Bullish On India
Despite grim talk of a “funding winter”, venture capitalists (VCs) remain bullish on India. The startup ecosystem has obviously slowed but the numbers tell a nuanced story. According to Tracxn data, over 140 new Indian VCs were founded between 2020 and 2022. They have invested in more than 4,500 startup deals during this three-year period. Ankur Mittal, a partner at Physis Capital, said while markets remain volatile, “As long as domestic investors continue to have faith in the resilience of the Indian economy, this (positive) trend appears to be accelerating.”
Other indicators are positive as well. Sales of vehicles in October 2022 rose to 2.09 million units. Power consumption, a bellwether for economic activity, increased 13.31 per cent year-on-year in September 2022. Private equity (PE) funds are as bullish as VCs on India’s growth.
Electric Vehicle (EV) startups are meanwhile attracting global interest. In the first nine months of calendar 2022, a total of 26 EV deals valued at $904 million were signed. India’s EV ecosystem is still small with a paucity of charging stations retarding growth. But that is changing rapidly. The government has set a target of achieving by 2030 an EV share of 30 per cent for cars, 70 per cent for commercial vehicles and 80 per cent for two-wheelers. India’s largest carmaker, Maruti Suzuki, has raised capital expenditure in 2022-23 by 40 per cent to Rs 7,000 crore. A late starter in EVs and SUVs, Maruti is doubling down on both.
Fast moving consumer goods (FMCG) firms say that, despite tepid sales in rural India due to inflationary pressures, overall revenue is picking up following two years of Covid-constricted growth. As Christian H.M. Ketels, who teaches strategy at Harvard Business School, told The Economic Times on 28 October 2022: “The Indian economy will become the world’s third largest in the foreseeable future. The demographics are beneficial. India has a lot of people ready to enter the labour force in the next few years. India is also becoming more attractive to foreign investors for its own market and as an alternative supplier to China.”
And yet pessimism about India’s economic prospects persists among a section of Indian analysts. Their pessimism contrasts sharply with the views of foreign investors. Even in the stressed edtech sector where Byju’s and other startups have incurred huge losses, foreign investors are gung-ho. Jeff Maggioncalda is CEO of Coursera, the world’s largest online course provider. He recently visited top Indian universities and colleges to understand the local education sector better. Coursera has 110 million learners on its platform. Of these Indians comprise the second largest number (17 million) after the United States (20 million). With an annual growth rate of 34 per cent, Maggioncalda says, it’s a matter of time before India overtakes the US to become Coursera’s largest market.
A common mistake Indian analysts make is to ignore the size, scale and growth of the informal economy, much of it based in tier-2 and tier-3 towns. Not only are smaller cities snapping up SUVs and EVs, they account for much of the growth in ecommerce. Traditional data doesn’t always capture economic activity and jobs in micro, small and medium enterprises (MSMEs). With the broadening of the Goods and Services Tax (GST), many small manufacturing units have become formalised. But a significant number remain under the data radar. The result is misleading data on both jobs and the overall economy.
Among the key data points that escape formal surveys is the participation of women in the labour force. V. Anantha Nageswaran, the government’s Chief Economic Advisor (CEA), recently explained this lacuna in Mint: “The debate over the inclusion of unpaid work in the calculation of gross domestic product is a long-standing one. Given practical difficulties, this was not pursued further. In recent years, this has become a hot-button issue, since India’s female labour force participation rate (LFPR) is claimed to have declined considerably since 2005. It is a conclusion that fails both experiential ad rigorous scrutiny.”
Nageswaran added: “The use of international agencies’ estimates of India’s female LFPR is troublesome too. India’s female LFPR is widely quoted as too low, citing the ILO’s estimate of 19 per cent for 2020. However, this is ILO’s modelled estimate. It is essentially a black box in terms of how and why it varies from our official estimates. Their official caveat, ‘imputed observations are not based on national data, are subject to high uncertainty, and should not be used for country comparisons or rankings’, is conveniently ignored by commentators.”
The dependence of Indian commentators on foreign indices leads to inconsistent conclusions in the absence of accurate domestic data. Part of the problem lies with the government. In a data vacuum, private organisations like the Centre for Monitoring Indian Economy (CMIE) are quoted globally. The CMIE data does not fully capture jobs data in the growing informal sector. How big is India’s informal economy? Estimates put it at 15-20 per cent. One sign of how GST is gradually formalising this “grey” economy is the rise in tax collections. These are running well ahead of Union Budget estimates in 2022-23.
The flurry of new projects in defence, infrastructure and automotive will provide many of the jobs India’s expanding young population needs. Service companies could add significantly to that. Tracxn’s data shows that an average of 1,500 new startups are being funded every year. While job layoffs at Byju’s and other large startups dominate headlines, smaller startups are vacuuming-up excess staff.
The gig economy is playing its part. Food delivery partners of Swiggy and Zomato are on a hiring spree. Young people without tech qualifications now have opportunities in logistics, warehousing, realty and hospitality. But does NSSO and CMIE data capture this? Probably not.
Over the past few months, Amazon has acquired land in and around Mumbai to build three data centres. One of these acquisitions last month in Thane, a satellite township of Mumbai, was a 54-acre piece of land. At Rs 1,870 crore, it is the largest outright land purchase this year.
Data is the new oil. It is time the government improved its own data protocol to ensure more complete and accurate information on the economy and jobs.
