DIGITAL SUPER CYCLE WILL POWER US AHEAD
THE OTHER GROWTH ENGINES WILL ALSO FIRE, BUT DIGITAL TRANSFORMATION WILL CREATE MOMENTUM TO TAKE GDP GROWTH FROM 7 PER CENT TO 15 PER CENT
It’s been 30 years since economic reforms were initiated. It is the right time for retrospection. Let us evaluate the three decades of reforms in three phases. The first part is the 1990s, marked by struggle and survival and the rise of the knowledge industry. The second part, from 2001 to 2010, is when we reinvented businesses, scaled up operations and created globally competitive organisations. This period also saw the start of the process to build core infrastructure, especially in areas like ports, roads, telecom and power. The
third part, from 2011 to 2020, was when the country saw a further infrastructure push. There was focus on green and clean energy, companies were deleveraged, and became globally competitive in some areas. It also saw the start of building up of the digital start-up ecosystem. Let’s study these three phases in greater detail.
THE CHRONOLOGY
I returned to India in the middle of the ’90s. And what I saw was — I will put it in one word — Challenge. There was a palpable fear in the minds of Indian entrepreneurs. While the economy was opened up by way of decontrol and liberalised FDI, Indian companies were not structured or big enough to meet competition outside or inside. They could not produce the quality required in a globalised world. In the financial sector, liberalisation was followed by some opening up, including new banking licences for the private sector, but they were all fledgling institutions. Bankers were fearful about scaling up given high inflation and interest rates. Commercial banks were mainly working capital providers and development financial institutions basically lent long-term money. There was hardly anybody in retail credit.
The milieu remained more or less the same throughout the decade. But, towards the end of the decade, things started to change. First, it was the emergence of cheaper technology. The advent of technology meant that you could provide, let us say, branchless banking through ATMs, call centres and a fledgling internet. Retail lending also started to take place.
These developments brought us to the new millennium. But we were still burdened with non-performing assets (NPAs) or restructured assets. The silver lining was the rise of technology companies. In the ’90s, there was no IT player in the list of top 10-15 companies by market capitalisation. By 2000, there were at least three.
Another interesting thing happened. Even though inflation remained slightly high, the government and the RBI managed to get interest rates down by almost half. Tenyear government bond yields suddenly dropped from 11 per cent to 5.5 per cent. This helped retail lenders, which could make their products much more affordable for consumers. For instance, mortgages with 15 per cent interest rates suddenly got re-priced at 7.5 per cent. The car loan, priced at 18 per cent earlier, became available at 10 per cent. This gave a big push to retail lending, which in turn generated momentum for manufacturing companies.
These developments started pushing the economy forward. The momentum gave additional income in the hands of the white-collared workforce, particularly from technology areas. A report from a rating agency made a case that every white-collar job creates four-five additional jobs. This mass of people with increasing incomes and higher consumption drove the early part of the 2000 decade. The industry was quick to respond. It de-leveraged.
In the early part of the 2000 decade, India crossed the $500 per capita income hurdle. I had seen in my days across South East Asia (during the ’80s and early ’90s) that people’s aspirations rose at that level of per capita income. That, and the drop in interest rates, created a virtuous environment. That’s when most of the out-of-the-blocks acceleration happened for the Indian industry.
Simultaneously, the government’s infrastructure initiatives like the Golden Quadrilateral and the Pradhan Mantri Gram Sadak Yojana paid rich dividends by connecting the India which grows with the India that consumes. That decade was about industry building scale and capacity, becoming globally competitive, and producing quality products. The enabling infrastructure was set up during this period.
The third phase, 2010-2020, was where we actively thought green and dedicated a much larger amount to infrastructure. Corporate India also started talking the language of ‘debt is not good’. Technology costs kept falling at a dramatic pace. We became the world leaders in providing data of sufficient bandwidth at lowest possible costs. We have actually made connectivity virtually universal. The building blocks for the future have been built by Indian entrepreneurs. These give us a wonderful springboard to the next decade and beyond. We have another 25 years of investments to come in the infrastructure sector. It is an op
CLEARLY, IN THE COMING DECADE, WE WILL BUILD FOR INDIA AND BUILD FOR THE WORLD. WE WILL BUILD IN EDUCATION AND MEDICINE. WE WILL BUILD IN E-COMMERCE. WE WILL BUILD IN FINTECH AND DIGITECH