Conversation between Deepak Nighoskar, a management consultant and Ezilarsan PKP, Founder, MarketExpress – India’s First Global Insights & Analysis Sharing Platform.

Ezilarsan PKP: Why India is the happening place and your thoughts on the demonetization or currency swap puzzle.?

India has clocked an average growth rate over 6.75% since it ushered into the liberalization regime 25 years back. Favourable demographics, rising middle class, growing urbanization, high knowledge-based industries – umpteen arguments have been articulated about why India is the happening place.

But these are only the parameters that indicate the attractiveness of the Indian economy; the right lever which is working to make India an attractive and happening place from the perspective of an investor is the gradual reforms process underway. Almost all the sectors of the economy- industrial, financial, agricultural, have been exposed to competitive forces, and in the process have emerged stronger. Though the pace of reforms has been uneven, the process has taken deep enough roots in the political economy to be reversed.

One of the biggest drawbacks of Indian economy is said to be the lack of adequate physical infrastructure, which caps growth potential of the economy. The structural reforms initiated in various sectors have sought to address this limitation and in the process helped create a more robust economy. These reforms have enabled the creation of a vast domestic market, thus reducing the dependence of the economy upon global factors.

Reform measures have impacted the economy positively in several ways:

• It has brought down the volatility of the growth rate significantly post 1992.
• Indian economy has been growing at a robust pace even in the post 2008 global scenario. As against the global average of 2.24% Indian economy has grown at 7.5% post 2008.
• The gap between the Indian and global growth rate is widening in favour of India; looking at the current growth dynamics, the gap is only expected to widen.

In recent times, the pace of reforms has gathered steam with the aim of placing India amongst the top competitive places to invest and produce. Two recent initiatives stand out in this regard.

Over a decade in the making, the Goods and Services Tax (GST) dubbed as the most transformative tax reform ever, has been legislated by the Indian Parliament. Once in force, GST will simplify the existing tax regime, make India one single common market spanning across all the states, and improve the ease of doing business across different states.

Currency swap of high-value currency notes dovetails nicely with the indirect tax reform of GST – the general impact being the ‘formalization’ of the informal sector and in the process creating a level playing field for all the players. Ultimately it means a much bigger market for the current formal sector. Both these measures – the indirect tax reform and the currency swap, are part of a series of steps which indicates the willingness of the political class to take tough decisions.

While most of the reforms have been initiated at the federal level, a sub-story story is unfolding at the state level. Various states are competing with each other to attract investment. In fact, the only area left untouched until now, and the labour market has been taken up for reforms fairly recently at the state level. The federal government is playing the role of facilitator, helping create the legal framework.

‘State governments as stakeholders’ in the improved investment climate brings down the risk for potential investors several notches and makes the whole process robust and almost irreversible.

India has taken the pole position for the next round of global growth race. Though India is not yet big enough to be the global growth engine, it certainly has become the rare bright spot in an otherwise uncertain world.

Ezilarsan PKP: India, other emerging markets and how India is different?

India looks a very attractive market of 1.25 billion people. But it is not one unified market; rather it is a basket of many markets with different tastes, choices and preferences. Unless it has a ‘Maggi’ to sell, the marketer should be sure of which of the 650+ different markets it plans to target, each district being akin to a unique market. These markets are differentiated by the distribution of wealth and income. This is so unlike the uniformity of consumer behavior in the European or the US markets, where it is much easier for companies to operate and grow across the geography. Customization is the key to Indian markets. Even a GST, which will facilitate the flow of goods and services across markets, will not overcome such diversity of ‘markets’.

Unlike China and the tiger economies of East and South East Asia, India has taken domestic demand-led growth path. The economy thrives on domestic consumption, powered by over 247 million households. The emphasis on ‘make in India’ thus actually translates into ‘make for India’. The thriving domestic market for both consumer and industrial goods means that companies do not have to scout abroad for their produce.

Another distinguishing feature of the market is the vast informal sector – the unorganized part of the market which in most instances is bigger than the organized part. Over 70% of the non-agricultural employment comes from this informal sector. While the efforts to make it the part of the formal economy continue, it poses a big challenge to the organized segment.

While India is clubbed with other BRICS countries, it is to be noted that unlike Russia and Brazil, India is major commodity importer and benefits from a downturn in commodity cycle.

The uniqueness of Indian market makes it stand out as an economy of consequence.