Financial Markets @ September 2023

 

The Indian economy is all set to generate exceptional growth

India’s recent economic growth is nothing short of a perfect winning-against-all-odds script, and the world (most of it, at least) wants India to deliver a happy ending. Organization's like the IMF and World Bank have raved about India’s resilience amid global chaos.

So, the question is what happened? What helped India to defy the odds and become the bright spot in a dull global economy?

The government’s push for better infrastructure is fueling India’s economic growth.

More roads, more flights, more business –

Nearly doubling of our highway network from 79,116 km in FY 13 to 1, 44,955 in FY 23.

Domestic air passengers have risen rapidly from 11.6 cr in FY to 27 cr in FY 23

One Nation one Tax - GST truly was a game-changer. It brought a uniform tax structure, reduced compliance, made logistics more efficient and eliminated the cascading effects of tax (i.e., taxing at each successive stage in the supply chain). The annual GST Collection has gone up from 7.4 Lakh Crore to 18.10 Lakh Crore.

The digital revolution

The India stack has been one of the greatest financial revolutions in recent history through Identity, Payments and Data.

Simply put, using a three-layered framework, the India stack addressed the three requirements for access to financial services: identity (aadhaar – more than 95% of population having it and more than 80% had Bank accounts by 2018, payment (The second layer introduced Unified Payments Interface (UPI), a payment system (73.50% of total digital transaction done by UPI) and data (India Stack’s final grand act will be establishing ownership over your data. The government will implement it through an account aggregator (AA) network. The AA network will help individuals securely share their information from one financial institution to another and fast-track document verifications for loans and investments)

The path ahead

India Stack is one of the greatest feats of the Indian economy. It has successfully brought a vast informal economy into the formal fold. Also, the potential uses of the India stack are limitless. Apart from financial services, it will make waves in other areas, such as healthcare, e-commerce, etc.

The growth drivers

Here are the unique Indian growth drivers that have and will continue to drive India’s economic growth: Between FY13 and FY23, India’s real GDP has grown by 74 per cent. This growth was led by the growth in private consumption (81 per cent), i.e., the amount spent by households on goods and services. In the last 10 years, its contribution to real GDP has averaged 57 per cent.

We are a services-led economy its share has been increasing slowly over the years - Services, such as financial services, information technology, trading and tourism, on average, accounted for 62 per cent of the GDP in the last 10 years. Agriculture – 20% and Manufacturing – 18%.

 A sleeping giant

India’s manufacturing sector had an average GDP share of only 18 per cent in the last 10 years. But, India’s dormant manufacturing sector is about to wake from its slumber.

#Since the pandemic, the government has tried to spur manufacturing sectors. Its latest attempt includes the “Make in India” initiative and production-linked incentive schemes. # Global players want to reduce their dependence on China. India’s low labour costs, improving infrastructure, and digital transformation will help it become a global manufacturing hub. # India has the largest youth population in the world. A recent Deutsche Bank report posits that India will add close to 10 crore people to its labour force over the next 10 years. As a result, it will account for 22 per cent of the global workforce growth.

So, India’s sturdy growth engine has capable drivers. But a few more changes are brewing, which might make India richer and greener.

A new green revolution

 India’s efforts to reduce its dependence on imports for its energy needs will boost growth and create jobs.

India’s imports of crude oil and petroleum products have averaged about 20 per cent of its total imports in the last 10 years. So, India must look for greener and more sustainable fuel sources to sustain its current GDP growth. The good news is that change is already underway.

The government has announced that it plans to make India net carbon zero by 2070. And non-fossil fuels already account for more than 40 per cent of its installed capacity of electricity generation. In fact, it has overachieved its commitment made at the COP-21 Paris Summit. The Deutsche Bank report estimates that by 2030, India is expected to add over 340 gigawatts of renewable energy capacity. It will take renewable energy capacity to over 60 per cent of the total installed capacity.

The response from the private sector has been equally heartening. Reliance Industries plans to invest `75,000 crore by 2035 to establish the ecosystem for various renewable energy solutions like hydrogen, wind and solar. Adani Enterprises has announced investments for energy transition worth $50-70 billion over the next decade. Tata Power and JSW Energy plan to invest `75,000 crore each in the foreseeable future as well. Also, according to a recent report by the National Resources Defense Council, India’s renewable sector can potentially create 10 lakh jobs by 2030.

“India’s growth would not come at the cost of the environment...”

Happy Long Term Investing

(extracts from Value Research)