‘There is need for continued public spending’

Currency fluctuation risks are here to stay, as is the volatility in global capital flows. Steep variations in a short span impact businesses — for instance, rupee appreciation last year. Currency variations also have significant impact on the country’s export competitiveness and with the prevailing trend on crude price increases, the import bill is further impacted. This year, there is a slight depreciating trend but volatility is high. Having a robust risk management overlay is very important to manage volatility.

The last couple of decades have been about globalisation and now the move is trending to de-globalisation or glocalisation. India and China growth stories have always been about domestic consumption. With the pressures economies are facing, the US too is now looking at domestic consumption to get growth back.

This is part of the business cycle. It’s not the first time that we see duties being raised and it won’t be the last time. What is not getting adequate attention from a risk perspective is the increasing social divide, which in turn is getting manifested in political and economic outcomes. Britain, the US are witnessing some of these.

In absolute terms, albeit muted, there was credit growth last year, largely in the retail segment. Corporate credit growth was a problem, and it persists. The need for incremental credit by companies has reduced as capacity utilisation is way off the peak in most sectors. The demand for long-term credit is largely in infrastructure segment, where banks have limited capacity to take more exposures. The issues further accentuated owing to sub-par economic growth in the last two years. There were also transitionary impact from demonetisation and GST implementation.

Further, India is no longer overtly dependent on public sector banks and private banks/NBFCs have also filled the funding gap in the last two years. Importantly, one of the largest contributors to GDP growth is the SME sector, which is not as much dependent on credit from large banks.

In all, if the NPA problem is dealt with more expeditiously and more stringent risk management practices are adopted, we should see faster recovery from the immediate term impediments.

Before we see a complete revival, there are few structural issues to be dealt with.

One area to consider is how to get infrastructure projects going as that will create a self-virtuous cycle of economic growth. On the other front, for most of the sectors, the utilisation is significantly lower than peak potential. In recent times, steel sector might stand out with higher utilisation, however with bidding for steel companies, for anybody going in for capacity expansion, buying it is better than setting up capacity. Though it is efficient, it won’t increase the investment to GDP ratio. So, from the capital intensive segments, there is need to think through, how you get new investments.

While the efforts are taken up towards infrastructure segment revival and generating investment in capital intensive segment, there is also need for continued public spending as the private sector remains restrained.

The focus should be on implementation after the outstanding pace of structural reforms in the last couple of years. GST is a great long-term reform, but we have to fix the immediate issues. The Insolvency and Bankruptcy Code is another notable one. With some initiatives announced in the last Budget, the government also needs to focus more on rural India. It will also have an impact on rural consumption. Economic growth in the last couple of years has been sustained only on urban consumption. Agriculture policies, including those on minimum support price, have to be more market oriented.

Exports have lagged in recent times. There is cyclical global recovery and India is bit trailing on this front. Through last year with appreciating rupee, exports remained under pressure and with crude price increases, trade deficit widened. In segments like textiles, ready-made garments, there is competition from countries like Bangladesh and Vietnam, and our agriculture export surplus has also come down. More measures towards ease of doing business and raising our competitive positioning in high value added segment would be required towards boosting exports.

Stronger regulations are always good for the markets and enhance efficiencies. SEBI has made the outlook as well as the rating watch mandatory. For example, the rating outlook has to state where it is positive or negative or neutral. Such enhanced disclosures would further help markets and investors in pricing risk. The other important thing is that earlier a number of rating agencies, instead of downgrading, would suspend ratings. Now, each rating agency has to disclose on its website details of all the ratings it has assigned, irrespective of whether the rating was accepted by the issuer or not. In the last 12 months, there is increased emphasis on disclosures, which will be positive for industry at large.

We see growth coming from new offerings and expanding client footprint in India and globally. We have made significant investments in technology in the last two years. We have also automated our research using a platform called SMART (Simple, Modular, Analytics & Research Toolkit). We also launched the cross-sector data analytics platform Quantix. Our most recent launch is for SME segment - an integrated digital platform smefirst.com. It provides a comprehensive credit assessment in under five minutes. At the same time, across businesses we have focussed on enhancing our client base. In the current year, there has been significant drop in bond market issuances, which has impacted the Ratings segment. However, with our diversified offerings we continue to remain on the growth path.

It is early days, but we use a lot of the tools. I am a strong believer that AI will transform the way we work. An analyst will get the variance analyses literally at the click of a button, and they then add insights and perspectives through speaking to the management or doing deep dive competitive analysis. What we then put out is much richer. We are not a pure technology firm, it is about information management, automation and tech solutions. We have built the platform in-house and it captures our decades of work and experience.

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