A patriot's perspective.

With 28 states, 7 union territories, 140 crore people, and 1.77 million homeless people to feed on a daily basis, India still survived one of the most brutal pandemics and now stands as the 4th largest economy in the world. When I first heard about the pandemic, I thought that India would suffer the most, considering our size and population. Even before the pandemic erupted, the Indian economy was on a downward spiral. GST collections were below Rs 1 lakh crore, external debt had increased by 8 percentage points, and GDP had decelerated for 6 consecutive quarters. I thought that the pandemic would be the final blow to our economic situation, leaving us helpless and needy like Greece after the 2008 crisis.

 But what India has turned out to be is something that even Gandhi would not have believed if he were alive. 4th largest economy, world's largest derivatives exchange, 4th largest cash exchange, largest population, dominant exporter of agricultural products, biggest railway network, highest airport traffic, one of the top 5 destinations for foreign investors to park their monies, one of the biggest automobile consumers, a defense exporter, and the 2nd largest importer of crude oil. This is where India stands. Read them once again. I know it's hard to digest. In today's blog, I'll try to dissect how India became what it is today from what it was five years ago. 

1. ROLE OF REGULATORY BODIES: 
   A few days ago, I was in Mumbai attending an investment conference. In that conference, I had the privilege of meeting Mr. Rajeev Radhakrishnan, CIO SBI Debt Funds, Mr. S. Anantharaman, CRO Bank of Baroda, and Mrs. Preeti Reddy, CIO K Raheja Corp. When I asked these fund managers about improving the balance sheets of PSU banks, decreasing NPAs, increasing D-MAT accounts, and overall increasing investor confidence, I got the same answer from everyone, and that was the active role of regulatory bodies. May it be the 2020 COVID crisis, the NBFC crisis, the private bank crisis, or the liquidity crisis of Indian banks, Indian regulatory bodies have been walking alongside, holding hands. 

The future of any nation can be judged on the basis of the freedom provided to these regulatory bodies by the central government. Look at what is happening right now, for that matter. Yesterday, RBI issued a notice to JM Financials (Investment Bank/NBFC), barring them from assisting any company in issuing any sort of security. (An investment bank helps a company raise funds through various sources, like debentures or commercial papers.) The catch here is that the RBI barred them while scrutinizing their 2023 issues. When was the last time you heard the RBI punish an investment bank for their past dues? 

Even when COVID happened, the RBI was among the very first central banks to announce rate cuts and increase liquidity in the system. Even right now, when the liquidity has increased, the RBI has been active in sucking out the extra liquidity via various options like VRRs (variable repo rates). You take out a business standard from the last 2 months, and you will find out what I am talking about. I remember Mr. Rajeev saying that regulations won't kill our markets. They will help investors build confidence, which will attract more money. In the month of February 2024, retailers contributed Rs 27000 crore via SIP. That's what regulations do. They build investor confidence. 

 2. LOANS TO THE MSME SECTOR AND THE LOWEST BRACKET: 
   I don't know how to put this in words appropriately, but the farmers and the ones who were most vulnerable when the COVID hit were compensated well, either directly or indirectly. I don't remember the exact figure, but it was somewhere around Rs 3-5 lakh crore. The government knew that if the farmers weren't saved immediately, our economy would have been in the doldrums. I sincerely believe that our beloved Prime Minister has some sort of vision that even Ambani's or Adani's can't match. 

As a result of this step, India has become the net exporter of agricultural goods. If it weren't for these loans or subsidies, India would have been in the same shoes that countries like the US, Brazil, Canada, Sri Lanka, or the country where the queen did die, the United Kingdom, were in a few months ago. We should be really grateful that we weren't in the situation where we had to fight for daily meals. All thanks go to the government and the farmers. 

3. MANUFACTURING: FROM DREAM TO REALITY
   I challenge you to pick one sector or an industry in which India is reliant on foreign imports, and I'll stop writing blogs (ignoring chip manufacturing). Well, you can't because initiatives like Make in India have completely transformed India's manufacturing sector. As COVID hit, and when diplomats and analysts started blaming China for the chaos, the Indian government silently and consistently started strengthening India's manufacturing sector. 

 

One of the very first initiatives taken by the central government was to grant cheap loans to the MSME sector. This was critical because almost 42 percent of India's production activities are contributed by the MSME sector. As a result, the financial strength of the small-scale businessmen strengthened, leading to stronger manufacturing activity. Another major decision taken by the government was to increase import duties on imported products and implement anti-dumping duties on Chinese steel and other Chinese products. The life of the manufacturing sector matters a lot. India created an environment in which cheaper loans were available and anti-dumping duties were implemented, leading to India becoming the world's 2nd largest consumer and producer of steel. Not everyone knows this but there is an economic indicator called PMI (Purchasing managers index) which tracks the health of manufacturing activities in a country and has a benchmark of 50. PMI below 50 is considered recessionary and above 50 is considered good for any economy. 

When the pandemic hit, India's ratio plummeted to 7.2 in the month of May but recovered back to 54.6 in the month of September 2020 itself. No other country experienced such exponential recovery. Infact here are PMIs for other "economic superpowers" as of Feb 2024. 
UK - 47 
USA - 50.2 
China - 49.10 
Germany - 42.5 
Japan - 47.2 

Late investor Mr. Rakesh Jhunjhunwala said, "Apna time ayega nahi, apna time aa gaya". Today, India's current account deficit has narrowed drastically, making us the 4th largest economy. Soon, we would be in surplus (more exports than imports). 

4. CREDIT GROWTH:
   I do believe that most of what American culture has to offer is nothing short of bullshit. The American economy runs on credit, and hence they were on the verge of declaring bankruptcy a few months ago. What America experienced after the industrial revolution started is exactly where India is headed. The rise and rise of credit in this country is something that should disturb your sleep. It does mine. Because of the rise in "finfluencers," Indians have stopped parking money in traditional assets like savings accounts or fixed deposits, leading to a gap between deposits and loans. Let me explain. 

 

When we deposit money in the banks, the bank takes out a certain percentage, keeps that as a reserve, and distributes the remaining money as loans. Because we have stopped keeping money in deposits and have started adopting the American culture of credit, there has been a shortfall of funds. Banks have fewer funds to distribute, whereas credit demand is rising. There is no doubt that one of the reasons why India survived the COVID was this growth in credit demand, but at what cost? The banks did take advantage of this situation and strengthen their balance sheets, but this situation is something that might create problems in the future. For an economy to prosper, credit demand is necessary, but in a controlled manner, or else we will end up like America. Maybe one of the reasons Indians started taking loans was the rise in gold rates and awareness about financial planning and budgeting. It is estimated that the size of the gold reserves in rural India is an astonishing 25000–27,000 metric tons. 

 

 5. RECAPITALIZATION OF INDIAN BANKS: 

   The Government of India holds the largest share of state-run banks. Therefore, whenever banks are facing a capital crisis, the government adopts some measures to strengthen them. Bank recapitalization is one of the methods that the government has been emphasizing more in the last three years. Bank recapitalization, as the name suggests, implies that there is new capital being infused into public sector banks. This is done so that banks can fulfill the minimum capital requirements that are laid down by the RBI as per Basel norms. 

 

Mrs. Nirmala Sitharaman, Finance Minister of India, proposed a recapitalization of ₹ 20,000 crore for public sector banks (PSBs) in the Union Budget 2021. A similar proposal of ₹ 70,000 was also announced in the 2020 budget in order to enhance the credit supply to the economy. A ratio called the capital adequacy ratio talks about the health of a bank. It measures how much capital a bank has available and is reported as a percentage of the bank's risk-weighted credit exposure. 

 

From an overall capital adequacy perspective, the average capital adequacy ratio for PSBs is about 15 percent, which is among the highest we have seen in the last decade. Apparently, the Finance Ministry appears to have done a lot of homework on this before taking a decision on the recapitalization of PSBs, which have been faring well on macro-stress tests.

6. FAL IN OIL PRICES: 
  It is an open secret that India has been a key beneficiary of the Russia-Ukraine war in terms of cheaper oil imports and increased weapon exports. Even though India is working towards decarbonizing, we still have a long way to go. Oil prices still affect our economy. I believe every Indian needs a friend like Russia. A friend you can trust when times are bad. A friend who can digest criticism and still help us in every possible manner. Because of these decreased oil bills, India's transportation sector was intact. Economics is a beautiful subject. The interdependency of every sector is a crucial growth factor. Because the transportation cost was low, it did not affect the vegetable prices. Since the vegetable prices were unaffected, our pockets were unaffected.

Short-term discrepancies did arise, like tomato prices surging 300 percent or onion prices surging 150 percent, but they were dealt with immediate actions like the government increasing supply from their warehouses. A fall in commodity prices did affect the iron and steel industry, but PLI schemes came in as a blessing. 

Market veteran Mr. R. K. Damani (whose office I have visited at the BSE) once said that the Indian markets have given two big opportunities to invest. One was when then Finance Minister Mr. Manmohan Singh introduced the LPG policy, and the second one is now. It's true that no other market offers such lucrative opportunities as the Indian market does. Whatever the Indian markets have offered till date is a result of a mere 12 crore DMAT accounts, a few taxpayers, and increased consumers. Just imagine what would happen if the DMAT account number reached 100 crore or if the people who file income tax reached 50% of the population. All I have to say is believe in India and the story that India has to narrate, and you shall be rewarded handsomely. Invest wisely so that you can reap the maximum benefits, or just call me. 

 

Whatever I have described is something that at least gives me immense pride in being an Indian. There is no doubt that this country is changing, but a few things haven't changed yet. The ratio of female workers to male workers hasn't changed. Rather, it is decreasing. The ratio of female board members to male board members hasn't changed. The world's average female education rate is 79.7 percent, whereas the same number in India stands at 65 percent. Only 58 percent of women in India feel safe traveling alone or in general. Access to justice is a big challenge. On a scale of 1–4, India stands at 2.4, which is significantly below the average of 3.3. The year 2023 reported 31,677 rape cases as compared to 28,147. A country can grow, but it can grow exponentially when women in that country are bestowed with opportunities and not responsibilities. 

 

On the occasion of International Women's Day, I wish all the lovely ladies a happy and safe Women's Day, and I promise to all the lovely ladies that I will try to create an environment where you will feel safe and will have ample opportunities. I can't promise for the country, but I can promise for myself. 

 

Happy Investing.