How does India’s future look?
I think the future looks extremely bright for us and we still have to work on it. In this sense, I remember India in April 1991 before the announcement of economic reforms. I went to Wall Street to say that you will have to come to us and that we will be the two most important countries in the world, simply because we had character, we had freedom, etc. I think it plays out and the confidence I had in 1991 is much more today in 2022. I think India will not be of great importance to almost every country in the world.
What will happen in the next 75 years from here? What does the next 5 to 10 years hold for us? How is this decade shaping up for India?
Obviously, the geopolitical challenge is the greatest. We continue to be sensitive to energy. Our sensitivity to oil has diminished, but it remains. Some of these issues are therefore very important. We want to switch to electric vehicles. There’s a whole challenge of rare earths and issues like this. So while geopolitics is the friendliest in the world having had to fight five wars since independence, it is a huge burden.
We haven’t increased our defense spending yet because of geopolitics. Considering all these challenges, I always think that when freedom is given to people, and people are cultured and intelligent. They don’t need to be educated according to a Harvard degree, but they will be fundamentally smart and will come up with lots of solutions. The government must provide equal opportunities, which I believe today, this DBT and many other platforms allow.
We need to free up government resources and it is moving in that direction. The privatization of Air India deserves a big salute and I hope it will happen more. If these things happen, the next five to ten years look absolutely wonderful to me!
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I like to quote Mr. Birla who said that the next 10 years is going to see a festival of capex and that we have been short of capex for almost a decade. If that happens alongside that innovation, we’re going to see more job creation, new businesses, and good things.
There is a model of recession; a gas crisis in Europe; a global economic crisis and China is slowing down by choice. They are two large blocks and both move differently. India is in the middle. How is everything going to play out because everything has to be connected now?
They are connected but people or countries do not do things in a uniform way. They have their own destiny, their own polity, their cycles and nature sort of balance each other out. I think Europe had its chance for several centuries, 16th, 17th and 18th.
The declining population, the essential insularism in Europe, their failed experiment at the EU level, etc, and now the geopolitics of gas, etc, it’s all there. But it depends. This difficulty can give them a chance. China, of course, is not slowing down by choice. China has geological aspirations and an economic challenge. We have to see how he will handle this.
Maybe when you grow at an accelerated rate, you become mean again. Maybe China will get back to average somehow and maybe 3% is the new normal growth rate for them and the economy will have to adjust. India in the next 20 to 30 years will have demographics to its advantage. If we can give a better quality of life to our people then only, otherwise it is a curse. If you think about it, in the 60s and 70s, who knew India and China? The world didn’t care.
Thus, the world will adapt very quickly to the new winners. Long live the new king and people forget. I think everyone will forget Europe if Europe is not made. It will be India and all the other countries like Vietnam and Bangladesh that will show up. Europe also has new parts. Estonia and some of these countries are promising and it’s a very interesting place and we have to respect the new winners.
What do stock market investors have in store for this decade? The last decade we’ve pretty much given a positive return. This was in line with the profit estimate. Revenues have not been great over the past 10 years. This time the ingredients are in the building block. We are talking about GDP growth that could be above average. Are we ready for big above-average returns?
One important thing is that interest rates are much lower now and therefore the basis of risk free return has gone down and according to my expectation the return on venture capital must also go down. Second, we are in a world that is moving from quantitative easing (QE) to quantitative tightening (QT) and so to the extent that part of our stock market returns come from foreigners who come in and buy multiple times at super certain prices from whom can be deleted,
I don’t think the world will not participate in India’s growth and history, so that will also happen. Sp, I have to temper my expectations based on lower interest rates. If interest rates go up here, which means we have a higher nominal economic growth rate due to higher inflation, etc., etc., my returns could be better. So I have to align my inflation rate, my interest rate and my market expectations. The stock market will continue to give you returns above risk free returns with a good margin, so I will continue to stay invested in the stock market.
But do you think a lot of the fear of inflation is factored into both the bond market and the stock market?
We hope that we won’t have any bad surprises on oil and some of the sensitive areas. I think central banks are doing well again. They don’t move in as tight an alignment as they did after 2008, but they do move more or less in alignment. They all tighten up. They all want to get ahead of the curve, which is great news.
We have seen commodity prices decline around the world. We’ve seen freight rates start to drop, the Baltic almost crashed, all of which are very good indicators that this cycle is getting short through better use of data and more proactive action. I hope it keeps playing and then I think the pain won’t be that long but I think going back to healthy practices is only good and the best players will benefit.
One question concerns a sector that has experienced disruption but continues to be dominant. It’s financial. Big banks are becoming bigger mega banks. But there is also a disruption in the world of fintech, with just about every service provided by a traditional bank now in question. How do you see things evolving in the financial sector?
The financial sector touches all aspects of life. I think it is bound to do well if they are well managed. Of course, they have to manage risks, they have to mobilize liabilities, etc., and it’s not easy to manage. So we’ve seen a lot of banks have had to merge and so on.
The rewards only come if you are extremely well managed. When it comes to fintechs, the Reserve Bank has been a good regulator. It allowed certain kinds of freedoms, now it is tightening those freedoms. But the spark to create fintechs of one type or another is going to stay in this country and they will provide healthy competition. I think this is all good news.
So who has the right to win in this decade then?
I think you’ll have to be extremely competent, you’ll have to be nimble, and you’ll have to show better character than ever before as data becomes easier, as the world becomes more democratic, the power of character and values will be more and more manifest so you can rise quickly but you will fall faster in the world of social networks, sometimes wrongly. Therefore, it is better that you practice the values as a habit and a character instead of being forced by this or that code. A lot of start-ups show it, not all of them, but it’s a good thing. I see that average governance is only improving in this country.
Privatization has been both hot and cold. We can look at the success of Air India, but we can dispute that nothing happened to BPCL. In the next three or four years, should the government essentially exit every company it is in?
You see, we are a democracy and the government has to be sensitive to so many aspects. I think he showed enough intent by making LIC at a very truncated rating; doing Air India and taking a lot of steps to make BPCL exist but after working with the government I know the kind of challenges they have but all my compliments to the government for the way they have brought in the reforms, the way they brought TPS.
If the government had the courage to introduce the GST, I think that speaks volumes more than anything else. I think of CBI and GST and then RERA, all in quick succession, leaving no doubt in my mind that the government intends to do whatever it can politically. I don’t want to impose a timetable on them, but I think the intention is well defined.