Unlocking the next phase of growth – Unlocking the India2 potential

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DevelopmentAccording to a recent World Bank report, India became the sixth largest economy in the world, overtaking France. India’s Gross Domestic Product (GDP) was measured at $2.59 Trillion. while that of France at $2.58 Trillion. However, those figures may mask an important fact. India’s per capita GDP remains around 1/20th that of France. What it translates to, is that the average Indian is engaged in a much less economically productive activity compared to their French counterpart.

If you are reading this, you have probably prospered in the last 10-15 years. You are the ones who have been part of the growth story. But there are a great number of households in the country didn’t get a chance to take that ride. They didn’t get a chance to move to an income level where they have respectable savings. They haven’t indulged themselves in a convenient lifestyle, as they didn’t have the luxury of a disposable income. They haven’t secured their families financial future.

As a country, we simply are, unequal. World Inequality Report 2018 rates India as one of the most unequal countries in the world. 10 percent of the population owns 76 percent of the entire wealth. Millionaires own 90 percent of the wealth. The bottom half owns roughly 4 percent of the wealth. 96 percent of the people have less than $10k saved.

How do we pivot towards a more ‘equal’ growth? Does this section need government programs? Preferential treatment? We have already had a drive for financial inclusion, so is this simply a less enterprising part of the populace?

I believe not. This segment is every bit smart, innovative & hardworking as any other. They have business ideas & capability. But what they lack is the means to execute. They are not financially empowered. India has among the lowest household debt to GDP ratios. Only about 10 percent of the businesses have access to formal finance. And this is why this their growth potential remains unfulfilled. This is why their aspirations have not been met.

Let’s talk about the socio-economic segment a bit more. Let’s call it middle India, or India2. What do they do? They are small business owners. They are self-employed non-professionals. How much do they earn? Probably somewhere between  Rs 0.2-1.0 mn. And are their borrowing needs catered to the banking system? No.

That last bit is important. What are they likely to do in time of financial stress? They usually borrow from their friends and family. They might even reach out to private financier or money lenders. They might prefer selling an asset – some jewellery or a property. They would rather cut expenses or work extra hours. But it is highly unlikely that their first step in a short to the medium term financial crisis would be to take a bank loan.

And why is that the case? Is it that this segment would rather be at the edge of the formal economy? Or is it possible that the banking system has fallen short in some respect? I, for one, feel so. Traditional banks are characterised by their slow service, tedious processes and lack of flexibility. Their products are services are geared to serve those probably earn a little more. Those whose incomes are easily assessed, whose income streams are more steady. Banks are simply not oriented to serve this India2.

And this is where NBFCs have stepped in. They have done away with the procedures, the inefficient processes, the distant & transactional approach. They have led to a strong push to bring financial services & products to the people living outside the tier-1 cities. This push is being enabled by technology and is being championed by the investors and entrepreneurs alike.

I began by quoting a recent world bank report that mentioned India as the sixth largest economy. This surge in GDP was led by what is nowIndia1 – the upper class or the upper middle class. Experts in industry and government who have extrapolated statistics in that report, project that India is poised to become the third largest economy by 2030. That projection assumes a sustained 7 percent growth, and a moderate inflation 4 percent inflation. But for that ambitious growth rate to sustain, we need to enable India2. Enable them with the same tools that powered the India1 growth story- financial resources.

Its only when we have achieved that per capita GDP commensurate with more developed economies that we would have done justice to the huge potential in this market, and unlocked the nation’s full potential.

Views expressed in this article are of Amit Saxena, MD & CEO, Unimoni India.

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