Socio-economic reforms will help India achieve 10% growth: verdict of speakers at ISB’s Capital Markets Conclave ‘Artha 2014’

Socio-economic reforms will help India achieve its dream of 10% growth in GDP – this was the unanimous verdict of keynote speakers and panelists at the Indian School of Business (ISB) Capital Markets Conclave, Artha 2014. ISB’s campuses at Hyderabad and Mohali, hosted Deepak Parekh (Chairman, HDFC), Adi Godrej (Chairman, Godrej Group), Sanjay Nayar (KKR) along with other experts / leaders in the India’s BFSI sector & policy makers. Artha 2014 is driven by ISB alumni and Students of Finance Club at the ISB. 

(L-R) Mr. Ajit Rangnekar, Dean, Indian School of Business, Mr. Sanjay Nayar - KKR, Mr. Deepak Parekh, Chairman, HDFC Ltd.

“If the new NDA Government implements the Goods and Services Taxes (GST) regime at the earliest, it can add 2% to GDP growth rate,” said Adi Godrej, Chairman, Godrej Group. While speaking at the Indian School of Business Capital Markets Conclave Artha 2014, Godrej also added that recent social reform initiatives such as Swachch Bharat Abhiyaan and women's safety initiatives can add 1% to GDP growth. He said that if all these initiatives and reforms are effected, by next year, India's GDP growth will cross 7% and by FY 2017 India will be fastest growing economy of the world.

Godrej said, "If the Modi Government implements GST within the first 2 years, along with direct tax code reforms, it can add 2% to the GDP growth. And all the opposition ruled States will also fall in line." When questioned on the earlier UPA Government's failure to implement the GST, Godrej said, "I don't think the Central Government tried to solve the problems. States had indicated that they would face various issues but the Central Government didn't really address those issues. There was politics involved too as major States opposing GST regime were BJP ruled States. If the Central Government initiates GST in the initial days then Congress ruled states will also fall in line."

Mr. Adi Godrej, Chairman, Godrej Group

Godrej added that even a GST with some initial glitches and failings will be good as they can be sorted out quickly. He mentioned State Sales Tax has added a lot to their kitty benefitted early adopter States. He said that there has to be a discussion and debates on many issues including which products would be part of it and which need not. Godrej also stated that the Right to Service legislation announced by Maharashtra Chief Minister Devendra Fadnavis is an indication that the Central Government will also soon follow suit.

Godrej also saw a lot of hope in India becoming the first country in the world to make CSR obligatory. "CSR will fuel the skilling and training initiatives of the country. The growth percentage in India's working age group to the total population is increasing and India will beat China and many other countries by 2025. I believe that there is no unemployment in India but only unemployability. By 2050, India will be the largest economy in the world."

Godrej also added that through CSR, Indian companies will fuel and finance skilling and training, education and sports - which will all augur well for Indian economy. "Many companies are leveraging CSR to help society and encouraging training in areas which are helpful to businesses - women, construction workers, salesmen, poultry farms. One of the major areas for pushing India's growth will be supporting entrepreneurs. It needs to be encouraged. Following the examples of Switzerland and Germany, India must develop train the trainer system."

Godrej also mentioned that the GDP growth will be fuelled by the professional managers taking over family wealth and family businesses - the proportion of which in India is very high. He advocated that ISB should analyse and study a lot of management practices in family businesses.

Good companies benefit from competition. Indian companies are going global and may soon be able to match the size and scale of global giants. This is because Indian companies are at an early stage of their growth curve. But relatively speaking, Indian corporations are bigger than what they were in the 1990s. This is true of banks. As the size of the economy grows, this will get sorted out, Godrej added.

In his keynote address, Sanjay Nayar, CEO, KKR India, said that PE in India – an asset class which has arrived. PE has evolved into an important asset class for India; it is a source of long term strategic capital. Since 2000, ~$63 billion of PE capital has been invested in India across ~3,600 deals. In 2013, PE accounted for ~54% of Foreign Direct Investment. India has emerged as an important PE market in Asia; was amongst the few regions where deal value grew in 2013. The PE competitive landscape has matured – there are ~314  PE/VC firms with dry powder of ~$8 billion conducting deals in India; also PE firms are more open to doing buyouts and taking majority positions going forward. PE can play a key role in institutionalizing businesses and helping them achieve their full potential: Areas where PE investors can add value to their portfolio companies includes: Strengthening corporate governance; Conceptualizing and executing long term growth strategy; Boosting top management through executive coaching and hiring; Operational improvement by bringing in best in class practices and processes; M&A and international expansion; and Customer access through global network and portfolio relationships.”

(L-R) Mr. Deepak Parekh, Chairman, HDFC Ltd. & Mr. Sanjay Nayar,KKR

Nayar added, “Entrepreneur acceptance and understanding of PE has increased a lot as the industry has matured: Promoters realize that a PE investor can be a great partner in taking the business to the next level. There is ~$8 billion of dry power (excluding real estate and infrastructure) dedicated for India as of Dec 2013. As the industry matures, PE players are more open to doing buyouts and taking majority positions.”

India is poised to achieve 10% growth for the first time within the next 5 years because of favourable socio-economic and market indicators for the first time - falling oil prices, rising stock markets and stable government. Deepak Parekh, Chairman, HDFC, made this prediction while delivering the keynote address at the Indian School of Business Artha 2014 Capital Market Conclave in Mumbai.

Touching upon ISB Artha's theme of "The 10.0 Solution - Roadmap to 10% Indian Growth", Deepak Parekh said that excessive reforms are needed in all sectors including judicial, land and financial markets. While citing that global ratings agencies have upgraded India, Parekh gave a clarion call to policy makers to remove self imposed rigidities especially restricting pension funds. He said that we can't blame regulators for over regulating and under supervising because they don't have the bandwidth. Talking about the coal block issue, he said that Supreme Court is forced to take decisions if the govt doesn't act.

Parekh said that credit offtake in last few months is good and banks are reducing deposit rates. Net FII inflows amounting to USD 37 bn including USD 14 bn in equity and USD 23 bn in debt augurs well for the markets. However, India's market capitalisation of listed companies accounts for just 2.4% of global market cap of USD 64 trillion even though it is ranked in the Top 10 list. Retail investors account for just 1.4% of the total population of India whereas in China the comparative figure is 9.4% while in the US and UK the figure is around 15% or more. Indian savers don't save in mutual funds as investments account for 7-8% while the global equivalent figure is 37%.

Parekh also made a pitch for greater investor awareness so as to welcome more domestic investors in the Indian capital markets. He pointed out that FIIs outnumber domestic investors but they may be fickled minded or have herd mentality. India can't depend on just FII inflows and needs to attract domestic investors. India also needs to popularise rupee bond market, added Parekh. He said that there is a great opportunity for developing a deeper diversified and stable bond market. He also said that the government shouldn't remain the top borrower in the debt market. Only then will interest in the corporate bond market will revive, he said. Municipal bond market has to be created and grown to help realise the dream of 100 dream cities.

Stating that Government shouldn't bundle all its disinvestment offerings for the last quarter, Parekh also urged investment bankers and promoters to avoid being greedy while pricing primary market offerings (IPOs). He felt that there is a chance of topping the USD 9 bn raised through the primary market offerings achieved in 2008 within the next few years. However, promoters including the Government must be open to reducing stakes and welcoming new investors.

Artha 2014 had four panel discussions on four key topics: Indian Economy: On a Robust or a Fragile Path? Charting Indian Growth through a Strong Infrastructure base; Unrevealing Equity Flows through the Sunrise Sectors; Deepening Bond Markets for Investment Growth.

The list of eminent Panelists is as follows: Panel 1 - Indian economy: On a Robust or a Fragile Path?:     Manish Chokhani - TPG Growth; Sunil Sanghai – HSBC; Prof Subramanian, ISB; Garry Singh, Pinkerton; Saimran Chakraborty, Standard Chartered; and  ‎Vedika Bhandarkar  - Credit Suisse.  Panel 2 - Charting Indian Growth through a Strong Infrastructure Base: Archana Hingorani, ILFS; Vinayak Chatterjee, Feedback Infra; V. Srinivasan, Axis Bank; Vikram Limaye, IDFC; K. Venkatesh, L&T Infra; Kiran Kumar Grandhi, GMR; Ajit Gulabchand, HCC. Panel 3 - Unraveling Equity Flows through the Sunrise Sectors: Sanjay Nayar – KKR; Nilesh Shah - Axis Capital; A Balachandran - Aditya Birla Asset; Mahesh Chabbria – Actis; Rahul Bhasin – Barings; and Sunil Singhania - Reliance Capital. Panel 4 - Deepening Bond Markets for Investment Growth: Zia Mody – AZB; Randhir Singh, Deustche Bank; Rahul Banerjee - Standard Chartered; Chandrashekhar Ramakrishnan - CFO, Tata Motors; Jaideep Khanna – Barclays; Sanjeev Bajaj - Credit Suisse; Shilpa Kumar – ICICI Bank.

Speaking about the objective and need for Artha 2014, Ajit Rangnekar, Dean, ISB said, “ISB Capital Markets Conclave served as a perfect platform in providing an interface between ISB alumni, Students and experts in the area of Finance. The School is committed to conduct the best of academic research in Finance which is in line with ISB’s mission to create an impact that influences scholarship, practice and policy. Events such as these will go a long way in bridging the gap between academia and Industry in the area of Finance and Capital markets."

ISB Capital Markets Conclave - ‘Artha’ is the annual flagship event of the ISB Finance Club and has hosted some highly accomplished leaders in the past. The conclave brings together some of the best minds at the forefront of industry, policy and academia through interactive discussions, with the aim of developing perspectives and inspiring the student body.

About the Indian School of Business 

Indian School of Business (ISB) is a global Business school offering world-class management education across its two campuses – Hyderabad and Mohali. The School has grown at a rapid pace over the twelve years since its inception and already has several notable accomplishments to its credit – it is the youngest school ever to consistently rank among the top Global MBA programmes, the first institution in South Asia to receive the prestigious AACSB accreditation, one of the largest providers of Executive Education in Asia, and the most research productive Indian management institution. A vibrant pool of research-oriented resident faculty, strong academic associations with leading global B-schools and the backing of an influential Board, have helped the ISB fast emerge as a premier global Business school in the emerging markets.