With a steady inflow of capital, a digital revolution that’s overshadowed many global markets, rapid urbanisation, growth of the premium consumer segment, and an increasingly robust regulatory framework, India seems poised to achieve its target of becoming a $10-trillion economy.
Broad-based recovery, higher private capex, loans to tier II and tier III areas, better capitalisation of investments and a massive push on education and upskilling are critical components of this growth trajectory. Piramal Group chairman Ajay Piramal, Larsen & Toubro managing director SN Subrahmanyan, Nykaa founder Falguni Nayar and Hindustan Unilever managing director Rohit Jawa talked about what it will take for India to achieve its targets in a discussion moderated by Arijit Barman. Edited excerpts:
In the last one year, the retail sector has seen a decline in value and volume growth in rural and lower income markets. Is this year’s recovery because of a lower base or is consumption demand returning?
ROHIT JAWA: I am actually very optimistic and charged by what I have seen. I see an absolutely path-breaking revolution in digital or soft infrastructure and a massive transformation in hard infrastructure: boats, bridges, roads, airports. And that means that the productive capacity of the economy is being unleashed.
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On consumption, every segment of ours is about a fourth or fifth of neighbouring countries like China and Indonesia. So, you can see inflection curves and all categories will go through an S curve. It’s unlikely to be a smooth straight path. I think we must not look at short-term volatility as a big deal. Segments across our markets are doing well, some are slow, some fast. So, I feel very positive, and we are investing for the long term.
The premium consumer segment in a business like beauty retail is not just growing, but also getting younger. In the West however, brands like Revlon and The Body Shop are shutting shop. What’s happening?
FALGUNI NAYAR: Our consumption of beauty products is even below where we should be given our income levels. I think there’s a lot of good work that has happened in terms of uplifting the incomes of Indian households. The numbers are stunning, and the way economic classes have been lifted to upper income levels is sure to drive consumption. And yes, the consumption age is getting younger. Even in Nykaa stores, you’ll see a lot of Gen Zs and I think beauty as a category has a huge appeal to the young population and today’s consumption is being driven by them.
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We touched upon consumption, but for a $10 trillion economy, we will need many more houses and finance for families to acquire those homes. What trends do you see?
AJAY PIRAMAL: I think, if you have to grow at 8% GDP, the financial sector has to grow at least 18%. My concern is that there will not be enough capital available to grow. Debt is very important. But today, we are too reliant on banks. Almost 60% of the debt is given by banks. We need to take finance to the tier-II, tier-III, tier-IV areas. That is where I think NBFCs (non-banking financial companies) play a role. The funding to NBFCs is being constrained. I think it is very critical that the upper layer of NBFCs, which are now being regulated almost as much as any bank, get more deposit-taking licences. I also want to emphasise human development goals. The honourable Prime Minister spoke about aspirational districts in 2017. There are 112 aspirational districts in India. If these districts were to be taken as a separate country, in terms of GDP (gross domestic product), it would be 185th among 192 countries. While 16% of the population lives there, only 2.5% of the funding of CSR (corporate social responsibility) goes there. Similarly, on education and health, we have a long way to go to make it a really Viksit Bharat system, which is inclusive for all.
But even if half of India is to get urbanised, about 250 million people will have to move out of villages. Can they be accommodated in large cities?
SN SUBRAHMANYAN: I think you should look at it from not only fitting into the cities, but how to create employment. This is coming from a platform which is sitting on the highest backlog ever in its history. Out of the spate of inaugurations done by the Prime Minister, 20 projects have been done by us. We employ about 375,000 labourers and now I’m running short of 40,000 labourers. They are just not available. This tells two stories: One, the various employment and other benefit schemes introduced by the government are working at the ground level. Two, because of the excellent relationships India has with the Middle East and other countries, you see a phenomenal amount of work there. And 40-50% of the labour strength in those locations are Indians. So, this positive atmosphere both within the country and in some areas close to India, has created a need where people need not necessarily migrate to cities. The second aspect is this huge development of new settlement areas like Dholera and Shendra Bidkin. I think you’ll have huge industry migration to these areas instead of the metro cities.
As we build new cities, are we factoring in issues like air quality, pollution, healthcare, the quality of life?
JAWA: We must be mindful that real India lives in the rural and the small towns. As super cities come up, you need modern urban planning: at least 60 cities, more than a million each. China has 400 of them. We don’t have the luxury of making them ground up. So, we’ll have to think of other innovative means to make sure that they don’t get into a logjam where the productive capacity of the city is lost because people are on the roads. And that is going to take some engineering.
Achieving our $10 trillion target will be much faster if we boost women’s participation in the workforce. Falguni, where do you see the bottlenecks and challenges?
NAYAR: We have to admit that, given the traditional gender roles as well as the societal demands that are made on women, the numbers (on higher women participation) are not looking good. But it is changing very rapidly, especially with younger women. At Nykaa, 50% of our staff are women. And we do feel that women need to be empowered to be in the right decision-making roles.
Another critical need for achieving the GDP target is the opening up of private sector capex…
SUBRAHMANYAN: Private capex is happening. During Covid times, our orderbook was nearly 90% government. Today, it’s about 65% government. This trend will continue. It will continue to increase.
So, you don’t agree that we’re seeing private sector spending pick up only in production-linked incentive (PLI) schemes or those linked to enhanced public spending infrastructure?
SUBRAHMANYAN: It is, actually, more broad-based. PLI scheme definitely has helped, no doubt, but I think it’s more broad-based.
Is recent regulatory action in retail lending by the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi) overkill or a necessary cleanup for long-term systemic benefits?
PIRAMAL: Regulators don’t want to take any chances. I don’t think there’s a challenge today, but I think with so much growth in retail and unsecured lending, that’s where the regulators are worried. So, it is fair that they raise issues. You will see more responsible lending, especially from fintechs who did not have as much experience or knowledge about what lending is.
Along with capital and labour, the third variable for achieving targets is productivity and there is a lot of hope pinned on digitisation. What has been HUL’s experience in India?
JAWA: We have an app called Shikhar on which retailers can order. Now we have 1.3 million retailers using the app regularly. And this platform by itself is a big opportunity for us to serve their own business development needs like better bookkeeping, loans, education for their children, insurance for their shop. We are also using AI to customise offers for retailers and so on and so forth. So, the possibilities are endless.
Are we using our demographic dividend to its fullest potential?
PIRAMAL: I think there is a lot more that we can do in terms of education. We do an annual survey in class three, the students on average are only 59% of the global average. That drops to 36% in class 10. So, we must raise the level of education. The new education policy is a step in that direction.
