Sandip Sabharwal

It is unfortunate but true that the only reasoning that many give for being negative on India is rising crude oil prices. While it is of concern as it impacts both our current account deficit (CAD) as well as inflation trajectory, there are many things working in India’s favour, which cannot be ignored.

Most who are just crude-focussed are missing the big part of the rally. The oil price rally was more drastic during the boom years of 2003-2007. And back then, there was not much of focus on renewables or electric vehicles, which is a reality today.

The price of crude price may rise but its longer-term outlook becomes increasingly negative as it is held up unnaturally. Nevertheless, that is not the India story.

The India story has several other things working for us. It is reflected in the GDP print that was reported on August 31, which came at 8.2 percent, the highest in several years.

While many are still skeptical about the GDP data but we will continue to see an improvement in this over the next several quarters. The economy is like a huge spherical rock, which is difficult to move, but when it catches momentum, it moves very fast and it takes time to slow down. So the economy as large as ours tends to be either in a virtuous cycle or a vicious cycle.

As I write today, it is very clear that the economic juggernaut has turned around and started to accelerate. Low inflation of the last few years combined with improving income to expenditure ratios have led to a revival in consumer demand both at the urban and rural levels.

A good monsoon this year should further add to this.

The impact of Pay Commission hikes is also better seen now. This is reflected not only in the consumption of non-durables but also in higher value durables like cars, bikes, TVs etc.

The increasing occupancy of hotels during the holiday seasons and packed holiday destinations is another factor verifying this sentiment. This should continue going forward.

The government, when it took over, worked on a lot of aspects to improve transparency and this has speeded up project awards in the infrastructure sector.

A huge number of road, railways and urban infrastructure projects have been launched whose implementation has picked up pace now. Infrastructure investments generate a lot of employment and demand for products as well. That is being seen today.

The implementation of many projects will be rapid over the next two years. It is reflected in the guidance of many companies of this segment which are looking to grow 20-40 percent.

Corporate investment demand has still been slack as there was enough spare capacity created in the last boom which is now getting filled. Many capital-good companies are now showing an improved an order book and visibility of growth.

This combined with the turnaround in many commodity industries will be overall positive for corporate sector investment demand. The ability of banks to fund new growth projects was also significantly hampered due to the state of their balance sheets.

Thankfully, now the write-offs have been made to a great extent. In the next 8-10 years, we should see a strong balance sheet from financials as the fear of the past will be over. Hopefully, we will see a permanent change in the way many banks operate.

Despite high inflation, which may cause an uptick in interest rates, the ability of these banks to deliver credit will be stronger.

A clean auction and project award processes combined with the implementation of GST will improve the productivity of the overall economy.

We have already seen efficiency gains play out in the numbers of many consumer companies. As the systems stabilize, we will see these gains flow into the entire economy. These efficiency gains at a time of an improving economy will add to the profitability of companies.

Many other aspects related to financial inclusion, low-cost housing schemes, LPG for all, electricity for all, a low-cost digital economy etc. will also have a positive impact on improving the efficiency of the overall economy.

In this context, when we evaluate the economy beyond 2019, the way we need to look at it is that the good work done cannot be undone very fast.

Undoing the bad of the past has taken 3-4 years and the economy has started improving now. Some reforms are structural in nature: GST, auctions, project award transparency etc.

There will be others which are not structural but will still require 3-4 years to undo. As such, if the same government comes back, we will see continuity and possibly a high growth economy for the next decade or so.

Even if there is a change, economic growth will continue to be strong and corporate sector profitability revival will continue for at least 3-4 years.

Subsequently, depending on the kind of dispensation at the Centre, we could see an end to the cyclical revival.

In conclusion, I believe that we have now entered a high growth phase of the economy, which will continue for a few years. Whether we will have 10-15 years of a high growth economy finally depends on how the political landscape is after the next elections.

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