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Benefiting from India’s $5 Trillion Economy

Benefiting from India’s $5 Trillion Economy - Jama Wealth

The remarkable thing about India’s economy is that it has grown faster every decade since independence. Never mind the so called Hindu rate of growth.

Since we all love compounding, this will only snowball favourably for the Indian economy. Yes, a $5 Trillion economy is only a matter a time.

We can all benefit from the trillions of value getting created. Here is how it is likely to happen.

trillions of value getting created

What exactly goes into the makeup of a country’s Gross Domestic Product (GDP)?

Textbooks tell us: GDP = C + I + G + X – M

where C = Private Consumption, I = Private Investment, G= Government Spend + Govt Consumption + Govt Investment, X = Exports and M = Imports

Here is how each factor will impact GDP and result in opportunities for us to invest and prosper.

Increase in Consumption

  1. The governement has alread reduced corporate taxes to one of the lowest in the world in September 2019. This is spurring corprates to invest more in capacity creation and in jobs. Jobs will in turn increase consumption by people.
  2. Personal Income Tax could be reduced to a level that it does not make sense to evade taxes.
  3. Incentivize tax savings by re-launching Infrastructure bonds for additional tax savings.
  4. Cut down GST drastically to 8% or 12% max.
  5. Introduce special rebates for people who pay tax. Greater rebate for people paying more tax. People should see benefit of paying taxes.
  6. Encourage domestic tourism. People spend when they travel. Indians are now travelling to many places and spending a lot of forex.
  7. Remove all extra charges when payments are made through credit/ debit cards.
  8. Jewellery Insurance at very low rates. In other words, discourage hoarding of undeclared assets.
  9. Tax Agricultural income. Give 120% cash back vouchers to farmers to the extent of tax paid. (No effective tax, but money to be spent and accounted for)

Increase in Investment

  • Introduce labour reforms – should be possible for employers to fire labour after paying 6 months salary.
  • Make land acquisition easy. Monetize most Government owned land (except eco-sensitive) by selling or long leasing.
  • Introduce Tax holidays. No tax for first 5 years of any greenfield project.
  • Remove high interest bearing, assured return saving schemes such as PPF, except for senior citizens.
  • Encourage Start-ups. No questions asked policy for first 5 years. 0% tax for allemployees of start-ups for 5 years. 0% tax on ESOP shares. This will lower cost of operations for businesses, encouraging them to invest.
  • Create Special Financial Institutions to fund Start-ups. They will provide 0% convertible debt – 0% interest for 5 years, then convert bond into equity that can be offloaded to next round of investors.7.Automatic approvals – if a bureaucrat doesn’t document in system a specific reason for not granting approval, approval is automatically granted.

Increase in Government Expenditure (Spending + Consumption + Investment)

  1. The government plans to spend 1 lakh crore on infrastructure and may raise funds via this route. This could be to build roads, ports, last mile connectivity, Solar, Wind and Hydro power plants.
  2. Invest in Social Infrastructure – spend heavily on improving quality of Education in Government schools by providing competitive pay to teachers, having playgrounds, offering a viable alternative against private schools charging exhorbitant fee.
  3. Identify bunch of industries where India has competitive advantage. Go full steam to corner significant global market share in these industries.
  4. Set-up Vocational training institutes to create skilled labour force – manual/ mechanical/ technical etc.
  5. Spend heavily on enhancing medical facilities at Government hospitals.
  6. Incentivize General Insurance – Health, Travel, Property, etc instead of Life Insurance. Only pure term Insurance policies should get Insurance benefit.
  7. Spend heavily on promoting Indian culture, Indian festivals, etc increasing pride in being Indian.

Increase in Exports

  1. Improved infrastructure, tax incentives, low finance costs will reduce cost of production, making Indian goods cheaper and thus competitive in global markets.
  2. Market the made in India brand – not just handicrafts.
  3. Promoting tourism heavily and smartly will earn foreign exchange.4. Target NRIs for Charity to support old age homes, orphanages, etc. This will result in remittances.

Reduction in Imports

• Develop non-conventional sources of energy to reduce dependence on oil – solar, wind, hydel – even if they are loss making initially.

• Discourage Jewellery and Gold imports, even if people protest. Incentivise Indian jeweller of stones locally available in India.

• Encourage more Make In India projects that reduce the import bill

These are but just some paths that could and would be taken in the journey to $5Trillion.

Conclusion

As GDP grows, investing in equities will beat inflation. But won’t create wealth.By investing in the right businesses that will ride the increased consumption and investment waves across sectors, one could generate outsized returns on one’s portfolio.

Picking is not enough. Often businesses start well, but end up destroying wealth. Wealth is truly preserved & we prosper when we invest in solid businesses based on a rigorous, unbiased system, powered by best-in-class human & machine intelligence.

Jama Wealth