Saurabh Mukherjea on the BIG Changes in the Indian Economy Investors should know | Dhanam

India's Unique Growth Story

In this section, the speaker explains why India is the world's fastest-growing large economy and identifies four factors driving wealth creation in India.

Factors Driving Wealth Creation

• India is the world's fastest-growing large economy due to four factors:

• Enormous infrastructure development over the last decade

• Changes to direct and indirect tax codes

• Rebuilding of the banking system

• Development of a unique digital economy

Infrastructure Development

• The road network has doubled, airline network has tripled, bank accounts have trebled, and broadband connectivity is 50x what it was ten years ago.

• Logistics improvements have reduced travel time for goods from Coimbatore to Ludhiana from nine days to two days.

• Doing business in India in 2023 will be like playing in the IPL compared to playing cricket in a building in Bombay.

Digital Economy

• The digital economy is changing the Indian economy in unprecedented ways.

• India consumes more mobile data than any other continent in the world.

Non-Linearity in the Indian Economy

The speaker discusses three non-linearities that have contributed to the growth of the Indian economy.

Technology as a Driver of Growth

• Technology has allowed 20 companies to dredge billions of dollars from people's phones.

• It requires heavy investment in top tech talent, software, and cloud space.

• Roughly a billion dollars is needed to compete with these 20 companies.

Formalization and GST

• In September 2019, the corporate tax rate was reduced from 35% to 25%.

• Despite this reduction, total direct tax collections are at a record high due to formalization.

• GST makes everyone an extended arm of the enforcement directorate by requiring suppliers' details for input tax credit collection.

• As more evaders are caught through GST inspections, they shut down their businesses. This migration increases market share for formal sectors such as pipes, paint, jewelry, and adhesives.

Increase in Financial Savings

• As people save more money through financial savings such as life insurance and mutual funds, the cost of capital drops.

• The cost of government bonds has decreased from 13.5% to 7.3% over two decades due to increased financial savings.

• People are investing $300 billion per year compared to $50 billion ten years ago.

Introduction

The speaker introduces himself and his background before discussing non-linearity in the Indian economy.

Speaker Introduction

• Speaker is Saurabh Mukherjea

• He is CEO of Marcellus Investment Managers

• He studied economics at LSE for four years

The Story of Aadhaar and UPI

This section discusses the history of Aadhaar and UPI, two digital systems that have revolutionized banking in India.

Aadhaar Implementation

• In 2010, Aadhaar implementation began.

• By 2014, 1.4 billion Aadhaar IDs had been issued.

• The purpose of Aadhaar was to provide a unique identification system for all Indians.

Launch of Jan Dhan and UPI

• In October 2014, Prime Minister Modi announced the launch of Jan Dhan, which aimed to provide every Indian with a bank account by the end of 2015.

• In 2016, Nandan Nilekani worked with NPCI to launch UPI (Unified Payment Interface).

• Initially unclear how it would take off, GST provided a big boost to UPI adoption.

• As of now, UPI accounts for 52% of national income ($1.7 trillion USD), with over 7 billion transactions per month.

Impact on Economy

• One powerful use case is demonstrated by a chaiwala outside Marcellus's office who only accepts payments through UPI.

• He cites three reasons for this: increased productivity due to not having to give change; no need for a vault since he doesn't handle cash; and milk suppliers don't want to come collect cash every few days.

UPI and ONDC: Disruptive Digital Public Goods

In this section, the speaker discusses how UPI is changing the way small businesses operate in India and how it is helping banks to provide working capital finance opportunities. The speaker also talks about ONDC, a unique paradigm that will disrupt the current e-commerce paradigm.

UPI and Tax Evasion

• Our chaiwala can evade tax by doing UPI.

• NPCI says 20% of SMEs in India are solely operating on UPI, which means tax collection gets throttled off at source.

• Every UPI account has a bank account associated with it. In this case, the young chaiwala's bank account is with Kotak Bank.

• Banks like HDFC Bank and Kotak Bank are showing that the fastest-growing part of their loan book is unsecured working capital finance for small businesses.

ONDC: Disrupting E-commerce Paradigm

• The next logical movement of UPI is to ONDC, which destroys the monolithic internet platform that characterizes the west.

• Nandan Nilekaniji should do a session on ONDC as it is incredibly disruptive and will change India in a way that is fundamentally disruptive for other countries.

• Each piece of Aadhaar, Jan Dhan, FASTag, Cowin, digilocker creates a completely new way to do business which no other country has been able to pull off.