It is rare to read in newspaper front pages about long term factors defining economic trends for the next 37 years, so it was a pleasant surprise to read this article on Monday morning
The phenomenon of India’s impending demographic dividend, ironically, was made well-known by a foreign Investment bank. Since the 2001 Goldman Sachs BRICs report, the Indian stock markets have attracted great attention from investors the world over! After all, they have witnessed what a majorly-young, working-age population can do to economic growth of a large country. Higher rates of productivity coupled with higher rates of consumption! The economic boom for all the (now) developed nations happened predominantly when there was a tilt in population towards working age versus dependents (children or >65-year-olds). As investors in equity of Indian companies, this is the single most important factor for us to be optimistic about for the next 4 decades!
In the run-up to our best four-decade-phase of our economy, even though the last three decades have witnessed very decent growth rates, the participation has been far from wide-spread and benefits far from inclusive. If a large percentage of our young population is living in conditions that are not conducive for productivity or are unfavorable for them to get added to the consuming class then the demographic advantage could get restrained
As Equity investors, waiting to reap the benefits of the approaching economic boom in our country, we would expect any duly elected government to strengthen the foundations of our social structure so as to sustain a more collective effort to grow in our most opportune phase! The Jan-dhan yojana, free medical insurance, construction of toilets, free LPG connections for the poor, free LED bulbs, pension for informal sector, direct benefit transfer of subsidies, providing electricity to all villages, digitization, skill India, benefits for girl child and for senior citizens etc. are some initiatives that should satisfy our expectations from the current government to improve productivity and efficiency of our workforce
With regard to the current economic situation, we have reasons to believe that the worst is behind us for issues relating to economic growth. Discretionary spending had seen a slowdown in the last few years due to demonetization, GST implementation, private sector demand slowdown and other cleanup efforts undertaken by the government especially in the areas impacting the real estate sector. The biggest problem facing our economy in the current decade – Bank NPAs, has been set on track for resolution. The profitability of the most affected big corporate banks is getting back to normal
This was an extremely difficult phase for our economy when the suppliers of vital credit for all business needs were in deep trouble. The Insolvency and Bankruptcy code 2016 is a vital piece of legislation that has laid the foundation for stopping unscrupulous borrowing activities. Genuine Industry borrowers can now look forward to easier supply of funds in the months to come. Expectations of growth can be more optimistic in the immediate future
While we are not totally insulated from global trade wars issues and increasing de-globalization, we are relatively less exports-dependent and quite self-sufficient. There will always be other internal challenges of managing such a dense population, but remember – our large population poses many problems but it is also our biggest strength! As our fundamentals get strengthened, we believe this is the time to be optimistic!