India As A 5 Trillion-Dollar Economy

India As A 5 Trillion-Dollar Economy

June 14, 2022

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GDP Growth is linked with Investment and Savings. Higher the Investment, Higher the Growth. Investment can be financed through domestic as well as foreign savings.

India must improve on ease of doing investments just like ease of doing business. Domestic as well as Global Investors must feel the Ease of doing Investments. Simpler KYC Norms, Pro-active response, single window clearance, stable tax policies, Rule of Law etc. will go a long way in improving ease of doing investments.

Global Investors are valuing Indian Equities multiples times peers like Brazil, China and Russia. We have broken away from the BRIC peers through COP 26 declaration and other steps to improve ESG practice. Staying ahead on the path of ESG will help maintain our premium equity valuations.

India Gold Trade
(In US$bn) 2000-2021
Jewellery of gold unset 65.6
Jewellery of gold(with pearls) 2.5
Jewellery of gold(with diamond) 64.4
Jewellery of gold(with precious / semiprecious stones other than diamonds) 7.4
Other non-monetary unwrought forms of gold 24.3
Total exports estimate 123.4
Total Gold imports 556.7
Net Gold imports 433.3

Note: We have assumed Item No 2,3 and 4 to consist 45% gold

It pains me to see that while Indians are good savers; their Investment is tilted towards physical assets including Gold. In two decades of this century more than $ 433 billion has flown out of India towards net import of gold. If we add smuggled gold and gold ornaments passing through green channel, the amount could be in excess of $ 550 billion.

Particulars Cumulative FY 2000- 2020 USD Billion
Savings
Investment / GCF
Public
Private
Household
9,537
10,053
2,210
3,548
3,564

Our outflow towards Gold imports is more than Foreign Portfolio Investments received in the last two decades. Our Dead Savings Locked in Gold could be more than $ 2 trillion which is almost equal to Government’s Capital formation in this Century.

While gold buying is driven through traditions, emotions and black money needs, It is aided through ease of investment. Buying of Gold is much easier than a Financial Instrument.

Lack of easy entry in the Financial Market along with Lack of Knowledge has also resulted in loss of Rs 180,000 Crore plus for more than 1.5 Crore Indians in collective investment schemes especially at the bottom of the pyramid and in Rural and Semi Urban India.

Our Government through Jan Dhan Yojna has ensured banking to every Indian. We need to launch a Jan Nivesh Yojna. Simpler and Standard KYC, Ease of doing Investment and appropriate Financial Education will channelize Domestic Savings for India’s Investment needs. This will reduce dependence on Foreign Investors and make India truly Atma Nirbhar. Jan Nivesh Yojna will ensure participation of Indians in the India Growth Story and earn better returns. Our largest listed Bank, Insurance, Telecom, FMCG, Automobile and Mutual Fund Co is majority owned by Foreigners. It is not too late for Indian Investors to own Indian Cos.

Finance is the lifeline of an economy. No growth is possible without a vibrant financial sector. Our financial sector should be more vibrant and innovative. Today it provides the debt capital in a fairly reasonable manner. Equity capital is scarce. We need to innovate on financial products, deepen our financial markets and ensure that capital domestic as well as financial is available for our entrepreneurs.

Author Info

Nilesh Shah

Group President & MD

Kotak Mahindra AMC

Author Info

Mahadev Margi

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