Mohandas Pai

India: a $10Tr Economy by 2030?

Mohandas Pai Bala Infinity Ventures Infosys Manipal Global Education Venture Capital India Venkatraman Balakrishnan Aadhaar Economic Growth GST Digitization

Is India The Next $10 Trillion Economy?

Mohandas Pai and Mr. Venkatraman Balakrishnan (‘Bala’) discuss the future of India’s growing economy

Since 1991 when Indian Prime Minister Narasimha Rao initiated an economic liberalization reform, the policy was met with heavy opposition, but has since fostered an impressive level of economic growth that has been almost unparalleled on the global stage for over two decades. The decision was aimed at making the economy more market and service-oriented as well as expanding the role of private and foreign investment within India.

Fast forward to 2017 and we see a similar transitionary mindset being carried out by the Indian government. The World Bank has forecast that India’s Gross Domestic Product growth will slow down to 7% in 2017 from 8.6% in 2015 because of disruptions caused by demonetization and the Goods and Services Tax. India’s GDP growth rate had fallen to 5.7% for the first quarter of 2017-’18. Indeed, as was the case after the 1991 reforms, India’s economy needs time to regain momentum. Despite this speedbump, new figures see the emerging Asian power becoming the third largest economy on the planet by 2030, a direct result of sound economic reform and an opportunistic business climate.

The Talk

On October 5th, 2017, former Infosys CFO Mohandas Pai spoke to a group of senior directors, investors, and political figures at a talk hosted by The Asia Leaders Series held in Zurich, Switzerland. He played an instrumental role in taking Infosys public on the NASDAQ, and saw the company grow from 500 employees in 1994 (when he joined) to 135,000 when he stepped down in 2011. Pai, who managed to foster Infosys into a $45 billion global giant in his 17 years at the company, lays out a plan to help ignite new investment opportunities with India.

“We have a vibrant entrepreneurial startup ecosystem. This is what we believe will make India a $10 trillion economy by 2030.”

Startups are some of the most profitable business endeavours one can pursue in 2017. They possess a high probability of failure in early stages, but once a new innovation carves its way into the market, the company valuation tends to sky rocket. India is currently home to over 26,000 startups — most of which have come after the dot com boom of the early 2000’s and more recently, the founding of Microsoft Ventures in 2016 — making it the third largest, and fastest growing startup ecosystem in the world. Collectively, new business ventures have generated an astounding $90 billion worth of value in only the last 5 years. This 270% increase in such a short period of time is no mistake; with over 600 million citizens in the middle class, the opportunity for growth is real, and there is surely no disputing the grandiosity of India’s startup ecosystem.

At the forefront of India’s startup world lies the mobile industry. With 462 million users, India is now the world’s fastest growing smartphone market, second only to China. The number rose 23 percent last year, and there is lots more headroom for growth because even now only a third of the 1.3 billion population is connected to the internet. As Pai notes, “If you want to increase a market and grow rapidly, you must decrease the cost of conducting business within that market.” Pai is not necessarily promoting the lessening of government regulations, but rather, to decrease the volatility of conducting business in a given region. Thus, the push for more cost-effective internet and smartphone solutions in India will not only provide a strong basis for competition in the mobile industry by lowering barriers to entry, but will inherently lower the risk involved in conducting business within India. This transition towards an interconnected society will in time, lead to a transfer of economic benefit to other industries outside of the immediate startup realm, which consists of mostly Business-to-consumer platforms.

Nearly 80 percent of India’s roughly 500 million internet users access the web with mobile devices, creating possibilities for new business models and innovation. Digital wallets and other mobile payment avenues, for example, could make India leapfrog over costlier card-based systems prevalent in developed economies. Pai notes that, “India is going to become a data rich country in 5 years” from being a data poor country as a result of the growing desire to become connected to social media networks as well as a secure online database. The push for electronic operations in every aspect of the economy has come with its hiccups and considerable learning curve, but along with the other reforms carried out recently, this is sure to spark continued business efficiency in the long run.

Among the main drivers of growth in the startup industry, Pai tells us that it is a new technology called India Stack that is going to make the largest change. India Stack is a set of APIs that allows governments, businesses, startups and developers to use a unique digital Infrastructure to enable continued economic growth. The initiative provides four distinct technology layers:

1. Presenceless layer
Where a universal biometric digital identity allows people to participate in any service from anywhere in the country. Upon enrolment in the Aadhaar program, the demographic and biometric information provided by the enrolee is stored in a centralized government database, with the 12-digit Aadhaar serving as a unique identification key. In essence, Aadhaar eliminates the need for a customer to be physically present or even produce ID cards for proof, yet, is still faster and more secure than traditional banking methods.

2. Paperless layer
Where digital records move with an individual's digital identity, eliminating the need for massive amount of paper collection and storage. Each Aadhaar number is uniquely tied to a set of documents that live in a digital locker assigned to that number. Furthermore, the digital signature capability (which is the second half of the paperless layer) allows individuals to electronically sign a contract with any entity without a paper or pen.

3. Cashless layer
To reduce the costs of digital financial transactions. The government has built a Unified Payments Interface (UPI), called the Aadhaar Payments Bridge system. From a business / end user perspective, this system acts as an instantaneous payments bridge between any two entities.

4. Consent layer
The iSPIRT open API team is working on building an “electronic consent architecture” Which allows data to move freely and securely to democratize the market for data. The idea behind the architecture is to allow individuals to provide registered entities access to specific data about themselves from the India Stack layers. Access will be provided in the form of consent tokens that are time-bound and identity-verified. This is where a majority of the power of the India Stack will be realized. By building a digital world around every individual and giving them the ability to determine how much of that world to share.

The process, which Pai notes is considerably cheaper than storing India’s data on Google servers, will evidently create an architecture where the data belongs to you; if governments of private agencies want to access this data they have to get your consent. Indeed, it can be said that India is on the cusp of a digital revolution that will change the way their economy operates forever.

How Government Regulation Is Allowing for Economic Growth

Although GST implementation has hindered growth in the short run, the snowball of effects it is causing is shining a bright light on the future of economic sustainability within India. A clear beneficiary of these new reforms are India’s banking institutions. In the last three months alone, India has allowed 21 new banks to begin conducting business. In the previous 45 years they had only allowed 14. Up until this point, the banking industry has been tightly controlled by the government because they were scared of what was going to happen to deposited money. However, these new banks are capitalizing on newly available tools, such as the “India Stack,” which make transactions less capital-intensive, quicker, more secure, and more traceable.

Because of India’s newfound economic heterogeneity, the investment landscape is looking to be one of the most promising in Asia. India’s demonetization and GST implementation have been aimed at promoting a digital economy and ultimately, higher tax revenues for government. For a country that only collects taxes from 1% of its working class population, these policy changes are pivotal in terms of transforming India’s investment landscape. More government tax revenue translates into less government borrowing from the market, meaning they can incentivize business activity by providing business grants at lower interest rates. Knowing that their economic success depends greatly on FDI, this is definitely an option the government plans to implement in what is expected to be a very long-term expansionary period.

“Technology Is Disrupting The World”

Mr. Mohandas Pai also focuses on the changing role of oil and renewable energies within the global economy. Pai explains that, “By 2030, 30% of world energy will be alternate energy. Oil prices have come down in recent years due to fracking in the United States, and oil prices will not go up in the next few years because the US could always just increase their oil production.” The shift from oil to renewable energies is one that will be a landmark for the upcoming decades. Nations that can capitalize on this transition will stand the test of time, while those that are heavily dependent on oil will be at a noticeable disadvantage.

Pai notes that of all the 19 million manufactured cars in the world, 70-75% will be electric by 2030, which will cause a great deal of disruption to many global industries, most notably, the oil industry, which has already decreased in value from $6 trillion to $4 trillion in the last three years alone.

He also makes reference to the considerable savings one could acquire just by owning and driving an electric vehicle as opposed to one that runs on gas. If India can implement renewable energy efforts such as solar roofs, charging stations, and affordable electric vehicles, the opportunities for environmental sustainability and industrial growth are endless. This market will only become more feasible for the average citizen and investor once the benefits of increased infrastructure spending on roads and highways begin to compound.

The Bottom Line

With almost three decades of GDP growth north of 5% there is no arguing against the Indian economic machine. An advantageous demographic distribution paired with sound government policies have made for a financial ecosystem poised for tremendous growth. The figures don’t lie; India will become a $10 trillion economy sooner than later. The question is, are you going to be a part of it?

Regardless of where you live, the onset of digitization in India has made investment opportunities significantly easier; the start-up market being one main beneficiary. With websites like Let’s Venture and India’s Angel Investment Network, the ability to invest in companies situated half-way around the world has literally never been easier. As technology like cellphones and better internet accessibility become more attainable for the Indian population, the ease of conducting business in India is set to improve. Every second, three or more Indians experience internet for the first time, usually via a cellular device. One can only imagine the sheer size of this market in the near future; per capita income will continue to rise while the peak of India’s demographic distribution is still well in the future, with their average age set to reach the age of 29 by 2020. As put by Pai, “India is now in the sweet spot of their population distribution.”

The presentation given by Mohandas Pai provides a unique look into the future of economic relations between Europe and India, and is a fantastic place to start for any aspiring Investors who wish to take advantage of this opportunity. His findings can be unanimously agreed upon, as his expertise in this field is almost unparalleled. A focus on India’s startup ecosystem along with the effects of government regulation and of course, the changing dynamic of the global oil market are all the main highlights of this presentation. Investments in infrastructure, technology, and education are all well-warranted. Ultimately, the viability of investing in India will only continue to improve as the economy slowly begins to respond to the numerous changes in government regulation. India’s brightest days are indeed, still ahead.