The year 2022 has been transformational for India in many ways. A turbulent period for global economies, with the world’s collective GDP falling by 3.4% in 2020 alone. It was also a time when our country's traditional sectors and businesses didn't just sit or sleep but closely observed and strategically took the right moves to sustain their progress despite the ongoing headwinds.
There has been a myriad of commentary on the meltdown of tech in the west, the meltdown of the western economies due to inflation correction actions, tech meltdown in the West, and its impact on the startup world in India and so on. Most view 2022 as the annus horribilis for the global economy, mainly tech companies and startups. All of these are irrelevant
What’s relevant is what is happening in India and China. India and China represent 40% of the world. They were shaping how the world worked for millennia and they will continue to shape how it works for the next few millennia. So it is important to put this in perspective and not get carried away by a narrative that is shaped by the Western press. I would describe 2022 as the year of the crouching tiger and the hidden dragon.
China is going through a great internal economic correction. You may call it regressive, you may call it dictatorial, etc. However, they are doing things their own way to fix some of the frivolity that invaded the west and to some extent India, because of superfluous application of technology, which has affected China as well. For example, bringing into control the culture of easy-lend, easy-spend.
Xi Jin Ping, maybe as a part of his effort to consolidate power, is also cleaning up some of this frivolity and the intent is to make the country stronger. However, this means the country has withdrawn into its shell, thus disrupting the global supply chain. The resurgence of Covid ,while it is a setback for China, worsens their isolation. The dragon thus remained hidden through 2022.
This presents an opportunity for a country like India.
What has India been doing? From an external lens, it looks like India has been staying still in the same position. But there’s more to it than meets the eye. India has been watching and you can almost see its muscles tensing as it waits to pounce! That is why I call it the crouching tiger.
Let’s delve deeper into the facts that back this shift of power. The world we see today has dramatically changed from what it was three years ago since the outbreak of COVID-19. The pandemic dismantled China's 20-year global manufacturing dominance – primarily driven by optimized shipping lanes and extremely cheap labour rates - pinning it down to make internal corrections. This decline pushed companies to look for alternatives and build reliance on other Asian countries. The Fed’s inflation-control measures fell short, resulting in a whopping 8.5% rise in consumer prices, the highest annual uptick since 1981.
However, in contrast, India has weathered this turmoil by being a silent observer, making the right moves that may have initially looked erroneous but are now set to bear fruit. For instance, India was roundly criticized for handling the pandemic differently when it used surplus money to provide relief to citizens and doubled down its infrastructure investment instead of printing money, which most western countries did. The Indian government has been undertaking numerous infrastructure projects, with its direct capital expenditure increasing from two and a half lakh crore in 2013-14 to around seven and a half lakh crore in 2022-23.
As per research, India stands second in the world for its vast road network, spanning 63.72 lakh kilometres as of 2021. Similarly, NHAI plans to construct around 25,000 kms of national highways in 2022-23 at a speed of 50 km per day. In terms of shipping, the government, under The Maritime India Vision 2030, has identified 150+ initiatives to boost this sector and is likely to invest Rs 1,00,000-1,25,000 Crore for world-class development. Further, India’s installed Renewable Energy capacity has been boosted by over 2.5 times, standing at more than 141 GW today. The country now aims to reach net zero emissions by 2070, and meet 50% of its power requirements from green sources by 2030.
Apart from strengthening its physical infrastructure, India has also enhanced its digital ecosystem (Jan Dhan Aadhaar Yojna) through its Digital India program to shape its overall muscle and become capable of responding actively to global upheavals. Because what's the point of building a first-world technology platform riding on third-world infrastructure?
Moreover, there is also a lot of conversation about the threat of inflation hitting India and other developing countries. But if you take a step back, you will realise that there are only three major issues or the 3 Cs – COVID-19, Conflict and Climate.
In terms of COVID-19, India was one of the first countries to isolate the virus, with a recovery rate of 97% and the lowest fatality rate of 1.44% in the world. Likewise, we have handled conflicts better than others by being ruthlessly pragmatic about our relationships. And this is why India is not suffering the inflationary effects of the conflicts on its construction of pipelines for essential goods like fuel, which are forex dependent for us.
However, there are a couple of inflationary pressures, too. For instance, the mess created by the west because of its federal reserve-related moves will have implications as we rely upon certain imports for sustenance. But the good news is, we also have a couple of hedges, such as the pragmatism we demonstrated in fuel and our rupee trading mechanism, that will help us counter this inflationary push over time.
The next thing we must worry about is the third C, Climate. Although we are handling it better than anticipated, there is still some inflationary effect of climate change that is visible in the food supply chain. For instance, crops fail due to unpredictable climatic conditions, which, in turn, puts pressure on prices, reflected as inflation. In fact, it was found that climate change is directly impacting 55% of the country’s inflation basket.
Fortunately, significant work is being done in the agriculture sector, such as encouraging access through expressways that connect various remote farm belts to the markets. As per research by Bain & Company, agritech will see significant investment, and as a result of regulatory changes and COVID-19’s impact, the sector will grow into a $30B–$35B market by 2025. This growth will be majorly championed by online sales of produce and inputs, along with digitally enabled logistics.
We may not have noticed, but India is either upgrading or launching new airports every two weeks. 1,215 railway stations across the country have been upgraded so far, and 38 more are to be developed under Adarsh Station Scheme by 2023. New railway lines are being inaugurated, and 400 Vande Bharat trains are set to go live in the next three years. All these initiatives will have deflationary effects on our logistics cost, which will benefit every sector and help them scale.
Further, India is transforming from a developing to a middle-income nation, which is another gigantic shift. People's aspirations are changing rapidly; the move from needs to wants will be tremendous and create a massive demand push, which will fuel the Capex cycle. It's a truism that people's wants for better stuff to enhance their lifestyle will increase with their per capita income.
For instance, people need food, but they want good quality, hygienically packaged and branded food. People need mobility, but they want relatively nicer bikes and cars. People need clothing, but they want fashionable clothes. This shift is being observed even in rural areas, with people using better cars, wearing better clothes, and having better aspirations. This continuous cycle of deflation will be attributed to enhanced infrastructure. Clearly, certain deflationary effects are set to kick in, and we just can't ignore them.
With that being said, there’s a lot that 2022 taught us about India’s resilience and ability to choose progress against all odds. With the crouching tiger and hidden dragon assuming their positions, it’s exciting to anticipate how 2023 will unfold.