Equity Advisory

Are you looking for an honest, transparent and independent equity research and advisory? www.intelsense.in is run by Abhishek Basumallick for retail investors. Subscribe for long term wealth creation.

Monday, 2 December 2019

Why India Boomed? And Why Are We Now In Trouble?


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

No comments:

Post a comment