India is a favourite among global investors right now.
It is the world’s fastest-growing large economy at a time when many of its competitors have slowed down, set to expand at 7.6% annually over the next two years.
Much of the credit for the revival has gone to the Narendra Modi government which stormed to power in 2014. Since taking charge, the new administration has rolled out a clutch of new initiatives, including a scheme to make India a manufacturing hub and an ambitious programme to skill its large, young population.
Yet, challenges persist. Consider, for instance, the country’s negligence of its agriculture sector. Or, growing competition from countries such as Vietnam and Bangladesh that have emerged as low-cost manufacturing hubs, taking away a significant number of jobs from India.
In an interview with Quartz, Gaurav Dalmia, chairman of Dalmia Holdings, an investment company that reportedly handles some Rs5,000 crore in private equity, real estate, and public markets, among others, expressed his views on the current government and India’s future.
Edited excerpts:
How is India looking at this point?
If you look at it in absolute terms, and not relative to the rest, I think India is doing quite well. I wouldn’t give it an A+ because I think we could have done better. But, we are certainly an A. It shows up in the economic growth data, although some might contest that data. It shows up in corporate results which have now improved. I am told that small businesses are doing better. So I think on an absolute scale, India is doing well.
On a relative scale, India is a beacon of hope. Asia, too, as a whole is doing well. So, that relative advantage will actually go away because we are in a dynamic world.
Why do you say that India could have done better?
The legacy of the previous regime is quite bad. The government interface was completely broken as we saw with one scam after the other.
There was really no vision on what needed to be done. Everything was a reaction to a problem, (rather) than preempting it. I think in the current regime there is more forward thinking. But it has not been as bold as I would have thought. One of the reasons could be because the bench strength in parliament is a little weak because it is run on trust than on merit… These are some of the standard problems of a political party that is (still) growing up.
Another area of concern is the huge debt problem of big banks. I don’t think it has been handled that aggressively as it should have been.
But I believe the government has also taken significant steps towards making India more dynamic. For instance, the delegation of financial expenditure to the states will be a big step as decision making will be closer to the beneficiaries and, therefore, more effective.
The government interface has also certainly cleaned up. I wouldn’t say we are in an excellent environment. We are in a benign environment. We have nothing to jump around.
As an investor in the startup space, do you think there is a bubble waiting to burst?
In the startup sector, I see more indiscipline than anywhere else.
I have nothing against startups; I invest in them. People are creating startups without a startup model. For example, we were made a pitch for a brand. When I asked them the market size, they did not even now what their market size was. Any bubble takes five-eight years to play out. The bubble has already burst now.
As someone who invests in real estate, how do you think the sector is doing now?
If you look at Delhi, it is probably the worst market because of oversupply and inventory. If you look at Bombay (Mumbai), it is better than Delhi, but still bad.
If you look at the big markets, the inventory overhang is quite high. Smaller markets have attractive characteristics. The problem is people lack the knowledge of these markets.
The past two years have seen the government take up a number of reforms. Yet some of these are in limbo. What is your view?
We have a good leader. But, people’s expectations had gone a little too high. And that’s why there was some amount of pushback and despondency at the end of the first two years. Big things don’t happen in two years. We have a committed and efficient government. It doesn’t matter if it is left-of-centre or right. In India, fortunately, we don’t have extreme ideological positions.
How are the BJP’s policies any different from the Congress’s? Around 80% of the policies are the same. Only the implementation remains different.
But is everything as perfect in India as we would like to believe it to be?
Just a couple of days ago, there was this WEF (World Economic Forum)Report in which India’s position in the ease of competitiveness ranking had gone up from 55 to 39. But if you go into the details, they have 11 criteria. On 10 of these, we went up. On one, we did worse than before; this was primary education and primary health. While there is something to be happy about, there is also something to think about.
Does it have to do with India’s skewed growth model?
Some of our problem with primary education or the human development index is to do with the skewed nature of development. Because the government hasn’t delivered the services it was supposed to. Take a cynical view, the government has stolen money from the people.
I think there is a clear demarcation between south India and north India. Look at replacement ratio (when population exactly replaces itself from one generation to the next, without migration); south India has reached the standard where you are just about replacement, and hence the population is not putting pressure.
But, if you go to Uttar Pradesh or Bihar… that to me is a demographic time bomb. These are two regions of India with two cultures.
Even with regard to development, if you look at privatisation of essential services, most of the people have adopted it in the south. In the north, people resist taking private services and are dependent on the government. That’s a cultural problem. And if that trend continues, we will have two Indias.
India also has a large population aged under 35 now. How can the government make use of it?
I think one of the big challenges we are going to have now is harnessing our so-called advantage.
Our population could be an advantage. If you look at the German productivity of labour, it was not an accident. It was a conscious exercise of society by vocational training or otherwise. We haven’t done anything like that. Today, your average 20-year-old is not employable by any means. Most businesses run their training programs to feed into their systems. That shouldn’t be the case. This whole skill development (project) can be a game changer. But it will take some time.
If we don’t harness or we fail, it is going to be a social problem. Look at Latin America (where) people are up in arms. In Brazil, their cities and downtown are unsafe. So, potentially, in a worst-case scenario, we might have to grapple with the same. But in the best case, we have a productive enough force that will have a lot of opportunities.
There are also growing concerns over agriculture. More farmers are selling their land for lucrative real estate deals or committing suicide.
Our population density is among the highest in the world. So there is pressure on land. You also have fragmented land holdings. Agricultural productivity is a function of mechanisation, scale, and land, among others. Access to credit is the other problem. To me, there is no reason, geographically, why we cannot revive our agriculture.
But this whole focus is on the industry… agriculture is completely ignored.
This article has been produced in collaboration with the World Economic Forum and in line with the programme topics of the India Economic Summit on 6-7 October 2016 in New Delhi under the theme “Fostering an Inclusive India through Digital Transformation.” For more information about the meeting visit http://wef.ch/ies16.