shows consumer sentiment improving, but still cautious; RBI survey data show upbeat business sentiment, elevated inflation; Make GST data central to policy making and evaluation; India needs a new strategy for natural gas; Monsoon Watch; Economic Recovery Tracker
Finance and banking
Nykaa, Titan, Hindalco, Eicher Motors, MapmyIndia, Blue Star, Bharti Airtel, Amber Enterprises, Zydus Lifesciences, Page Industries, IPCA Labs, Tata Consumer Products, Bharat Forge, Mahindra & Mahindra, Britannia, West Coast Paper, Dalmia Bharat, Indian Hotels, Adani Ports & SEZ
Corporates and industry
The odds are stacking up against farm input exporters; FMCG companies face problem as consumers flock to low-price packs; How Indian Hotels spiced up its earnings amid pandemic blues; Tata Chemicals reaps the benefits of tight soda ash market; Zomato needs more than rebranding; This ‘Panchamrit’ can heal India’s power distribution wounds; Will cotton prices cool off?
Law and regulation
Global EconomyFT: Fed’s Mary Daly says it’s too early to ‘declare victory’ on inflation fight; Despite the
Fed raising rates, US financial conditions are loosening again; FT—Global supply chain pressures are easing—for now; FT: Europe can withstand a winter recession; Dip in global food inflation is a gift for investors
Moneycontrol Pro regulars