“Today there is a major aspirational class in India that wants to invest for growth….According to the Association of Mutual Funds, the assets under management of the mutual fund industry in India in 2014 were around 10 lakh crores. In these eight years, by June 2022, it has increased by 250 percent to 35 lakh crore. That is, people want to invest. They are ready for it”. This is Prime Minister Narendra Modi speaking at the inauguration of the International Bullion Exchange in GIFT City, Gandhinagar on July 29, 2022. These are not words that India has ever seen coming from the political leadership. To the contrary there has been a deep-seated suspicion of markets in general and stock markets in particular. This discomfort with markets has led to decades of sub-optimal investment options for Indians wanting to keep savings ahead of inflation.
This article is part of the series 30 Years After: Review and Renew the Reforms Agenda.
At the heart of the complex web of bits and bytes that is the modern financial system is the ability to exchange and transfer capital (money) between various participants in an economy. Borrowers, lenders, investors and entrepreneurs form the four corners of this very busy square. Traffic flow and participants can either be controlled and owned by the government as it was in India till 1991, or it can be regulated by a set of independent regulators appointed by the government, as it is today in 2021.
When we see the hectic activity in the Indian financial system today, we tend to forget what it was like just 30 years ago — in terms of scale, products, efficiency, cost and service. The sole job of a financial system is to trundle money around to find its optimal use in terms of returns at a low-cost and safety of transactions. But the centrally planned Indian economy used the state-owned financial institutions such as banks and insurance companies to gather household savings for its own use, hard coding this into the reserve ratios in banks and investment guidelines in insurance firms.
Prime Minister Narendra Modi interacted with leading economists of the country on charting the economic agenda in the post-COVID world and highlighted government’s commitment to developing world-class infrastructure and the economic potential set to be unleashed by National Optical Fibre Network.
He highlighted the faith shown by foreign investors in India’s growth story, with foreign direct investment growing by 11 per cent between April and October, despite a global recession.
The participants stressed the importance of investing in public health and education, as human capital would also likely emerge as a driver of growth, especially in the knowledge economy going forward. They also stressed on labour-intensive manufacturing given the success India has achieved in launching the PLI scheme in mobile manufacturing. The interaction was organised by Niti Aayog.
“Government expenditure on infrastructure was a point made by many participants as a driver of growth in the coming years, given the significant multiplier benefits that accrue to the economy from public investments in infrastructure. A focus on labour-intensive manufacturing was also mooted by participants, given the success India has achieved in launching the production linked incentives (PLI) scheme in mobile manufacturing,” a release by NITI Aayog said.
It said the participants agreed that high-frequency indicators were showing signs of a strong economic recovery and that too earlier than expected.
They were broadly in agreement that next year will see robust growth and suggested measures to maintain this growth rate to drive India’s socio-economic transformation.”
“The participants highlighted the strong structural reform measures that have been undertaken in the past few years and how they would help in the creation of an Atmanirbhar Bharat. Suggestions were made by participants on future reform areas,” the release said.
The Prime Minister explained his vision behind an Atmanirbhar Bharat, where Indian companies are integrated in global supply chains in a manner not seen before.
“PM Modi further highlighted the economic potential set to be unleashed by the National Optical Fibre Network, providing internet connectivity to some of India’s most remote areas. On infrastructure, the Prime Minister highlighted the National Infrastructure Pipeline as the government’s commitment to developing world-class infrastructure. The Prime Minister ended his talk by stating the importance of partnerships in achieving our goals, and that such consultations play a crucial role in setting the broader economic agenda,” the release.
Finance Minister Nirmala Sitharaman attended the meeting.
The leading economists who participated in the discussion included Arvind Panagariya, Arvind Virmani, Abhay Pethe, Ashok Lahiri, Abheek Barua, Ila Patnaik, KV Kamath, Monika Halan, Rajiv Mantri, Rakesh Mohan, Ravindra Dholakia, Saumya Kanti Ghosh, Shankar Acharya, Shekhar Shah, Sonal Varma and Sunil Jain. (ANI)