Despite the slowdown, all’s not gloom and doom. We should focus on the productive parts of the economy, where several industries are set for high growth.
Hope is a dangerous thing. Hope can drive a man insane." That’s the unforgettable Red in The Shawshank Redemption by Stephen King. At the end of a year that hasn’t brought much cheer to Indian business, there are some bittersweet truths that we will have to confront to get a handle over how the 2020s will play out.
The big trends in business and elsewhere in life tend to stay below the surface for 80% of their time, but once they emerge, their impact is enormous, altering the configuration of the world we live in. In that spirit, it is time to call the structural versus cyclical debate over the slowdown in the Indian economy. Too little of the change we have been proud of over the past few decades since liberalization was structural in nature. That is why when the pullback came, we were caught napping. It is also time we accepted that India’s much-vaunted demographic dividend is more likely to be a disability, and that our welfare liabilities are going to be huge in providing for this.
However, that doesn’t mean all is gloom and doom. What we should do is focus on the productive parts of our economy, and here’s where the good news is. Several industries, ranging from metal works and alloys to speciality chemicals and shipping, are at a tipping point. An economy that hasn’t seen much capital expenditure by the private sector for the last 10 years will witness growth in these parts of it, driven by consolidation and demand. Companies in these industries are small enough not to be on people’s radars and, thus, haven’t yet caught the eye of markets, but they have undoubtedly become healthier and are ready to do business.
India’s big companies, particularly family-owned businesses, have other issues to deal with. However, here too, there are opportunities for paradigm-setting. Consider the struggle that the Tata Group, Infosys and a few others are going through. Whatever the specifics of the issues they confront, another way to look at it is that they are in the midst of efforts to find the right balance between the role of promoters and professional managers. Both are professionally managed. Yet, from time to time, their promoters have found the need to come back, either to step into a breach or because they are not comfortable with the business’s direction under their successors. The problem extends to newer companies like InterGlobe Aviation, which runs IndiGo, as well, where the current stand-off between its two promoters could be a drag on growth if it gets messier and the stricken Jet Airways and Air India find new buyers. The solution is for Ratan Tata and Cyrus Mistry, as well as the founders of Infosys, to lay down a protocol for quitting once they are done, leaving their wards under the watch of either sufficiently empowered boards or executives.
Another area where the cheer of the first half of the decade gave way to the despair of the second is telecom. While Indian telecom’s annus horribilis won’t give way to annus mirabilis in a hurry, the competitive landscape will emerge much more delineated, and with telecom likely to be the Reliance Group’s driver of growth in the coming decade, replacing oil and gas, it will clearly be a two-horse race. The Aditya Birla group was among the early entrants to private telecom services in India. Yet, over the years, the market’s dynamics have changed and the group may well decide to withdraw from the sector and focus on other businesses. If that happens, telecom would be left with a near duopoly, and it will be up to the regulatory system to step up to the task of protecting customers’ interests in terms of pricing and support.
On a different note, the auto industry’s woes may well spill into the 2020s, but this could also be a breakout period for electric vehicles, though only for the right-sized ones. Increasingly, the cost of energy and, in turn, that of commutes, is coming down. As personal vehicle ownership goes into decline and the sharing economy kicks in even more aggressively, it is not inconceivable that large swathes of the present-day auto industry, in particular those with huge embedded costs, will not be around when 2030 comes along. The current drawback is the high cost of lithium batteries, but it is possible that lithium may be upended by other technologies. The shift from personal to shared transportation is likely to have various collateral consequences. Parking, for instance, which at this point takes up nearly 30% of the available space in big cities, could come down drastically, freeing up land for other uses.
In any case, the energy conundrum is reshaping our lives in more ways than one. If we accept that peak oil is already upon us, in time it could result in the resolution of a major part of the global climate crisis, rather than all the fumbling approaches of assorted countries.
India already has 80 gigawatts of renewable energy, which is nearly 20% of its total installed capacity. As the cost of energy drops further, new applications will emerge. The energy saved on transportation can be used in areas such as agriculture, cold chains, horticulture and more air-conditioning. In the past, the prohibitive cost of power held back many of these applications. Now, we could see an explosion in demand, albeit from newer areas of consumption. Even the reversal of the water crisis could come from the declining cost of cleaning water.