Unlocking the next phase of growth – Unlocking the India2 potential

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Amit Saxena
Amit Saxena, MD & CEO, Unimoni India Ltd.

According to the 2017 World Bank report, India became the sixth largest economy in the world, overtaking France. India’s GDP was measured at $2.59 trillion. While that of France was at $2.58 trillion.

However, those figures may mask an important fact. India’s per capita GDP remains around 1/20thof that of France. What it translates to, is that the average Indian is engaged in a much lower economically productive activity compared to its French counterpart.

If you are reading this, you have probably prospered in the last 10-15 years. You are among the ones who have been part of the growth story. But there are a great number of households in the country who didn’t get a chance to take that ride. They didn’t get a chance to move to an income level where they have decent 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 and hardworking as any other. They have business ideas and 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 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 the ‘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 INR 0.2-1.0 mn. And are their borrowing needs catered by the banking system? No.

That last bit is important. What are they likely to do in the time of financial stress? They usually borrow from their friends and family. They might even reach out to a private financier or a money lender. 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 characterized by their slow service, tedious processes and lack of flexibility. Their products and services are geared to serve those who probably earn a little more. Those whose incomes are easily assessed, whose income streams are steadier. 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 and the distant & transactional approach. They have given 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 mentions India as the sixth largest economy. This surge in GDP was led by what is now India1 – the upper class or the upper middle class. Experts in the industry and the government who have extrapolated statistics in that report, the 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 at 4 percent. 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.

It’s only when we have achieved that per capita GDP commensurate with more developed economies that we would have done justice to the huge potential of 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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