The Indian economy is in bad shape. All the macro
indicators and fast-moving indicators show this at this point in time. Every
news article or program in the media is highlighting this.
Let me take a step back to analyze how and why India
boomed and what are the factors that are changing today.
My hypothesis is that India's boom was initiated and
driven by the IT sector for the major part. It all started with the rise of the
It companies like Infosys, Wipro, TCS. These companies hired young Indians out
of college and paid them salaries which were in multiples of the traditional
industries at the time. Another important point is that these companies hired
in very large numbers. At no time in industrial India, had such large number of
middle class educated Indians got such highly paid jobs. All labour intensive
industries in the past had low salary levels. The fortunes of the companies and
its employees kept being boosted by a continuously depreciating rupee over the
years.
A fair number of people went abroad and brought back their
saved dollars. They also brought back a yearning for products and services of global
standards. They got used to eating at McDonalds and Pizza Hut, shopping at
Walmart and Amazon, driving cars. Back to India, they were looking to replicate
their US lifestyle in India.
With the opening of the economy in the 90s, some of
these global companies also started coming to India. Indian industry also
picked up cues from the global ecosystem and started improving their quality
standards. This period also coincided with the starting of cable TV in India.
Suddenly, a much larger section of people started getting exposed to the latest
happenings, fashions, products, services and lifestyles of people across the
world.
The combination of significantly higher purchasing
power in the hands of many at the same time and global aspirations is what
started the consumption boom.
The real estate sector was one of the first to get
seriously benefited. The skylines in cities like Bangalore, Hyderabad, Pune,
NCR started changing completely. The secondary and tertiary job generation from
this consumption-led growth kept fueling the Indian economy. The other fallout
of the IT boom was that other industries had to start paying higher salaries to
retain and attract talent as everyone made a beeline to the IT companies.
India became a global IT services powerhouse. We were
acknowledged to the global leader. Books such The World is Flat by Thomas
Friedman further cemented the perception of Indian domination in the knowledge
economy in global minds. The fact that
we missed the bus completely on higher-value products and platforms is a topic
I am reserving for another day.
There was another softer aspect of this global
domination in IT services. India became a “known” entity for the global
business people. No longer were we a country of elephants and snake charmers.
This mindshare within global business leaders helped the BPO industry and later
the Pharma industry walk on the same footsteps of the IT industry did with
considerable success. The same is now happening in the Chemicals industry where
India is becoming a country of choice for global players.
The last few years has not been very good for the
Indian IT industry. Growth has tapered. Downsizing in large companies has been
consistently in the news and on social media. Employees, especially mid and
senior level, are not as secure in their jobs as they were a decade back.
Salary increments have reduced from twenty-thirty percent a 10-15 years back to
single digits in the last few years. Starting salaries for employees have not
gone by significantly in the last 10-15 years. Obviously, if the largest
high-paid “labour-force” in the country are concerned about their jobs or are
not very confident of increments, it will take a toll on consumption. It will,
in turn, have a cascading effect on other allied services.
So, what is the way out? How can the economy actually
do well? What is needed is a second wave of employment generation like what we
saw in the IT boom years. Where can it come from? The way IT industry is
looking, it will no longer be able to boost economic growth. It is now a
stable, mature industry which has lost the ability of large-scale new
employment generation. We need to start looking at new age sectors –
electronics, education, healthcare, pharma and tourism.
These sectors have the potential for large scale
stable employment generation. Just as an example, inviting global schools and
colleges into India could help boost the perception in the education sector. Similarly,
making it easier to open and run medical colleges and hospitals in district
towns, can also be a long-term game. A little focused effort, with some policy
interventions and tax incentives to nudge entrepreneurs in the desired
direction is needed. Both industry and government need to prioritize stable
employment generation across sectors for the economy to do well once again. There
is no other way.
Disclaimer: The author is the Founder and Chief Equity Advisor
at www.intelsense.in and nothing in the article should be
construed as financial advice.
This article first appeared in The Economic Times - https://economictimes.indiatimes.com/markets/stocks/news/india-boomed-how-why-we-lost-the-plot-on-the-high-growth-path/articleshow/72291116.cms
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