Can the Indian Economy Rebound by 2022?

The Indian growth story got a major setback with the Covid-19 pandemicas it experienced one of the biggest declines in growth rate among emerging, as well as Asian economies. However, the economy is now striving hard to get back on track. In a conversation with Outlook Money, Sudesh Iyer, the chairman of KRISM Capital, shares his views on the state of the Indian economy and explains why India remains an attractive FDI destination.

Will the Covid crisis affect India’s growth story, going forward?

Although the Indian economy has faced a serious setback with the Covid-19 pandemic, I feel it’s bound to rebound by 2022. There are many factors that could drive this rebound, such as public expenditure on infrastructure like roads and other transport linkages, increase in e-commerce, B2B and B2C businesses, growth in Information Technology and Digital Infrastructure, and other government initiatives promoting economic growth. These factors are strengthened by the more obvious growth opportunities in India due to a huge middle class and young workforce.

Does India remain an attractive FDI destination, and why?

India will remain an attractive FDI destination for a long time because of a strong domestic market and an encouraging government. With wide-ranging reforms in taxation and the rupee-dollar parity, India is a very attractive destination for foreign investment. India also has a favourable political climate that is encouraging and conducive to doing business. 

What is fuelling the rise of Indian equity markets? Is it sustainable?

One of the main reasons is inflow of foreign money. There is huge liquidity in the market, primarily because of injections by central banks across the world to tide over the Covid-19 pandemic. Anticipated IPOs and listing of unicorns makes the market buoyant. Rupee depreciation, low production costs in manufacturing, disposable income and purchasing power of middle class, etc., are other internal factors that are attractive to foreign investors. Hence, Indian stock markets are getting flooded with investments from hedge funds.

How do these factors affect investors? How should they react?

Global investors believe the second Covid-19 wave will, more or less, pass, and that the stock market will peak. Long-term investors will continue to look at India as a growth market because of its strong fundamentals. They will continue to increase their exposure to the Indian economy provided there is buoyancy in the capital market.

Should one be concerned by the recent rise in inflation? How can one protect oneself from it?

The pandemic has led to a disruption in supply chains, and hence, supply of commodities, leading  to a global rise in commodity prices such as raw materials, vegetable oils, manufacturing costs, etc. This has impacted India as well. RBI can intervene and change the interest rate. The cost of FMCG products can be rationalised as per consumer demand, which is currently low. Food inflation caused by supply chain disruption can be brought under control through government intervention.

Anything else?

India has now the second largest number of internet users in the world. Thanks to the country’s demographic dividend, this number is projected to grow further. India’s IT industry is also booming and has been a key driver of growth. India has become a hub for global tech companies and talent. Its vibrant start-up ecosystem is home to several unicorn companies that attract FDI. These trends point to a promising growth trajectory for FDI, especially in the IT sector.