Road to India@100: Towards a charged-up economy

The indian economy has come a long way over the past 75 years. Today, it is the fifth-largest economy in the world and has entered the world’s top five in terms of overall market capitalisation.

India is also the largest democracy. Its large population presents a great opportunity. It acts as a base for domestic consumption-based growth, while also presenting a large demographic dividend. The Covid-19 pandemic has created the need to have alternate supply chains outside of China, with India well-positioned to leverage the windfall gains of the China-plus 1 strategy. The country recently celebrated its 100th Unicorn and the government’s efforts to create an entrepreneurial ecosystem and facilitate the growth of early-stage start-ups must be acknowledged.

The Government of India under PM Narendra Modi has taken some formative steps to empower Bharat. The ‘Make in India’ and PLI schemes are steps towards boosting Indian manufacturing, attracting FDI and creating employment opportunities. India has been at the forefront of technology adoption within the financial system. One example of this is UPI that has revolutionised the financial ecosystem and helped simplify financial transactions. In FY22, UPI processed more than 46 billion transactions amounting to over Rs 84.17 lakh crore. The trinity of Jan Dhan account, Aadhaar and mobile has brought in a new era of financial inclusion.

Channelling India’s household savings: The past few decades have been nothing short of a revolution with more and more Indian citizens set forth on the path of wealth creation. Reserve Bank of India (RBI) data reflects that of the roughly Rs 56 lakh crore in gross savings generated in FY22, households chipped in with nearly Rs 44 lakh crore. Of this, about Rs 31 lakh crore was allocated to financial assets. The turnaround post demonetisation, and the increased acceptance of market-linked instruments in a low-interest rate environment during the pandemic, has fuelled the preference for financial assets.

Formalisation of savings with instruments like MF: The mutual funds (MF) industry plays an important role in keeping the economic and financial wheels of the country in motion. They help channel household savings into the economy, resulting in a democratic system of letting all participants have a share in India’s growth. The MF industry has also helped deepen financial inclusion through investment education initiatives to sensitise citizens.

A big turnaround also happened in the MF industry after demonetisation, leading to big growth and channelling of savings into investments. Innovation in products, process efficiencies, goal-based solutions, the flexibility of investment options and the digital push are some of the reasons leading to increased retail participation in MFs. Assets under management of the Indian MF industry have witnessed a fivefold jump in the past 10 years.

Looking forward to the next 25 years: The Government of India has already taken significant policy measures that will act as enablers in the long run. Manufacturing prowess, a vibrant start-up ecosystem, a young and employable workforce and massive digitalisation are some of the key levers for India to unleash itself in the global arena.

On the back of this, India would eventually graduate to become one of the superpowers in the world, participating in global growth and providing leadership. In fact, there is a high probability for India to get back its past glory of being a high per capita income country, a status it used to enjoy in early 18th century. This might reinstate India as a major player in global commerce and trade. So, what does that mean from the macroeconomic and stock market perspective?

The cumulative impact of economic development can bring inflation and interest rates to lower single digits. As a result, the lending rate will remain low and keep the cost of capital low, making borrowing very affordable. This will further drive growth and enable huge investments in the country by businesses.

As India’s capital market attracts the attention of the world, India’s forex reserves can increase by about five times, offering two to three years of import cover. India has also taken many initiatives in the area of ESG. It is well-positioned to attain its net zero targets and meet the sustainable development goals. Increased green energy capacity, transition into electric vehicles, technology upgrades across sectors, multiple national-level programmes for affordable housing, environment and education are some of the measures taken towards meeting these goals. All these augur well for the country’s march to becoming a multi-trillion-dollar-economy as we near the 100th year of India’s independence. Alongside, the Indian capital markets, too, would march towards a similar size or even more. Besides that, MFs are set to enhance household wealth and financial inclusion.

With rising incomes and increasing aspirations for a higher standard of living, MFs as a financial instrument will play an integral part in enhancing household wealth. One can also expect greater financial inclusion with increased market penetration of financial products. In fact, in the next 25 years, every household in our country will have an MF folio and participate in India’s growth story. Even the fixed-income segment is expected to mature further. MFs have always played a significant role in the evolution of the bond market and in supporting economic growth by providing necessary capital to the public and private sectors. Increased economic activity will mean increased capital requirements, which will deepen the bond market to support productive businesses and assets.

Believing in long-term investing as a principle will be the main force driving MF investing rather than investing based on returns and products. Solution-based investing will become the key investment mantra of the entire country. The role of financial advisors will also increase significantly, and with the rise in wealth, the presence and number of wealth advisors will also increase. We will have a wealth specialist in every location whose main objective will be to serve the financial needs of the growing Indian middle class population. 

The writer is MD & CEO of Aditya Birla Sun Life Mutual Fund