Hidden Strengths of Indian Economy

Hidden Strengths of  India – 7^th Feb 2016

R.Kannan

India continues to do well in the Global Economy despite there is a big scope for reforms in the various sectors of the Economy. The proposed reforms are work in progress  Once they are implemented India will continue to grow at higher than the present levels.

India has many hidden strengths which are not reflected in the reports , statistics and surveys carried out by experts. By capitalising the strengths, India would be able to realise its full potential of Economic growth.

1. Largest number of entrepreneurs in the world. India has the largest number of entrepreneurs in the world. Most of these entrepreneurs are in the services sectors , especially , trading. Tier 2, 3, 4 cities and villages have entrepreneurs in the areas of trade and related activities. There are more than 20 million entrepreneurs in India and assuming an average house hold size of 5, 100 million people depend on these activities in India.
2. Largest number of small start ups in the world. Traditionally, in India, lot of new start ups, especially in Trading are being created by small entrepreneurs. This is mainly in the areas of retailing and trade. The phenomenon is witnessed not only in Urban areas but also in rural areas.
3. It is very easy to start a business in India, where only the local licenses are required. The businesses which require license from  local body is easy to start. It does not require licenses from District , State and Central government levels.
4. Profitable businesses at high interest rates.  In India, interest rates vary from 0% to 4000% p.a . The small vendors borrow funds at 10% day and they generate 30% returns per day. Despite the rates of interest are very high, the loans are still affordable. Many of the small businesses generate very high margins and they have the best asset and working capital turnover.
5. Availability of funding from various sources. Since the savings rate is very high, there are many sources from which funding for business could be raised. Starting from friends to small money lenders , funding is available from Micro Finance Institutions,  State funding agencies, central government agencies, banks, financial institutions, corporates, Primary market, secondary market , Private equity, FDI, FII’, foreign Hedge Funds and provident funds are available. 
6. High generation of employment in small scale sector. Most of the employees in India are in the unorganised sectors and especially in small scale. Lot of new jobs are being created in the small scale. After the advent of mobile phones and their penetration in the rural areas , lot of employment is generated in the related fields even in rural areas.
7. Very high savings rate. India has a very high savings rate of 30%. This is equivalent to $ 600 bn a year. In a five years, the savings generated will be equivalent to $ 3 trillion. This is three times the requirement of investments required for investment in Infrastructure. If attractive financial instruments are created , it would be possible to meet funding for the infrastructure investment within India.
8. High money multiplier. Since most of the transactions in India are carried out by Cash, the money multiplier is much higher than the statistics on the Indian economy. Since the multiplier is higher, this helps to generate value addition at different levels in the Economy.
9. Very high assets holdings by Government, Government agencies, PSU’s,Banks , Corporates, Religious bodies, NGO’s and Individuals. There are big land holdings, gold holdings in the economy and if the market value of these assets are valued , the debt equity ratio for the above would be much lower than the Economic Statistics. There is a need to capitalise hidden assets by various entities in the economy.

Overnight, the PSU’s can be turned around. Since they hold land in Prime areas. Public Sector Banks hold lots of real estate assets and the market value of investments by LIC is much higher than the cost of investments. Gold is held by many religious institutions and Individuals. Most of the assets are in illiquid form and strategies have to be developed for making them liquid and performing.

10. Self supporting local communities.  Since India is very large and dominance of rural areas, many rural communities are still immune to what is happening globally and they can sustain their performance irrespective of the global economic developments . The small economies can be protected from high volatility.
11. Higher competition between states. Now each state government behaves like an entrepreneur and there are initiatives in each state to attract more investments and each state has set up a target to grow the economy at a faster rate than the Indian economic growth. The initiatives in three to four states alone can lead to higher economic growth levels in India , when the programmes are implemented .
12. The real GDP. Since there is a big parallel economy  in India, the real GDP is much higher than the GDP reported . Most of the risk funding, where returns are not certain, comes from funding sources from Parallel Economy. Parallel economy is also helping to sustain the higher level of economic activities in India.
13. Indian Diaspora. Their asset holdings in other parts of the world are very high. Now, many of the economies in the Globe are becoming unattractive, many of them are looking at the investment in opportunities in India. As and when , the conditions become favourable for their investment, more funds would come to India from Diaspora.
14. India’s consumers. In India, as per the Income classification, we have the maximum number of customer segments in India. There is a constant movement of consumers moving from lower category to next higher category. This creates demand for all types of goods. For e.g., there is a demand for the cheapest car to the costliest car in the world. 
15. Attractiveness of Investment. The reports released by various agencies in the world does not reflect the reality. The ranking is given on small data of variables and it does not represent the reality. The situation is not as bad as reported. As per the survey done by World Economic Forum this year, India ranks top amongst all the countries in the world for the attractiveness of investments.

India has all the strengths, as outlined above and we have to develop strategies and action plans to capitalise the hidden potential. The action plans developed should not disturb the existing eco system which is favouring creation of entrepreneurs. The action plans should add to the present strengths. In 1700’s and before, India was one of the leading economies in the world contribution to a significant portion of Global GDP. This will add 2% to our GDP ,India can regain its status of the leading country in the world.      

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