There was a lot of emphasis on economy in the Prime Minister’s Independence Day speech, He has crafted a great strategy and a brilliant vision on how India can become truly independent or self-reliant.
As I see it, the Prime Minister gave a speech to inspire confidence amongst Indians as well as aspiration and hope. It is very crucial at this time when Covid is continuing to be a challenge for the entire world that we have a leader who is focussed on giving us the confidence not only to fight Covid but to focus on building an Atmanirbhar Bharat (self-reliant India). I am actually enthused that we underestimate the challenges of keeping India as one united country which is very effectively being done for the last 74 years and the Prime Minister’s focus was to ensure that Indians think about India as a one single India.
In terms of focus areas, I was happy with his particular focus on infrastructure and the integrated approach that he has taken. He said let us not look at infrastructure in bits and pieces and verticals. It is a holistic multi-modal interdependent approach to infrastructure and a supply side response. At this point of time, with Rs 110 lakh crore to be spent over the next few years, there will be significant opportunities for job creation and demand stimulus effectively as well.
Why do you think in India in the last 20 years failed to become a super power in manufacturing with the exception of say pharma or autos or two wheelers? How will this decade be different where we can truly emerge as a manufacturing powerhouse?
I would divide it into two parts. The first of course is how India does better in terms of our policies and processes. The second part is that the biggest elephant in the last 10 to 20 years has by far been China and China has basically captured very large parts of the Indian domestic market. Net imports from China is nearly $60 billion net. So if that is the scale at which China has made inroads into the Indian market. They have become the factory of the world for sure but have also captured a lot of India.
If this is the reality, we then next need to ask the second question – are all the exports from China fairly priced or there is something about the costing which China does which normal economics finds it difficult to understand? And if that is so, if there is any situation where Indian manufacturing has got unfair competition because of manipulative pricing of any form, then it is unfair to blame Indian business and industry.
I have talked to many members of CII and members of Indian industry and they have said that in the last 10 to 15 years sector after sector, segment after segment, China has been able to dramatically under price its goods and many Indian manufacturers have gone out of business. Once they have captured that market, in some cases, they have also increased pricing thereafter after domestic manufacturing has gone away.
China has done the same thing to the US which is what the battle between the US and China is all about. When we are looking at the Indian situation and India getting stronger, we need to ensure that unfair competition has no place and at the same time, there is a very important need to focus on execution, on getting our policies right and making sure it translates to benefits at the ground.
If I have to take atmanirbharta and two aspects of atmanirbharta to make it work besides local for vocal which is important or vocal for local which is important, I think there are two Es for making India truly at atmanirbhar. Post this effort, how are we growing our net exports? That is the test of our competitiveness and second is a surgical focus on execution so vision, policy to execution we must cut down the time on execution post a policy is being made.
What are the top three-four things that you would ask from the Modi government to make it easy to do business here not only for the domestic industry but also the foreign investors that India has been wooing, especially in the last one month?
My first answer to that is linked to reality in the post or the current Covid era. In the beginning, the lockdowns and openings were fully controlled by the central government. We have now seen a decentralisation and option being made available to the states for lockdowns and opening. I believe we have a challenge here because we see frequent lockdowns, opening, shutdowns again and when some of us talk to the various state governments across the country, the states are saying their focus is the virus and the health the key area. GDP they leave it much more to Delhi.
The Prime Minister in his speech rightly said that the centre and the states will work hand in hand khambe se khamba. The time has come for the states to work with the centre and consider that not only is the control of the virus important as that is having an impact on lives, but economy, GDP, India’s growth, India’s development for livelihoods is also a responsibility not only of the centre but also of the states. One of the most important things which is required today is close coordination between the centre and states towards a seamless operation of the Indian economy, keeping in mind the Covid challenges I think that is point number one.
Point number two is wherever there is a possibility for the government, we must do whatever it takes to build exports because exports are a true proof of our ability to be competitive and things like delays in payments from the government or committed incentives is something which I would strongly urge the government to move on that fairly so that there is a consistent message that India is competitive on exports. So, the second important answer of focus is exports, exports, exports. If we export we will also create demand for Indian manufacturing.
The third point about which we have to be clear is that Covid has given us a shock both on the demand side and the supply side. We are now seeing a stabilisation to a certain extent, compared to April and May and we may debate where the current status is. But my sense is in many sectors, demand is back to 70-80% of normal and that is a pretty decent number. What I worry about more is potential supply shocks and that when there is demand, we do not have enough supply.
We have to be careful that we do not create supply side shocks as inflationary risks at a time when the RBI has been very accommodative in terms of its monetary policy. This is a very important point. Let us not create supply side shocks which will find our financial sector strategy coming into pressure.
Do you think the turbulence is over and most of the big companies have reached the shore?
I would say that we are still in the middle of high seas, the nature of turbulence has changed and we are getting more and more accepting of the fact that Covid is not going away in a hurry but humanity learns to adjust to reality. The reality is we will have Covid cases, which will show as positive cases, we will see recovery cases which in India’s case is high and then we will have mortality. Therefore, we need to continue to have our strategy to deal with it.
The turbulence of Covid is not gone. We are in the middle of high seas in the ship we have learned to navigate better than what we thought in April 2020. Now, the challenge is how do we navigate and get to a little greater speed of navigation that is issue number one.
Issue number two is where is the shore? The shore in my view is a vaccine or a cure. I would like to reiterate that this is a health and a science challenge in front of us manifesting itself into economic challenge therefore the solution of getting to the shore is not a finance and economic solution, it is in the realm of science. At this stage, most people seem to be saying that at some time in 2021 calendar, we have a possibility of getting to the shore and therefore 2020 is likely to be hindsight and at this stage it does not look like the shore is likely to be reached in 2020, based on all the developments of the vaccine and the cure.
We will get greater visibility by the end of this year but the real and sustainable solution I would like to hope and believe will be in 2021. And therefore as people in economics, finance we need to be able to navigate this ship for at least the next 12 months while science moves forward.
A lot of the banks and NBFCs for example have been Covid proofing themselves with large fundraising, but can the SMEs and the MSMEs survive till the end of next year?
First of all, I said sometime in 2021 I did not say end of next year. My hope is early 2021 but we should be ready from sometime in 2021, I hope. There are three shock absorbers in the economy; number on is the individual or the businesses directly. When there is a loss hitting, the first hit is to the business and or the individual. The second is the government or the state. How much does the state take the pain of that loss and the residual after these two, sits on the financial sector. Therefore we can debate on the size of the total pain but there are three partners in sharing this loss.
The individual and the business particularly the MSME and the small scale are more vulnerable therefore, it is important that their shock absorption is kept to the minimal and that has to be primarily focussed on by the government and in that context the MSME scheme of the government has been excellent.
The government has shown flexibility and has even redefined MSME definition and allowed slightly larger SMEs also to participate in that and at the same time, has allowed individual sole proprietors and others to get benefit of the government guarantee scheme.
The government has taken the step of a Rs 3 lakh crore guarantee to absorb part of the shock. I believe if more needs to be done, the government should be open to doing it for the weaker sectors. The financial sector on the other hand, has taken steps to beef up themselves. Private sector banks in the last two months combined and of course some housing finance companies on a combined basis have raised $10 billion of new capital.
I am sure the government is thinking about its strategy for public sector banks and good NBFCs are already well capitalised. The financial sector’s loss bearing capacity compared to April today has also improved to take the shocks which may come from the real economy.
For the financial sector, how would the Covid crisis change the dynamics? By 2025, what do you think India could be staring at in terms of the financial sector because of the Covid moment?
My sense on the financial sector is it is going to be significantly dominated by technology and digital. We are going to see a significant improvement in execution, costs, operating costs and the question with reference to banks is the future of branches. What is the scale of branches? What is the density you need? Can you serve customers digitally much better? Are we going to see much less use of cash which is one of the main pain points of our economic system and the cause of a lot of friction because of the digital play? How is it going to work between the physical and the digital world? How is an average shopper going to shop? How will the level of commercial occupation of offices change, will we be working from anywhere in India or anywhere in the world to do our job? My son asked me what stops any person from working from Iceland and being an employee in India? What stops an Indian from working from India and serving clients in the US?
How does the whole area of what we have envisioned as a normal is changing? I genuinely believe we are no longer moving to a new normal, we are moving to a world in finance, technology and business to a never normal world.