Re-energising the India growth story

Despite the general consensus that India’s economy will be among the least impacted by the global economic turmoil, business and market sentiments had taken a beating over the past month.

It was, therefore, an opportune time for the Prime Minister to have convened the strategic interaction on September 8 between key ministers, policymakers, economists, bankers and businesspersons.

The Prime Minister has rightly observed that the industry needs to complement the enabling measures undertaken by the government with proactive steps of our own to boost demand creation and promote investments.

It is equally encouraging to note the set of initiatives that followed the meeting — including the gold monetisation and gold bond scheme to curb demand for the yellow metal; a policy for spectrum trading to improve utilisation of spectrum; a policy for offshore wind energy generation and 100 per cent FDI in white label ATMs.

India’s economy is definitely more resilient, particularly when compared to the same quarter (July-September) two years ago; when India-specific issues had heightened economic precipitation.

Now, almost all monetary and fiscal indicators are in far better shape. However, to seize opportunities, we need to work towards laser-focused execution methodologies to de-risk the economy while catalysing new capital and investment formation with hardwired timelines.

From a banking perspective, there are a few key enablers that can be enhanced in the short term to maximise the economy at the current juncture. Let me explain.

Between January and July 2015, WPI and CPI inflation fell by 793 bps and 298 bps, respectively, over January-July 2014. But the magnitude of monetary easing so far has moved by just 75 bps. With the WPI showing sharp deflation, the real rates for a producer has seen a 7-8 per cent jump over the last year. Since industrial sector accounts for 45 per cent of the outstanding bank credit, while it has a lower share of 28 per cent in GDP, there is an urgent need for investment revival through monetary easing to the tune of 75-125 bps over the next seven months.

This will also enable banks to make significant lending rate cuts and, therefore, transmission and acceleration of credit growth.

Specifically, the sectors that will accelerate economic momentum with short-medium winning outcomes are the following:

Affordable housing: Housing for all by 2022 is a great idea and needs highest prioritisation. A few things need be done to boost lending to this sector, including according infra status to affordable housing projects and, under priority sector lending, this needs to be segregated from overall realty limits.

Hospitality/hospitals/education: These projects should be given infra status. Hotels have a ₹200-crore cut-off for eligibility; this should be reduced to ₹25-50 crore for boosting tourism, job creation and urban infrastructure development.

Real estate: This sector is considered notorious, and this results in a high cost of funds. Real estate lending, predicating on prudent lending practices, should be classified as urban infrastructure.

This and the previous two points will augment bank’s roles in SMART city initiatives considerably.

We need an India infrastructure opportunity campaign, more specifically across global thought leaders. India has the best possible order book for global players. Let’s have this announcement made the soonest and target Fortune 500 firms and commercial/economic counsels in 20 OECD countries to take an active role in marketing India and building Brand India.

Public sector bank balance sheets have been hit largely due to delays in financial closure and the inability of banks to fund them further. Most promoters too do not have the requisite capital. Here we have two hard choices: cancel the projects (not recommended) or get them completed. This will need stop-gap hybrid equity funding as mezzanine facility (provided by the bank or relevant apex institution), with monthly updates sent to the ministry, PMO or bank.

The India growth story is strong and resilient. With the right balance of fiscal and monetary policy measures and sustained economic reforms, the economy can seize the opportunity and use the global turmoil to its advantage, to reinforce its position as the No. 1 investment destination among emerging markets, as a global leader of growth, design and innovation and productivity. Carpe Diem !

The writer is the president of Assocham and MD & CEO of YES Bank