Taking India From Pole Position To A Podium Finish In 2018BloombergQuintOpinion
In its wake, 2017 brought forth images of a world that is fast-changing, challenging conventional thinking. The ‘future’ doesn’t appear far away anymore, it is urgent and exciting. As we begin our walk into 2018, I am tempted to use the imagery of ‘e-racing’ to define what the year holds for us. My company produced India’s first electric vehicle (EV) and currently sponsors and participates in EV racing, presaging the dramatic changes in the global mobility industry. Having watched e-racing from a vantage point, that analogy is appropriate to describe the year that is to come.
India reached the ‘pole position’ in the qualifying lap last year. Reforms and enabling policies moved it up in the index of ease of doing business, and its sovereign rating was upgraded. Its growth, despite headwinds, was in high gear, its full potential at a tipping point. As the race tracks open in the new year, the known and unknown factors continue to offer hope and thrill.
Global events may pose some sharp turns on the race track. Brexit will be one such bend. The United Kingdom’s negotiations on trade and the movement of people, as the exit talks move through 2018 into 2019, will be relevant to the Indian economy.
As geopolitics dictates the relative position nations enjoy on the global stage, the current global flux between nationalism and internationalism will be of interest.
The aftereffects of this may last for a while but whatever the outcome, India’s position will be that of an important hand at the wheel of world affairs.
A discussion on the global race and that of India cannot omit China. The country has realised its time is now and has been flexing its muscle, soft and sharp, decisively.
China’s One Belt One Road project, financial packages that it will extend to many emerging and frontier countries, political, trade and currency strategies will all raise the stakes in the region. To stay in the race and seize its own opportunities, India will have to hone its skills for countering China’s influence.
This race will test India’s preparedness on many fronts. While India enjoys advantages in the world’s diplomatic and political arenas, economic changes could be an impediment. One potential threat is the draw-down of accommodative monetary policy by global central banks — particularly the U.S. Federal Reserve and the European Central Bank.
While the global economy does look well-prepared for an upward move in interest rates, and the economic adjustments are not expected to derail overall progress, we should remember that predictions are never perfect. Rate tightening in an uncertain terrain could have an uneven impact, with spillover effects that may queer the pitch. With rates in the West going up, capital may move back to developed economies. The recent U.S. tax regime changes may accelerate that trend, with American companies moving offshore operations and cash back to the homeland.
That said, the global economy seems to be revving up, with growth predicted at 3.6 percent. The data prints out of the U.S., Europe, the United Kingdom, China, Asia, and to a lesser extent Latin America, are all pointing to higher growth than last year.
The atmosphere is one of hope for 2018, as developed countries repair their balance sheets, investments, and economic activity head up, and employment improves.
This assessment is not without variables. For one, oil prices have been moving up after a prolonged idling, which has many implications across the world. What is cause for cheer for U.S. shale producers and governments such as the United Arab Emirates; translates into fiscal threats, price increases, and consequently, inflation fears for South Asia. This will result in a tightening monetary cycle which, in turn, will harm growth. Will production cuts by oil producers increase, supply and demand mismatch, and prices spike further?
Emerging economies need to tackle these scenarios as racers tackle obstacles — agile and on the go.
Another potent global force, one that will keep mutating, can challenge not only economies but the very fabric of national polity, and test corporate vulnerability. For a few years now, we’ve seen nations act against rivals in cyberspace. An escalation in cyber wars would compromise security and technology, on which ride all business models today. Now add to this a nuclear threat from a rogue nation like North Korea, and a global crisis may be lurking anywhere. Should any such crisis rear its ugly head, the spillover and the long-term impact can mar the current benign and positive outlook for the global economy.
Turning back to India’s journey in 2018, and more parallels to the race track. The ‘pit-stops’ in 2018 will be the state elections, which will provide opportunities to ‘re-fuel’ on the policy front, where ‘Team India’ will decide the future course of the reform process and, in a way, the race to the finish. The government has many boosters in its armoury: the programmes on Skill India, Make in India; as well as the reliance on technology in Aadhaar linkages, Jan Dhan accounts, and direct benefit transfers. Technology is a tool that’s not limited to the government, and corporates find themselves uniquely placed with literate citizens and its youth. Companies can wield technology as never before to reach global standards of scale and maturity. If they fail to realise technology’s true potential, they will fail to remain relevant.
Environmental concerns, climate change, and experiential commerce will force business changes, and only innovative companies with good governance will thrive.
I, therefore, see 2018 as the ICE (Innovation and adaptability, Climate change and Experiential commerce) Age. Regulators will exercise oversight on markets with a focus on sustainability — whether on governance standards, people practices or the conduct of businesses. The Goods and Services Tax, in its streamlined and relatively lean form, will give India’s aim of ‘one nation, one market, and one tax’ a fair chance to succeed in 2018. Corporate output is likely to increase on the back of a demand revival, reducing the gap between potential capacity and actual production. The virtuous cycle would lead to investment in fresh capacity and investment will lead to more demand. As a result, corporates will reclaim their earnings potential. The growth experienced by the Indian equity market has been mostly on price-multiple expansion. With corporate earnings growth returning, fundamentals will become the reason for long-lasting sustainable growth.
If we lay a strong foundation for a united India and Bharat in 2018, the race would be worth the effort. The monsoon is a variable that unfortunately drives performance in the rural economy, but there is an urgent need to overcome this shortcoming. Connecting India through investments in equal facilities, opportunities and markets will make India a powerful contender for a ‘podium position’ in the global race.
We should not be content with being in pole position at the start of the race, it is the podium finish that we should strive for.
It is hard work no doubt, but what seems hard now will one day seem like a warm-up. India will do well to remember that the bend in the road is not the end of the road unless we fail to make the turn. Turn we can, turn we must, and turn we shall, to go towards the podium.
VS Parthasarathy is the Group CFO at the Mahindra Group.
The views expressed here are those of the author’s and do not necessarily represent the views of BloombergQuint or its editorial team.