India at the centrestage of global investments

Current Environment

We expect GDP to grow at historic high rates for two or more years, thereby, healing some of the scarring that the pandemic has left behind. GDP growth is expected to range between 8.7% and 9.4% this FY 2021-22. Growth will continue to remain stronger in the following years as well, with the possibility of the economy growing at as high as 9% in FY 2022-23 and 7.6% in the following year. There are several reasons for the optimistic outlook.

The pace of vaccination has been impressive, which has given consumers the confidence to come out of their homes and spend. The rapidly rising demand for goods is an example of the pent-up demand that we have been waiting for to unleash. The upper-middle or higher-income households that have been relatively less affected and are sitting on excess savings are urging to get back to normal times. Rising demand will kick in the virtuous cycle of capital expenditure and investment. As businesses ramp up production, hiring and job opportunities will boost employment and income in the hands of consumers. Improved job prospects will prompt migrated labours to return from their natives in search of a better income.

However, the recovery is likely to be uneven, with some sectors facing structural challenges. Uncertainty will weigh on the rebound of the services industry (hospitality, leisure, travel, and entertainment sectors) because of calibrated intermittent regionalised lockdowns. Similarly, low and semi-skilled labourers will likely struggle to get jobs. The pandemic has increased the pace of digitisation because of which, there has been a structural shift in the job market and opportunities. Some jobs are high in demand and the talent required to fill these positions are commanding higher wages. On the other hand, several low-skilled jobs are not coming back leaving many out of the recovery.

Expectations

Top three asks:

Expectation #1: Focus on infrastructure and asset monetisation

There is an expectation that the government will focus on implementing the policies announced so far and expedite the projects underway. To begin with, the government will likely focus on increasing the share of capital investment, including infrastructure, and frontload spending in the coming quarters. This is something the finance minister has already reinforced in her statements earlier. The other expectation would be that on raising capital for investments through asset monetisation. Efforts to meet the disinvestment target for FY 2021-22, as well as to raise more capital from various sources, are underway. Raising capital at the earliest, and bringing forward the process of monetisation pipeline will be key, so that resources can be deployed to accelerate infrastructure investments.

Expectation #2: Demand and employment by stimulating MSMEs

The other focus must be to enable the ecosystem around job, income, and demand creation. India is a domestic-demand-driven economy, and a strong recovery will require a sustainable pickup in demand. That will require more jobs and employment opportunities to fatten consumers’ wallets.

Since micro, small, and medium scale enterprises (MSMEs) are the biggest job creators of India, the government will have to emphasise reviving the sector by enabling the ecosystem that supports these enterprises. Identifying their pain areas and devising a solution to help them become a part of ‘Atmanirbhar Bharat’ will aid in their recovery. In addition, access to credit is critical, and providing targeted credit support to these enterprises should be considered. The government may choose fewer segments to start with and revive opportunities for those selected MSMEs.

Expectation #3: Support to the disproportionately impacted sectors

The government will have to support the sectors that have been disproportionately impacted by the pandemic and where recovery is likely to be gradual as uncertainties linger. Support to the travel and hospitality sector should be considered as they significantly contribute to GDP. The government must try a few out-of-the-box ideas or experiment with initiatives followed in the other parts of the world.

One such experiment could be of tourism “sandboxes” (followed in Thailand and Indonesia), and invite fully vaccinated foreign tourists to travel a limited area. Improvised service offerings could boost the hospitality sector. The government must look into short-term revival plans as well as long-term plans to address the structural changes these industries are going through and have contingency plans to deal with uncertainties.

Expectation #4: Boost to exports

Exports have done well, and we expect the government to emphasise cross-border trade and investments. With several FTAs queued up in the near term, the focus must be on short-term as well as long-term measures to boost exports from and encourage FDI in sectors where India has a competitive advantage. Competitiveness will require efficient import and export regulations, and the government must address issues that hinder trade growth.

Expectation #5: Focus on social sectors (education and health)

Finally, there has to be more allocation towards building the health infrastructure and preparing the workforce for the future through training and skill developments. COVID-19 has certainly highlighted the gaps in health infrastructure that need to be filled. Similarly, students from underprivileged families have been impacted by several education institutes closing down. The government must plan a way forward to bring these impacted kids back into the education system.