At a glance
Smart, entrepreneurial and female, Swati Bhargava symbolises the changing face of India as the subcontinent giant transforms into an economic juggernaut.
The co-founder of CashKaro, India’s premier digital coupons and cashback site for online shoppers, says the nation is experiencing an e-commerce boom as start-ups emerge and consumers jump on the digital bandwagon.
“CashKaro is a reflection of India’s expanding e-commerce industry,” says Bhargava, a former investment banker with Goldman Sachs, who has built cashback operations in India, England and Singapore.
Born in the north Indian city of Ambala, the entrepreneur identifies rising private consumption, infrastructure development and steady investment growth as reasons for India’s recent economic success. Liberalisation of foreign direct investment (FDI) policies has also played a part.
"This, in turn, has increased the ease of doing business in India and attracted some much needed FDI for economic growth,” Bhargava says.
India: emerging economic powerhouse
There is no doubt that India is winning some serious economic bragging rights. On the back of corporate heavyweights such as IndianOil Corporation, Reliance Industries and the Tata group of businesses, plus innovative start-ups and an increasingly well-educated workforce, India has overtaken China as the world’s fastest-growing economy.
According to the World Bank, the country can expect GDP growth of 7.3 per cent in 2018 and 7.5 per cent for 2019 and 2020.
Healthy signs abound. The aforementioned FDI is pulling up to US$50 billion into the country annually; a youthful populace is pushing up working hours and productivity; and deregulation of markets and a reduction in import tariffs are boosting private consumption.
Anis Chakravarty, lead economist and partner at Deloitte India, believes the nation’s growing working-age population will be one of the keys to ongoing success as new workers, including an increasing proportion of women, benefit from far better training and education than the Indian workforce received in the past.
“Creating an efficient workforce through skills training and education can lead to productive growth,” he says. “This especially becomes important as technological disruption and innovation can make low-skill manual jobs unnecessary.”
Deloitte predicts India will drive the third great wave of Asia’s growth, following the footsteps of Japan and China. It is the culmination of a story that began in the 1990s when the economy opened up to global markets, private entrepreneurship and foreign investment.
Chakravarty adds that in recent years several measures – such as industrial and trade policy changes, liberalising foreign investment and banking sector reforms – have helped the economy, “while the latest slew of policy developments that has pushed growth further include taking steps to improve the ease of doing business, power sector reforms, easing investment norms, a unified tax regime and digital inclusion.”
“Make in India”, a nation-building initiative launched in 2014, has also encouraged multinational and domestic companies to manufacture their products in-country.
India's progress has not been without growing pains
Yet India’s progress has not been without setbacks. Saksham Khosla, a research analyst at Carnegie India, says the nation is still recovering from the “twin shocks” of recent major economic reforms: the demonetisation of high-value currency in 2016 and the introduction last year of a goods and services tax (GST).
The former policy, an attempt to crack down on the rampant black market economy, saw Prime Minister Narendra Modi’s government declare that all 500- and 1000-rupee denomination notes – more than 80 per cent of currency in circulation – would no longer be considered legal tender. It forced people to either deposit these notes into bank accounts or exchange them for newly designed and minted notes.
The GST, meanwhile, is seen as a means to streamline indirect taxation across a country that in the past had multiple tax authorities, while also removing trade barriers that prevented India from performing as a single market. The reforms have come under fire in some quarters for undermining business confidence because of the complexity of the tax regime and numerous changes in how specific classes of goods and services are taxed.
“[But] both private investment and consumption are expected to rebound as the lingering effects of these interventions subside,” Khosla says. Other positives, he adds, are likely to be the bedding down of a new insolvency and bankruptcy code and recapitalisation of public sector banks.
Sandeep Lakhwara CPA, managing director of Deccan Gold Mines – the first gold exploration company to be listed on the Bombay Stock Exchange – agrees that there are many strong economic indicators under a Modi government that has a mandate for change.
“Yet while the economy is being transformed, there are [still] many social challenges to face – from urbanisation to education, health, gender discrimination, water scarcity, sanitation and lack of transparency in many government institutions leading to corruption and hampering competitiveness, growth and development,” Lakhwara says.
Other challenges include a banking sector beset by a “humongous bad debt problem” that is restraining credit growth and borrowing, according to Pradeep Sriram, a CPA and chartered accountant who works in the hotels sector.
“With fractured balance sheets, many of India’s banks are not in a position to lend,” he says.
Sriram believes India is at an “inflection point” and needs to deal with the banking issue, ensure that a growing workforce is afforded gainful employment, and navigate a series of looming elections in many large states as well as national parliamentary elections next year.
“It’s imperative that these elections result in a stable government in these states and the [central government].”
Digital India: a focus on innovation
The Modi government’s “Digital India” plan is also generating employment opportunities and promoting entrepreneurship, with the government fast-tracking the rollout of optical fibre to improve internet and streaming access.
Chakravarty says in such an environment there is likely to be a shift to real-time access to data and intelligence, which in turn could transform business strategies.
“This innovation can be expected to move beyond manufacturing and production segments to encompass the system of partners, suppliers, customers, the workforce and operational considerations,” he says.
At CashKaro, Bhargava believes increased participation of women in the workforce – digital or otherwise – will also be important for India’s ongoing growth and innovation.
“Education and empowerment of women have proved to be important yardsticks for socio-economic growth,” she says.
“As an entrepreneur, I strongly feel that women exhibit all the skills and work ethic that form the hallmarks of any growing business. The increased participation of women in the workforce can also lead to increased GDP.”
Lakhwara says there is scope to ramp up innovation and development in more traditional sectors such as gold mining. He notes that Indians’ love affair with gold sees the nation import about 800 tonnes of the metal each year, while it produces only about two tonnes annually despite potentially huge gold resources awaiting exploration.
With the government granting new mining leases and bringing in policy changes to encourage development of the gold mining sector, Lakhwara expects the sector to flourish.
“[It] all makes for a compelling story to invest in gold mining in India.”
Positive signs for growth in India
As India prepares for the next phase of its economic journey, Khosla believes the nation’s growth prospects “remain promising, especially in the medium term”.
“The bigger question is whether India can achieve and sustain the double-digit growth necessary to continue lifting broad swathes of its population out of poverty, and create several millions of productive, formal jobs for its growing workforce.”
Chakravarty is confident that India has unrealised potential to drive productivity growth and job creation in high-value sectors. Infrastructure and construction, for example, show promising signs of expansion on the back of the government’s affordable housing drive, as well as the Bharatmala scheme, a centrally funded roads and highways project. He also has high hopes for the financial services, telecommunications, retail, logistics and healthcare sectors.
Sriram believes India is in a “very sweet spot” to enjoy decades of exponential economic growth, but it must “channel the vast quantum of resources it has and convert it into growth opportunities”.
Lakhwara suggests the outlook is particularly bright in areas such as pharmaceuticals, software and research and development for information technology.
“The economic turnaround will trigger other changes,” he says.
“Thousands of Indians now working overseas will return to India attracted by the opportunities, salaries and quality of life, all of which have substantially improved in this country over the past years and will continue to do so in the future.”
For Bhargava, the focus will be on continuing to push CashKaro’s goal of being a “one-stop destination” for online savings through offers of cashbacks, discounts, and coupons.
While government bureaucracy and taxation issues could present hurdles for businesses and the economy, she says the relaxation in FDI policies and initiatives such as the nation’s “Smart City Mission” project suggest that India is on the right path.
“India has a highly skilled, young and dynamic workforce,” she says. “Companies which are able to harness this largely untapped potential [will] ultimately succeed.”
GST in India: on the money or a mistake?
For all its critics, the goods and services tax in India is starting to do its job – collecting revenue. According to India’s Ministry of Finance, collections in April passed the trillion-rupee landmark (about US$15 billion) for the first time.
Touted as a reform to create “one nation, one tax”, the results have prompted Finance Minister Arun Jaitley to tweet that “increased tax collections will help the nation to expand its economic horizons and take it to loftier heights”.
Other advocates suggest the GST – courtesy of reducing the cost of complying with multiple state tax systems – is attracting global investors that had previously been avoiding India, while expanding the tax base.
Not all are so impressed, however, with some critics blaming the GST for adding to the compliance burden for small businesses and start-ups, while the application of multiple rates for the GST – including an eye-watering 28 per cent for certain subsets of goods and services traded – has caused confusion.
Chirag Sheth CPA, a tax specialist at EY India, speaking in a personal capacity, says the introduction of the GST has undoubtedly been a “rollercoaster ride”.
“However, the silver lining in the journey of [the] GST has been the proactive and business-friendly approach of the Indian Government in addressing the challenges faced by the industries,” says Sheth, who adds that governments, central and state, have been quick to address public concerns via Twitter, press releases and other forms of notification.
He says it is now clear that the GST is not merely a tax rethink, “but a reform of the entire business scenario due to its multifaceted impact”. Despite teething problems, Sheth suggests the GST will lead to greater transparency and tax compliance, resulting ultimately in more revenue for government and benefits for business, industry and consumers.
“Undoubtedly, the move towards a GST regime [will] be a catalyst in achieving the government’s stated agenda of [improving the] ease of doing business in India.”
Banking on insolvency laws
New insolvency laws are “a landmark initiative in India’s history”, according to commercial financing expert and certified insolvency professional Pradeep Sriram CPA.
The Insolvency and Bankruptcy Code, passed in 2016 to replace a patchwork of laws, addresses the mountain of bad loans that have long weighed down India’s banks. An inability to shut loss-making companies and collect on dues had led to funds being locked up in banks, in turn hurting lending and investment. The new laws under the code introduce a time limit of 180 to 270 days for the resolution of corporate insolvency cases.
Sriram notes that the Reserve Bank of India initially referred 12 to 15 companies for insolvency resolution last year. They collectively accounted for more than 50 per cent of the non-performing loans in India’s banking sector.
“[To] date the resolution process has been extremely successful, with these stressed assets garnering interest from many large companies. There have been a few cases that have already been resolved and the ‘haircut’ the banks had to take [on debt recovery] was far lower than envisaged.”
Nonetheless, Sriram says the process has thrown up challenges. These include:
- Deadlines to resolve some insolvency cases worth billions of dollars within 180 days have been too tight, with rules stating that any unresolved case goes into mandatory liquidation. “The Supreme Court had to intervene in a few cases to extend timelines,” Sriram says. “This comes with the risk of the ‘time-defined’ resolution process getting diluted if there are deliberate delays by unscrupulous promoters.”
- Cases in which business people have been trying to bid for their own companies in the insolvency process, and effectively repurchase assets at a discount.
- An acute shortage of adequately qualified insolvency professionals with the ability to run large companies that have been referred for insolvency resolution, raising the prospect of legal consequences if mismanagement occurs. “This has led to many insolvency professionals being sceptical of taking insolvency assignments, due to the huge risks and liabilities involved.”
Sriram is confident such teething issues are being tackled.
“Notwithstanding [these issues] the code is a step in the right direction,” he says. “It will evolve with practical experience and the process will be streamlined.”