Indian Economy 2016 – Consolidation & Reforms, The Way Forward – Feedback

In golfing parlance the Indian economy optically looks like a 3 par – Lots of opportunity, perceptively less challenging than other comparable economies. Factually, it is as hard as a 5 par and requires some very high energy led, sharp and focussed approach to the pin.

There are Infrastructure sectors that have shown considerable uptick. Energy, Roads, Mining, Coal, Railways. They will continue to perform well into 2016 and beyond. Growth shoots are seen in these sectors after a spate of reforms and direction. Financing continues to be challenge in these sectors like many others but strategic players have found innovative methods to address the issue.

Commodity sectors look stressed. Input costs have gone up, excess capacities have been built and overall demand is weak. Steel in particular will take longer to bounce back because the industry is not consolidated. There are many small mills that make steel and glut the market. Non ferrous sector will however turn around quickly. Price consolidation will also help the non ferrous sector.

In 2016, Energy sector will see significant boost in spending. Generation has seen consolidation. There is excess power in India today. The challenges are however in the distribution and transmission. Pricing mechanisms need to be reworked. There will be a lot of efforts in improving grid efficiencies. This will see demand for state of the art technologies and products.  This spend will be non-budget and systemic.

Renewables, Particularly solar will see a lot of foreign capital flow into India. Capital will also bring state of the art technology in grid interconnectivity and stability. India is committed to the renewables space and the investments and growth in this sector will continue to move up.

Banking sector will remain muted till such time they do not clean up their NPA’s and get fresh capital infusion. Private Banks will outperform the public sector banks due to their large exposure to smaller ticket, recoverable retail credit exposure. RBI has embarked on a mission to clean the balance sheets of large PSB’s but the journey will be long and arduous.

Focus on Healthcare, Education, skill development will continue to be high and see significant amounts of investments in 2016. Private capital will find its way into marquee businesses. Healthcare delivery models are at the cusp of change and that will attract a lot of innovation and investments. In education and skill development there will be a lot of push and pull factors at play. Government is also enabling these sectors through a lot of initiatives

Allied sectors like Agriculture, farming, food will see a lot of technology intervention by way of high tech farming equipment, Storage lines, Reefer transportation etc. This will basically help improve the yield and most importantly sustain it for longer periods. Private participation in farming will continue to improve and this space will see a lot of uptick in 2016

India has been a hotbed for technology and innovation (for developing markets). Indian Ecommerce and technology businesses will see a lot of private capital infusions. These Indian companies will also go global and retain the financial interest in them for sustained periods. These sectors will also create a lot more jobs.

In pursuit of better living and reduction of carbon footprint, Enviro space will see a lot of activity and investments. Clean technologies will be at the heart of the growth of this sector. Recycling will also be a major driver. India will attract a lot of foreign investment in these sectors.

Globally, EU and American markets will not look up in 2016, Fed will not alter rates in the foreseeable future, Brazil will have to reinvent its policies and find the finances, Russia has to disentangle itself from the recessionary issues, China will slow down but the economy will not have a hard landing. Given the background, Capital flows into India will improve. Introduction of GST and simplification of land acquisition rules will help it accelerate. If oil prices continue to be subdued in 2016 and China will allow RMB to be dealt with through capital controls (instead of burning its reserves), India will have a largely stable growth (8%) led 2016.

India’s Finance minister and the Governor of RBI captured the Indian Economic story in the most appropriate expression last week in Davos – “We are a bright spot but that is relative and lots more can be done and achieved”.

Honest confessions do lead to actions and we live in hope!

About Shankar Khasnis

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