Betting on India

JUST AHEAD OF THE ANNIVERSARY MARKING ONE YEAR IN office of the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA), the government had initiated meet-and-greet sessions between select journalists and Prime Minister Narendra Modi. Addressing one of these informal gatherings in May 2015, the prime minister reportedly requested the journalists present to be fair when contrasting the perfor­mance of his government with the preceding regime, the Congress-led United Progressive Alliance (UPA). In other words, compare likes with likes: NDA 1 vs UPA 1; NDA 2 vs UPA 2, and so on.

Not many in the room realised the subtext of the prime minister’s remarks: that his government was confident of returning to power. As NDA readies to bid for a record third consecutive term, Modi’s wish for a fair comparison has been granted.

On the eve of NDA’s ninth anniversary in office, Morgan Stanley, the global investment bank, published a report card on its two terms: it is an unambiguous endorsement of NDA’s tenure.

The global investment bank is not the only one.

Amundi Institute, the research arm of Amundi, the European asset manager, released an equally bullish report last week on India’s prospects. There is a growing chorus of voices, including multilateral institutions like the International Monetary Fund (IMF) and the World Bank, backing India’s potential to rise to the top tier of the global high table.

The subtext of this endorsement is that they are all betting on an India where status quo is no longer acceptable. Already, there are fewer people outside the economy look­ing in—415 million people have been lifted out of poverty in the 16 years ended 2021; 12 years ago, 430 million did not own a bank account; today, they do, and incredibly, they are using new credit frameworks to queue for loans.

This on-the-record validation of NDA’s tenure is the kind of perfect report card any incumbent regime would wish for ahead of a bruising electoral encounter in the General Election due next year—especially when it will be up against an inevitable two-term anti-incumbency, driven by the growing aspirations of the electorate.

RAINING GOOD NEWS

THE NOTE FROM MORGAN STANLEY, TITLED, ‘HOW India Has Transformed in Less Than a Decade’, is a ringing endorsement of NDA.

“This India is different from what it was in 2013,” it said, before adding, “In a short span of 10 years, India has gained posi­tions in the world order with significant positive consequences for the macro and market outlook.”

Taking critics on, the note from Morgan Stanley said, “We run into significant scepticism about India, particularly with overseas investors, who say that India has not delivered its po­tential (despite its being the second-fastest-growing economy and among the top-performing stock markets over the past 25 years) and that equity valuations are too rich. However, such a view ignores the significant changes that have taken place in India, especially since 2014.”

Morgan Stanley is not the only one. Amundi Institute, in its report titled ‘Building bridges to India’s future investment oppor­tunities’, argues: “India’s macro fundamentals are well positioned for a multi-year improvement in economic output and earnings.”

The foreign portfolio investors (FPI) are already walking this talk. Despite the inclement global conditions, which also cast their shadow on India, FPIs are pumping money into the stock markets to get a slice of the emerging India story. Inflows from FPIs topped ₹40,000 crore in May—the highest in nine months. In two trading sessions in June, they have bought up nearly ₹6,500 crore in Indian stocks.

The pivot in the mood about India has been evolving for some time. The big difference is that this shift is now getting broad-based.

A recent conversation on Clubhouse, the social audio plat­form, featured an interview with a young Norwegian politician, Nikolai Astrup. He was being quizzed on his experiences as part of a Norwegian delegation to India. Not only did Astrup make an unabashed pitch on India, he argued that the country was central to the world resolving global challenges like climate change.

“This was our first trip outside Europe after the [Covid-19] pan­demic. And we chose India. And the reason, I think is quite clear: India is a very important country, and its importance is going to grow in the years to come.

“It [India] is important when it comes to the energy transition, for sure; but also when it comes to sustainability. So if India fails, on the sustainable development goals, the world will fail, basically.”

Clearly, India has crossed a tipping point in its contemporary economic history. Ithas found a place for itself at the global high table.

THE PIVOT

THIS RECALIBRATION IN THE GLOBAL PERCEPTION about India is no accident. It is the outcome of two key strategic rethinks that India has undertaken over the first two decades of this millennium.

One, under the leadership of Prime Minister Atal Bihari Vajpayee—going against the conventional stance, he hit the reset in India’s equations with the US. Manmohan Singh, who suc­ceeded Vajpayee as prime minister, harvested the gains of the strong foundation. In the two tenures of Modi, this relationship rapidly gained miles, especially as it is overlapping with a geo­political reset—following the China-Western bloc falling out.

The second big shift, effected under Modi, is the structural reordering of the Indian economy together with the recasting of India’s stand on multilateral issues. The latter is hugely signifi­cant as India no longer sees itself as part of the problem. Instead, it sees itself as part of the solution.

Consequently, whether it is climate change—committing India to net zero carbon emissions in 2070—or promoting trade—striking Free Trade Agreements (FTA) with the United Arab Emirates (UAE) and Australia, and working on similar deals with the UK and the US—India is increasingly contributing to global decision-making. Its leadership of the G20 grouping of countries—the most powerful global high table—only lends it greater opportunity to grow this perception.

At the same time, the Indian economy today, which has grown to $3.5 trillion—and is projected to take over as the world’s third-largest economy—unlike, say, even as recently as the 1990s, has much to offer in return for its ask from the rest of the world. Any negotiation is built on give-and-take. Its newly acquired economic heft provides India room to explore alternatives other than the predictable zero-sum game.

END OF STATUS QUO

FOR MOST OF THE FIRST SEVEN DECADES OF ITS independence, India has struggled to overcome the challenge of poverty. At the turn of this millennium, over one in two Indians was classified as living below the poverty line (BPL).

India revisited this strategy, first by reordering the definition of poverty and its causes under the high-powered Union gov­ernment panel led by economist Suresh Tendulkar. This in turn generated the solution: a multi-dimensional response which argued that poverty occurred because of deprivations in health, education, and standard of living.

While the vertical of health is further broken up into nutri­tion and child mortality, access to education is measured in terms of years of schooling and attendance. In the case of standard of living, the metrics are access to toilets, cooking fuel, sanitation, drinking water, electricity, and housing.

The problem of poverty is unpacked into a sum of depriva­tions—hence, targeting these deprivations, either individually or in pairs, blunts their compounding effect and helps in faster reduction of poverty.

Looking back at the last decade, NDA sought to address the challenge of standard of living on mission-mode. The achieve­ments, sourced from the government, are staggering:

– Equipped 11.7 crore households with toilets;
– Provided 9.6 crore cooking gas connections under Ujjwala;
– Opened 47.8 crore Jan Dhan bank accounts;
– Provided insurance cover for 44.6 crore individuals.

Not surprising then that when the United Nations Develop­ment Programme (UNDP), the UN body tasked with fighting poverty worldwide, measured poverty levels in India, it reported a dramatic decline in its incidence—it declined from the level of 55.1 per cent in 2005 to 16.1 per cent in 2021.

TARGETING WELFARE

THE RECENTLY RELEASED NATIONAL FAMILY HEALTH Survey 2019-21 (NFHS-5) confirms the surge in the use of cooking gas, toilets, access to electricity, and ownership of bank accounts and homes by women since NDA went into mission-mode to deliver these basic material needs. Similarly, the All-India Debt & Invest­ment Survey conducted in 2019 corroborates the financial inclu­sion trends captured by NFHS-5. It found that nearly three in four Indians, living in rural or urban areas, now own a bank account.

While financial inclusion has nudged the formalisation of the Indian economy by making 430 million people stakeholders, it has had another collateral gain. This is because the financial inclu­sion targets were realised by the trinity of Jan Dhan (no-frills bank account), Aadhaar (12-digit unique identity), and Mobile (with the moniker JAM)—which is nothing but an economic GPS.

NDA weaponised this to not only resolve some of the depri­vations impacting poverty but it was also used to target social welfare programmes. Besides the targeting of social welfare measures, it has also reduced leakages—it is estimated that the national exchequer has saved upwards of ₹2 lakh crore so far.

MIDDLE CLASS CHECKS IN

LIFTING MILLIONS OUT OF POVERTY HAS ANOTHER consequence: it expands the size of the middle class. In turn, this grows the size of the consumer market.

At present, the middle class is estimated at over 400 million. A report from People’s Research on India’s Consumer Economy (PRICE), released last year, projected that India’s middle class would nearly double to 715 million by 2030-31. It doesn’t stop there. PRICE goes on to argue that this cohort would grow to a staggering 1 billion by 2047.

A structural makeover of this magnitude is rare and has sig­nificant attendant implications—especially for a country’s polity and its consumer economy. This is why countries and foreign companies are queuing up to invest in India. They are betting on a future when India’s middle class would grow several times over and generate unprecedented purchasing power.

This growing empowerment is effecting a change in consumer behaviour. For example, ownership of either a mobile or access to the internet is no longer the preserve of a few. In the post-Jio world, the price of data has plunged (India probably provides the cheapest data in the world). This, combined with the spread of broadband even to rural India, means internet access is no longer the preserve of metros.

Simultaneously, the price of handsets has dropped; a second­ary market for used mobiles is enabling easier ownership. The PRICE report reveals that in terms of mobile ownership there is near-saturation across all cohorts, including the poorest of the poor.

In a previous analyst report, released last November, Morgan Stanley had argued that the next decade was India’s taking. “The four global trends of Demographics, Digitalization, Decarboniza­tion and Deglobalization are favouring the New India. We esti­mate this New India will drive a fifth of global growth through the end of this decade.”

According to Morgan Stanley, India’s gross domestic product (GDP) in nominal terms will grow from its present level of $3.5 trillion to $7.7 trillion in 2031. This is a very optimistic growth projection: India will grow its economy by about $4.5 trillion in this decade—which is more than how much it grew in its first 75 years.

The same report from Morgan Stanley observed a perceptible reduction in the aspirational disconnect among the populace: “Social media creates aspirations and e-commerce fulfills them. Earlier, having a large retail presence was restricted to major cities. Today, large e-commerce companies cover more than 80 per cent of pincodes, making access to products easier for smaller towns.

“The gap between urban and rural consumers is narrowing due to rising incomes (partly from direct benefit transfers) and financial penetration, as well as access to information given ris­ing digital adoption. This, in our view, is reducing the aspirational disconnect of the past.”

No coincidence then that the giveaway for the middle class in this year’s Union Budget was no lollipop. Instead of nudg­ing people to save through tax sops, Union Finance Minister Nirmala Sitharaman made the lower tax rate options sans tax sops the default option. Basically, she left more money in the hands of the salaried and freed them to choose savings instru­ments aligned with their needs—previously, they would be guided by the tax concessions and it was one-size-fits-all.

In a post-Budget interview with Open, in response to a pointed question about the logic of the new tax slabs sans tax sops, she said as much: “Yes, absolutely! That is what I also tell people who say that because of the emphasis on the new tax regime I have disincentivised investment, insurance, and so on.

“My reply is that I don’t think we should judge the assessee. If a person has more money in hand, then such a person can fig­ure out where to put it or how to use it; rather than saying that incentive lies in a particular option. A person can prioritise for his family. How can the government be the better judge? So, these changes give confidence to income taxpayers that they have more money post-tax and they know what to do with it.”

The strategy going forward is one which provides an ecosys­tem that encourages animal spirits and entrepreneurial ambitions among Indians. A structure that aligns with an aspirational India.

ANTI-FRAGILE

ADDRESSING THE GLOBAL BUSINESS SUMMIT hosted by the Economic Times earlier this year, Prime Minister Modi claimed that appropriate policy action had enabled India to transform into an “antifragile” nation: “The world has changed, global systems have changed, and India has also changed. In the recent past, we all have heard a lot of discussions around the in­teresting concept of ‘anti-fragile’. You are global leaders of the business world and are well versed with the meaning and spirit of ‘anti-fragile’: A system that not only combats adverse conditions, but also becomes stronger by using those conditions!”

The term ‘antifragile’ was coined by Nassim Nicholas Taleb, the mathematician and former options trader who wrote the cult book The Black Swan (2007) that challenged conventional financial models.

In another book, Antifragile (2012), Taleb walks us through another profound thought: Antifragile nations do not wilt in a crisis; neither do they merely weather the challenge. Instead, they thrive in such disorder: “Some things (countries) benefit from shocks; they thrive and grow when exposed to volatility, random­ness, disorder, and stressors and love adventure, risk, and uncer­tainty. Yet, in spite of the ubiquity of the phenomenon, there is no word for the exact opposite of fragile. Let us call it antifragile.

“Antifragility is beyond resilience or robustness. The resilient resists shocks and stays the same; the antifragile gets better.”

Regardless of whether you agree or disagree with the prime minister’s claims, it is a fact that India staged a remarkable re­bound in the post-Covid phase. It has baffled both critics and experts alike. Prima facie, it fits the description of antifragile.

Especially since this recovery has taken place in the back­drop of unprecedented circumstances. The pandemic, which had dodgy origins in Wuhan, China, was followed by an oil price shock. This disruption in global supply chains suffered a fresh setback after the breakout of the Russia-Ukraine war.

The acceleration in inflation across the world, especially in the US, forced federal governments to tighten money supply through a rapid increase in interest rates. This in turn led to the appreciation of the dollar against most major currencies, includ­ing the Indian rupee. All this did was export inflation, as import­ing countries like India witnessed an increase in prices, making a bad situation worse.

Through all this turmoil, India’s economic performance was remarkable. After contracting by a record 23 per cent in the first quarter of 2020-21, the Indian economy rebounded in tandem with the easing of the Covid pressure—not only did the virus diminish in strength and spread but the seamless rollout of the vaccine created another line of defence.

To cut a long story short, not only did India weather the worst challenge ever, it is now projected to be the fastest growing econ­omy in the world. Essentially, it benefitted from the turmoil and disorder that has wrecked the world.

The Organisation for Economic Cooperation and Develop­ment (OECD) updated its global projections on June 7. The report also showed that India topped the growth rankings this year and is on course for an encore next year. The big question is whether the country will sustain this momentum.

The biggest risk is political stability. Inclement circumstanc­es have made the voter susceptible to the lure of populism— something that has been demonstrated amply in the recent round of state elections. The electorate has a simple choice ahead of the 2024 General Election: opt for short-term freebies or vote for a New India.

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