Gateway to a $5 trillion economic future

Resuming as the fastest-growing economy in the world, India is back on a growth trajectory.



Published: Tue 26 Jan 2021, 10:54 AM

The Reserve Bank of India (RBI) in their recent econom-ic fore­cast went somewhat lyrical about the recent rapid recov­ery; quoting William Shakespeare, high frequency indicators suggest that the recovery is getting stron-ger in its trac­tion and "soon the winter of our discon­tent will be made a glorious summer."

This well-founded optimism from a usually staid and dour central bank is not just welcome words, but also augur well for the world's fastest growing large economy. A vibrant economy will always expand infrastructure, create jobs and enhance the 'feel-good factors' all-round- so vital for the well-being of its citizens.

RBI added that the economy is recov­er-ing faster than expected. It will clock a growth rate of 14.2 per cent in the first half of 2021-22 on top of 0.4 per cent in the second half of 2020.

More importantly, oil imports declined 43.4 per cent in November 2020 main­ly due to soft international crude prices. But in a sign that demand is getting back in the economy, non-oil imports have re-turned broadly to pre-Covid levels.

The Indian Government's calibrated stimulus release programme in April 2020 is, with hindsight, much appreciated by most global economists for its prudence; compared to the multi-trillion US dollar hasty hand-outs by the US and EU treasuries in early 2020 that ended up chasing yields and flowing largely into the global and emerging markets' stock markets. This fuelled a runaway bull market. Thus, a bulk of the stimulus in the Western world have therefore been misdirected and constitute a colos-sal wasted effort.

Most recipient banks simply parked the surplus liquidity back with their Cen­tral Banks; rather than lend it. Their risk aver-sion has increased noticeably. They are mortified that NPAs (non-performing assets or loans) are looming large and the banks, thus fear that once the extended moratorium plays out, most adversely-impacted borrowers will default or re-schedule causing significant stress on the banks' balance sheets.

The Indian stimulus package was a lot better targeted, and the government rightly and early on, realised that the SME and infrastructure sectors create jobs need to be supported; as indeed the non-banking financial institutions (NBFIs) that are agile and better at time-ly intermediation.

Equity infusion is also being done via dedicated SME-focused equity funds and SIDBI. Such private equity contributions IBPC Flagship series, India Dialogues with Dr Bibek Debroy

if enhanced substantially will help them to get lower-priced leverage from banks and strengthen their enterprises' balance sheets.

Nitin Gadkari, India's Minister of Mi-cro, Small and Medium Enterprises, dur-ing an Indian Business and Professional Council (IBPC) webinar with the under-signed, agreed that NRIs can contribute via private equity feeder funds targeting well-performing SMEs and thus partici-pate in nation-building. He confirmed that the Ministry would support such endeavours. These initiatives will help forge a stronger connect between busi-nesses in the home and host countries. He felt that IBPC and NRIs in Dubai can be catalysts for these well managed in-vestment funds; ensuring shareholder value and synergies.

Indeed, foreign direct investments (FDI) into India touched the highest level historically in April 2020 despite a raging pandemic. The Reliance Group raised over $9 billion in just a week and major global sovereign wealth funds (SWFs), including Mubadala and ADIA from Abu Dhabi, lined up for the opportunity.

Thus, there is no dearth of global insti-tutional wealth if India's growth numbers consistently perform well; enabling via-ble returns and positive reward for both strategic and financial investors from around the world. These are the ingredi­ents of a virtuous cycle of exponential growth with moderated inflation, if man-aged prudently.

In this context, the Indian Prime Min-ister's visit in August 2015 was a huge breakthrough - both in terms of per-sonal chemistry and alignment of geo-political and mutual interests. This re-sulted in a wide ranging and strategic partnership forged between the UAE and India, and documented as such strad-dling economic and social sectors.

A commitment of up to $75 billion was committed in terms of investments over and above a near-doubling of trade flows, year on year.

By last count, the overall figure to date is edging upwards of $18 billion. ADIA has been setting the pace in this regard and SWFs in Abu Dhabi such as Mubada-la, ADIC and others are catching up as leading 'financial' investors.

In Dubai, DP World has committed $3 billion and more towards logistics, cold storage and much needed infrastructure build up strategically. This is to be appre-ciated for the real and immediate value-addition on the ground. literally.

IBPC is therefore felicitating and hon-ouring DP World and its CEO Sultan Ahmed bin Sulayem as the "most distin-guished institutional investor in India" on India's Republic Day on January 26; much deserved and most timely.

Hopefully other large businesses, in-dustries and institutions would want to be part of India's $5 trillion economy in the making; thus fulfilling the $75 billion commitment.

Suresh Kumar is the Chairman of the Indian Business and Professional Council (IBPC). In the past, he served as the CEO of Emirates NBD Group entities, Chairman of the Federal Bank in India, and a number of financial institutions in the UAE and India. Views expressed in the article are his own.

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