Budget 2020 Ideas For Growth: VS Parthasarathy On How Private Sector Can Contribute To Growth Revival

India’s economy seems like a project in the run up to Budget 2020.

Growth slowed to 4.5 percent in the quarter ended September—the second-lowest in the current GDP series—led by a slump in consumption, investment and credit. That’s within a matter of two-three years of seeing growth of over 8 percent when it was the fastest-growing major economy in the world.

The government lowered its growth expectation for the ongoing fiscal to 5 percent, resulting in expectations of tax cuts and expenditure announcements in Finance Minister Nirmala Sitharaman’s second budget on Feb. 1.

The government, however, is constrained on the fiscal side. For 2019-20, Former Economic Secretary Subhash Chandra Garg expects the headline deficit to come in between 3.7-4 percent. That compares with the 3 percent deficit target set by the Fiscal Responsibility and Budget Management Act for March 2021. Garg noted that the real deficit could be 4.5-5 percent of the GDP. While there are arguments for relaxing the deadline to meet these fiscal targets, the Finance Ministry has stressed on the importance of fiscal discipline.

So what’s the way out?

In a special series called ‘Ideas For Growth’, BloombergQuint spoke to VS Parthasarathy, the chief financial officer of Mahindra Group, which has large urban and rural facing businesses through Mahindra & Mahindra Ltd., Tech Mahindra Ltd., Mahindra Finance, Mahindra LifeSpaces, among others.

Parthasarathy stressed on the need for collaboration between the public and private engines to get India’s economy “chugging” again.

“Get everyone to participate and get investments going and ask for more investment in right places from partners,” he said, suggesting a fund of funds with participation from private companies, foreign funds and the government.

He described a social fund with, say, 20 of India’s largest industrial houses, private equity funds and foreign funds contributing Rs 2,000 each. A committee headed by a top industrialist can choose the companies within industries that will receive funds for revival. The respective companies would pay the fund back through this revival or even offer the government a permanent stake of 5 percent, Parasarathy said.

This would not be the first time a social fund was set up to revive industries.

In Nov. 2019, the government approved a Rs 25,000 crore fund to help complete over 1,600 housing projects. The government will invest Rs 15,000 crore in the fund, with the rest likely to be raised from private investors. So far, State Bank of India and Life Insurance Corporation of India have committed Rs 1,000 crore each to the fund, while Housing Development Finance Corporation Ltd. has agreed to invest Rs 250 crore. The fund, managed by SBI Capital Services, will be independently assessing projects and their viability.

Speaking about the state of the economy, he said “nobody in this has their job easy, especially our Finance Minister. The revenue streams are so few. That’s why we have to be creative.”

Greenshoots In Rural

Parthasarathy is seeing clear signs of revival in rural India, he said, especially after a good set of monsoon, harvest of the winter crops and a spike in food prices.

“I keep telling some inflation is good for India,” he said. “It’s like good cholesterol.”

Food inflation spiked to 12.2 percent in December—the highest in five years. While the spike in prices hurts consumers, it helps those who produce and sell these items. According to a CRISIL report published in December, farm profits are expected to rise 7-9 percent year-on-year in crop year 2019-20 compared to a 26 percent increase last year.

Urban India, on the other hand, “will take some time which is why investment is so important,” Parthasarathy said. “Because if our finance sector is stuck, our infrastructure is stuck—and this is all employment—so obviously urban India is seeing a little bit of stress.”

Watch | VS Parthasarathy On How To Revive India’s Growth Story