Three leading economists are unanimous about the fact that India has emerged as a very attractive investment destination and a very stable economy in a very turbulent external environment.
What were the reasons behind their optimism?
There has been an improvement on ALL balance sheets, ensuring a strong macro base. An explanation of the various balance sheets they referred to.
- Corporate Balance Sheet: Analysis of balance-sheet data on a large cross-section of Indian non-financial corporates that points to interest payment burdens and debt carried.
- Twin Balance Sheet: This refers to lenders (banks) and borrowers (companies). The Twin Balance Sheet problem is when corporates are overleveraged and cannot repay interest or principal. The banks come under severe stress as their NPAs rise.
- Triple Balance Sheet: When banks refrained from lending as they struggled to contain NPAs, non-banking financial corporations (NBFCs) became major lenders. The collapse of IL&FS in September 2018 sent shockwaves through the entire financial system. Triple Balance sheet includes NBFCs and banks (lenders) and companies (borrowers).
- Quadruple Balance Sheet: The Four Balance Sheet challenge includes infrastructure companies, real estate companies, banks, and NBFCs.
- India’s External Balance Sheet: Foreign assets and liabilities.
An improvement in all of the above has ensured that various financial metrics like interest rate, currency and equity markets are responding very differently in a global inflationary environment and Federal Reserve tightening.
Also, India’s resilience is a result of the very restrained fiscal response to the pandemic. Clearly, the stimulus programmes have gotten the large economies in trouble.
You can read individual views in detail (their names are linked to their respective views).
Saugata Bhattacharya
Executive Vice President and Chief Economist
Axis Bank
Despite the shortcomings in our physical infrastructure, our digital infrastructure is probably one of the best in the world. We have already started leveraging this and it needs to be taken forward.
There is a very immediate problem in terms of the low unit value of exports. We need to add value to our exporting chains, be it manufacturing or merchandise. Now everything is bundled together as a service. You don't just export jet engines but the entire value chain right from design to maintenance. Our exports are largely a reflection of our domestic competitiveness. Focusing on improving domestic competitiveness will ultimately lead to the value addition that we provide to exports.
Pranjul Bhandari
Chief India Economist
HSBC Securities & Capital Markets (India)
One thing is constantly on my radar when I track the economy: Are we giving an ecosystem to manufacturing where small firms grow overtime? Or are we creating a situation in which they remain dwarfs for long?
We have to solve the small firms' problem because 90% of India's manufacturing units are either micro, small or medium-sized. If they don't enjoy economies of scale, they can't be efficient producers, especially when we have so many efficient producers around the world.
New India is all the promising things like high-tech exports and start-ups. If we continue to grow, our potential growth could go back to somewhere between 6% and 6.5%. That growth is good, but it doesn't create jobs. We need old India – manufacturing, infrastructure - to rise as well. This will create employment. If we can do that, along with digitisation of manufacturing processes and reforms, the impact will be powerful. We can go up to a 7% economy.
Upasana Chachra
Executive Director and India Economist
Morgan Stanley
The corporate tax rate reduction that happened in September 2019 was extremely significant. The government has stepped up on its structural reforms. Fiscal incentives through the production-linked incentive schemes. Thrust on public infrastructure. All this indicates that supply side factors are coming together.
It improves India's growth potential and ensures that the growth path remains more sustained. Now juxtapose the above with the improvement on domestic demand, and we think that India is at an inflection point.
