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There are several trends which have helped India remain resilient amidst global turmoil. We will have to build on these to remain one of the fastest-growing economies over the next decade.

The world economy is going through a tumultuous phase. Aggressive tightening by major advanced economies’ central banks has led to a bleak outlook for global growth. Against this backdrop, the World Bank recently cut India's GDP forecast for FY23 to 6.5 percent (from 7.5 percent earlier). However, India will still remain one of the fastest-growing major economies in the world. This brings us to the question that what has worked in India’s favour for it to maintain decent growth amidst global gloom. We identify five reforms/policies which have helped India to grow faster and will continue to aid growth in the medium term.

India's low external debt

The first and the most important has been India’s low external debt which has insulated it from external volatility in times like these. In recent weeks there has been a lot of buzz around India's inclusion in the global bond indices. Historically, India has always been uncomfortable about foreign investors owning Indian debt, hence through capital controls, has kept foreign ownership at bay.

On the sovereign front, India's exposure to foreign ownership of government debt has historically ranged between 1 percent and 2 percent. India's debt exposure to foreign ownership is far lower than most of its peers. The only major economy that has a lower debt exposure is China. This has worked well in India's favour where most of its debt is domestically held and hence not prone to huge movements in currency in times of heightened uncertainty.

Shift within financial savings

The second trend has been the perceptible change in the composition of financial savings of households. Though overall household savings to GDP has been on a decline, the share of financial savings in overall household savings has increased lately. However, the shift in financial savings has been more interesting.

RBI's quarterly household financial savings data suggests, between Q4FY20 and Q4FY22, mutual funds owned by households grew by a whopping 34 percent per annum compared to currency held (14 percent growth) and bank deposits (10 percent growth).

Covid-related fears also led to growth in life insurance funds purchased by households; it grew by 17 percent per annum during the same period. The share of bank deposits within financial savings has been declining and that of other products increasing. This trend will eventually lead to a deepening of both debt and equity markets in the long run.

Low corporate debt

The third positive trend has been the improvement in corporate debt and profitability in recent years. India's investment sentiment since FY12 was plagued by what is called the twin balance sheet problem where corporates were overleveraged and banks were saddled with high non-performing assets (NPAs). These trends are looking much better now with corporate debt the lowest in the last 15 years and banks’ NPAs under control.

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If the uncertainty in demand outlook were to subside, corporates' ability to drive capex and banks’ ability to fund it is much better than it was 5 years ago.

Success of DBT

The fourth transformation which has taken place in India is the revolution called the Direct Benefits Transfer (DBT). The amount disbursed under DBT has increased substantially over the years. In FY22, the Government transferred a total of Rs 6.3 trillion, or roughly 3 percent of GDP, through the DBT route (up from Rs 1.9 trillion in FY18).

Since the adoption of the scheme, more than 50 ministries have used DBT to transfer money in as many as 319 schemes. This has led to total savings of Rs 2.2 trillion. This also helped Government to expand the welfare state efficiently.

Undoubtedly, the DBT became a potent tool during the pandemic which helped the Government provide benefits to millions in need which cushioned consumption at the bottom of the pyramid.

Government's thrust on capex

Finally, the Central Government has pushed the pedal on capital expenditure (capex) in the last three years. Capex share in overall expenditure has increased from 12 percent in FY18 to 19 percent in FY23 (budgeted). Focusing on capex is a welcome move as it has a higher multiplier effect.

According to data from the National Institute of Public Finance and Policy (NIPFP), a rupee spent on capex can bring in output worth Rs 2.45 in the same year and by a cumulative Rs 4.8 in the next 7 years.

Although India will not remain insulated from the global turmoil in this inter-connected world (especially on the exports front and financial market volatility), these five trends will help maintain a decent growth rate in the coming years.

We will need to build on these to cement India’s position as the fastest growing major economy in the next decade.

As Uddhav Thackeray, the direct familial heir of the Shiv Sena founded by his late father Bal Thackeray in 1966, stood up to address party workers in Uran, near Mumbai, this week, he would have recalled an unpleasant political episode from 1985. “We will teach our detractors a lesson, a befitting lesson,” Thackeray exhorted his party workers, days after the party’s name and symbol had been dramatically changed. The new name, allotted by the election commission, is a mouthful: ‘Shiv Sena – Uddhav Balasaheb Thackeray’, and the party’s 38-year-old symbol of bow-and-arrow has been replaced with the flaming torch (mashaal).

The Shiv Sena was stripped of its identity in June when the late Thackeray’s loyalist Eknath Shinde stunned Uddhav by splitting its legislative wing. The split, a guerrilla operation, apparently had the blessings — logistical and otherwise — of the Bharatiya Janata Party (BJP). Within days, Shinde and BJP’s Devendra Fadnavis formed the Maharashtra government replacing the one led by Uddhav Thackeray.

However, Shinde did not function like the other turncoats in the Shiv Sena, who had walked out alone or with only a handful of loyalists which did not shake the very foundation of the party; Shinde’s rebellion was larger, and led to the party losing its name and symbol. A non-Thackeray, a local satrap, claimed to be the true heir of Bal Thackeray’s politics. To Uddhav Thackeray, Shinde’s blow would have hurt as much as when his cousin Raj Thackeray walked out of the party in 2005.

The Thackerays, Uddhav and son Aaditya, are staring at contesting elections — an assembly seat from suburban Mumbai in three weeks’ time and the all-important general body of the forthcoming Brihanmumbai Municipal Corporation elections — with a depleted organisation, and without its ubiquitous ‘bow-and-arrow’ symbol.

The flaming torch has appeared in various avatars in the party’s newspaper Saamna and other sundry material. It is not an unfamiliar symbol to Shiv Sainiks — of both the Thackeray and Shinde factions. The question is: Can Uddhav Thackeray make it resonate with the party cadre and local leaders who have chosen to side with him, and ensure that the party’s committed voters recognise it too? It will take all of Uddhav Thackeray’s smart moves — and more — to swing the assembly bypoll which will be bellwether for the BMC elections.

If one had walked into a toy store in India a few years ago, there would be an 80 percent chance they would be laying their hands on a ‘Made in China’ product. This is because the Indian market was flooded with imported toys, with eight out of 10 toys sold being predominantly imported from China. Even though the Indian toy industry boasts a rich heritage, Indian manufactured toys contributed to just 20 percent of the domestic market.

At Rs 328 crore and Rs 1,936 crore respectively, the import of toys was six times more than the export in 2014-15. The industry was languishing due to a lack of investment and technology, and competition from cheap im­ports. Traditional toys had long been forgotten, and local industry was fragmented.

Even though the industry had recorded double-digit growth in 2014-15, around 40 percent of Indian toy manufacturing units had closed down, and another 20 percent were on the verge of closure. The ones remaining were either static, or their productivity levels were declining.

Then in the last three years, something changed. From being a net importer, the Indian toy industry turned into a net foreign exchange earner. India’s import of toys fell by 70 percent from $371 million in 2018-19 to $110 million in 2021-22, while exports rose by 61.4 percent, from $202 million to $326 million in the same period. In the quarter ending April-August 2022, the country’s toy export registered a 636 percent growth, over the same period in 2013!

State Of Play

COVID-19-induced supply disruptions in 2020 would have sent an industry that was largely dependent on imports for its survival to its grave had it not been for two key interventions by the Government of India.

First, in February 2020, the government increased basic customs duty from 20 percent to 60 percent. A year later, in January 2021, the government issued the Toys (Quality Control) Order, making it mandatory for all toy manufacturers, from India and overseas, to get BIS (Bureau of Indian Standards) certification for selling toys in India.

Combined, the two measures helped deter both cheap and high-quality imports, while allowing local manufacturing to flourish. Sending the right signal to India’s major markets like the United Kingdom, Germany, and the Netherlands vis-a-vis maintenance of international standards, longstanding public health concerns around Chinese toys — 67 percent of which had been found to be highly-toxic were also alleviated. The new BIS rules encouraged many toy importers to get into manufacturing, and turn exporters to markets in Africa and West Asia.

At the same time, with an aim to boost traditional toy-making, and integrate the manufacturing and production ecosystem of toys, 19 toy clusters were approved.

Toying With New Ideas

India’s protectionist push for the toy industry may have come at a time when the country was witnessing intense skirmishes with China, yet, given India’s vast export potential, the size of its domestic market (above 300 million children), and the employment potential of the toy industry, the ‘aatmanirbhar’ is a welcome one.

The measures taken so far are however a very small beginning in self-reliance, and if India wants to become a global player in toy manufacturing, building its image as a trustworthy destination for quality manufacturing may be a better way to move ahead, than just curbing imports.

The scope is immense. Given the right impetus, the Indian toy market has the potential to grow to $2-3 billion by 2024 (from $1.7 billion in 2017), and for every $100 million investment in the sector, 20,000 direct jobs, and another 8,000 indirect jobs can be created.

The Challenges

The toy industry is still highly fragmented, dominated by local producers (60 percent of India’s 4,000 toy manufacturers are unorganised), and lack innovation, and resources to invest in equipment and technology. Supply chains in the country are still highly fragmented.

To encourage competitiveness, the Centre could support the industry in setting up more clusters, subsidies on exports, and production-linked incentives for their manufacture, as well as toys to be incorporated in India’s Free Trade Agreements (FTAs). The Centre’s support in the form of incentives, as well as inputs on technology upgrade, can go a long way in helping the domestic industry grow swiftly.

Re-skilling the 7 million artisans in the country to help them meet the evolving demands of the industry while framing labour laws and regulations that protect workers’ rights can also help reap dividends.

Toy manufacturing is an ideal sector to revive a slowing economy. Solving for quality, skilling, and supply chain issues, the projected growth of the Indian toy industry looks imminent.

In the decade after the 2008 financial crisis, global central banks and institutions have been bingeing on US treasury bonds because they ticked all the boxes of safety, liquidity, and returns. This trend is now reversing as the relentless rise of the greenback has triggered central banks to take measures for their own economies.

That has meant that the biggest buyers of US treasuries are now turning sellers as they step in to shore up their own markets.

In 2021, Japan, China, United Kingdom, Ireland, and France were the top buyers of US treasury notes that have turned net sellers in the first seven months of 2022, data from the US treasury department shows.

In total, foreign investors and institutions sold a massive $246 billion worth of US treasuries during this period. That’s a 3.2 percent drop in their holdings within a few months as against a 9 percent build-up in the year 2021. The treasury department will release data for August next week and it is expected that the holdings will come down further.

This selling pressure is one of the reasons behind the sharp 13 percent fall in the US Treasury total return index this year. In short, holding US treasuries has been disastrous for investors.

FMCG firm Adani Wilmar’s share price tumbled over 3.6 percent on October 13 after the management said that overall revenue in the September quarter is expected to grow in low single digit and volumes in the first half of the fiscal will clock low double-digit growth.

At 10 am, the stock was quoting at Rs 683 on the National Stock Exchange. This year so far, it has been one of the best performing stocks surging over 150 percent.

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In an exchange filing, the company said, “Rising interest rates, slow uptick in rural demand, and delayed withdrawal of monsoon in major parts of India impacted business in the quarter gone by.”

Leveraging the pan-India distribution of edible oil business, food & FMCG basket for the company continued its growth trajectory, expanding over 40 percent. “Edible oil business witnessed higher volume growth in the masstige category rather than the premium category as a result of downtrading,” the filing added.

Hero Future Energies (HFE), the Hero Group’s green energy arm, aims to diversify its offerings portfolio and geographical presence supported by the recent $450 million investment by global private equity major KKR, Srivatsan Iyer, global Chief Executive Officer (CEO) of HFE said. In an exclusive interview with Moneycontrol’s Rachita Prasad and Sweta Goswami, Iyer talks about supply chain issues faced by the industry and the opportunities in the new energy space. While he held his cards close to his chest on a possible initial public offering of the company, Iyer said that as the business demands they will continue to raise equity funding.

Edited excerpts:

Now that KKR and Hero group have committed $450 million to HFE, what is the big picture here and why now? 

India is on the cusp of a massive aspiration in renewable energy going forward. India’s 2030 target is to have half of its electricity generation come from renewables, as well as reduce its carbon intensity by at least 45 percent. To achieve both of these, renewable energy has to play a huge role. We (HFE) are going to be 10 years old later this month; we've been committed to growing renewable energy and providing clean energy solutions. With the increasing uncertainty in the energy markets globally, several countries are looking at renewable energy not just to address sustainability and climate change but also for energy independence. This is the right time for this investment for us to not just grow in India but also in other targeted geographies. We have a presence in Asia as well as in the UK. It’s a good time for us to grow in renewable energy and also test some of the newer solutions that will help decarbonisation.

We're going to participate in renewable energy – solar and wind power – and also grow in emerging technologies like battery storage, round-the-clock RE and green hydrogen. We have had discussions with our shareholders that we want to grow in conventional as well as in new technologies.

Can you cite some more tangible targets in terms of what kind of capacity you would be looking at in wind and solar? And when you're saying other forms, what kind of plans do you have there?

We've not set explicit capacity targets for ourselves because generally capacity is associated with just solar and wind. If you were to invest in battery storage, for example, you can't necessarily add that capacity only to solar and wind. We have bagged our first battery storage bid from Kerala and in that sense, we are leading the pack. There are going to be several other battery storage bids over the next six months as states look to use it to balance the grid or to maintain grid stability. We are certainly looking at upcoming round-the-clock bids.

We're waiting for the unveiling of the green hydrogen policy, which we expect sometime this month. But in the meantime, we are in active discussions with many customers in India and some in the UK for pilot projects in green hydrogen so that we know what are the levers to reduce costs going forward that would make green hydrogen economically viable versus conventional sources of energy. For us, the quickest win is to try to convert grey hydrogen projects into green hydrogen. Parallelly, we're looking at how to use green hydrogen to do things where hydrogen is not being used today. We will be a producer of green hydrogen. Our role will be to supply green hydrogen to various end users.

You don’t want to specify targets, but with the KKR investment, are you fully funded for your expansion plans? Is there an appetite to get more investors? 

We're funded for now. The good problem to have is, "Can I finish using all those monies in the next two to three years?" And if we find the right mix of projects and the right growth, we hope to use it up in the next two to three years. And then at that point, we will decide the next course of action.

The next big step for you would be going to the market at some stage. Do you have in place a plan for an initial public offer (IPO)?

No, we don't have a timeline or a deadline. At some point, we'll have to go back and raise more equity as we grow and as this market grows. Now, whether that will take the form of a market listing or whether additional equity from the same or new shareholders is yet unknown. We'll keep raising new equity every so often.

Do you have any other plans of monetization of assets?

Everything is on the table at this point. The shareholders obviously have to consider what's the best way for them to monetize their investment in the company. It can take multiple routes.

What are your expectations from the Indian government with regard to its upcoming phase II of the green hydrogen policy? 

If you rewind 10 years, the solar and wind energy tariff was as high as Rs 10-15 a unit. The government stepped in because they were keen to grow this space and they wanted to ensure the sector learns, grows and reduces cost. Today you can get solar power for as low as Rs 2.5 per unit. We're looking for something similar from the government in terms of green hydrogen as well. Whether it be demand mandates, viability gap funding or something completely revolutionary, like dollar-link contracts rather than rupee-link contracts – there’s a lot that can happen.

Indian renewable energy companies are now seeing an opportunity in the commercial and industrial (C&I) space. What is the mix of government and C&I in HFE’s portfolio? And is that a space you would be looking at increasingly? 

The corporate sector accounts for roughly half the energy consumption in India. So for us to get to the targets we have set ourselves as a country, the corporate sector has to be an important participant. Hence, C&I is going to be important for multiple reasons. One is they are looking at sustainability because they made commitments to their shareholders and the markets in terms of the overall sustainability targets or carbon footprints. Secondly, they are looking at this for the lowest cost of energy supply. Today, C&I is roughly 10 percent to 15 percent of our portfolio.

How is the supply chain looking like right now, whether it's wind or solar, in terms of equipment? 

The supply chain is still tight globally. The only thing that has improved over the last 12 months is freight rates; container costs have come down and that part of the supply chain has stabilised globally. In non-solar space, there is still a shortage of semiconductors. This impacts RE in a fairly significant way. On the solar side, there is a global shortage all the way from polysilicon to modules. The good news is a lot of capacity is being added globally.

How effective have the production-linked incentive (PLI) schemes been overall?

The PLI scheme is certainly a step in the right direction and it has been focusing on backward integration all the way to polysilicon which is the last bit of a solar PV (photovoltaic) system. Otherwise, we are still supply-chain dependent on China. In the short term, we don't see PLI making a huge impact in the Indian market context because it would take two to three years to build capacity. But in terms of energy self-sufficiency and in terms of meeting our 10-year goal I think the PLI should help set up enough capacity in India to at least meet domestic growth. It should also allow some of the big players to export. The US is starting to put restrictions on imports from China and so I'm sure the Indian module manufacturers will look at that as an export market that's valuable for them. We really hope module prices come down. Many in the C&I sector are looking at the module prices today and say, "Look, we will just wait." It will take a little bit of time, globally, for the new capacity to come online. In the meantime, we are really looking at some kind of ALMM (approved list of module manufacturers) scheme to broaden the list of suppliers that allows the independent power producers (IPPs) to have a slightly larger range of suppliers.

Are you witnessing any kind of slowing in existing jobs?

It's very hard even for IPPs to compete with each other because we all buy modules more or less at the same price; it's not like one can outbid the other by 30 percent. We saw a lot of activity on hybrid bids and on the solar park bids but IPPs are still bidding based on the expectation of future module pricing because the tariffs that we are bidding at don't reflect today's module pricing at all. They do have a view of the future and they are bidding based on that. I expect softening of prices to happen in the 12- to 18-month range, certainly not in the coming 6 to 9 months.

The 2022 United Nations Climate Change Conference, or COP27, is happening in November. How different would the conversations be from earlier, given the changes in the energy market in the last one year?

The current volatility in the energy markets is going to be the focus of all discussions. Countries would have to defend ramping up their conventional or thermal energy generation. At the same time, I believe that the countries are going to make a deeper commitment to speed up renewables growth for precisely these reasons.

There was a lot of talk in COP26 about supporting investment for adaptation for global regions that are going to be impacted. Because of what's happening in the world around us today, I suspect that conversation may be a little more muted. I suspect it's going to be more about let's not think more about investments in adaptation, let's focus all our investments in building out renewable energy.

With the fresh funding, what is the biggest challenge you foresee for your company right now?

The Oxfam’s India Discrimination Report 2022, released in September, criticise gender discrimination as the major reason for low female work force participation in India.

Laws in many countries reflect and perpetuate gender norms, and often act as an impediment for women to achieve full economic empowerment. A 2014 World Bank study shows that 90 percent of the countries have at least one law that limits the opportunities for women by restricting them from working in certain occupations. India is no exception; it has many laws that restrict opportunities for women to enter the women workforce.

Indian Factories Act 1948

In order to protect women workers from health hazards in factories, they were restricted from working near cotton openers, and were banned from lubricating and cleaning machinery in motion. The law also prescribed the amount of weight a woman can lift in a factory. They were also not allowed to work in night shifts, and certain ‘dangerous’ activities carried out in a factory.

Section 66(1) (b) of the Factories Act, 1948 that prohibited women from work at night was struck down by several high courts as unconstitutional and discriminatory, violating Articles 14, 15, and 16 of the Constitution. Acting in furtherance of these judicial decisions, states such as Haryana, Rajasthan, Punjab, Andhra Pradesh, Madhya Pradesh, Karnataka, and Maharashtra allowed women workers to do night shifts by amending state laws.

Occupational Safety, Health, And Working Conditions Code 2020

The Factories Act 1948 is now superseded by the Occupational Safety Health and Working Conditions Code 2020 (OSH code). Most of the prohibitions in the Factories Act were lifted in the OSH code, including the night shift ban on women. But the employer has to comply with conditions to ensure the safety and security of the women workers, as mandated by the corresponding state rules.

The OSH code also allows women to work in all establishments; this includes factories and in all types of work, hazardous or otherwise. But the necessary safeguards and safety measures have to be ensured by the employer, and they need to be regularly inspected as per the OSH code, and/or state rules.

Additionally, the provision of crèche is now gender neutral, and is applicable to those factories with more than 50 workers. Under the Factories Act, a crèche was mandated in an organisation which employed 30 or more women. The OSH code is progressive in a way that it breaks the social stereotype that women are responsible for childcare.

Can The OSH Code Help Improve Women's Workforce Participation?

The Factories Act 1948 and various state rules were acting as a hindrance to many women to get employed in the factory floors, especially those factories that engaged in three shifts a day, or are engaged in hazardous/dangerous activities. The OSH code, by removing these barriers, can possibly rectify the legal barriers, and provide a viable ecosystem for employers to engage more women workers.

But OSH code can be said to be effective, only if the corresponding state rules are in compliance with and in similar lines with the code. Further, the state rules must focus on the implementation aspect of the law, rather than being too idealistic. Often the overarching emotion of protecting women blinds the lawmakers from looking into the practicality of the provisions.

While the night shift ban was lifted in certain states, studies have shown that employers have frequently evaded their responsibility by making use of strategies such as under-reporting the number of female workers in the muster roll of the factory to evade compliance of the laws. This has hindered women's employment, especially when it comes to smaller organisations, and entry-level jobs. Enforcement costs are one of the reasons for the non-compliance of factories laws, and the cause for low numbers of medium-sized firms.

The larger problem with this protectionist stance towards employing women is that it has some unintended consequences. First, it dis-incentivises employers to employ more women as they would have to incur additional expenses and effort to ensure all the stipulations provided in the Act and rules; and second, it legitimises the traditional gendered notions about women, and that in turn plays a role in reinforcing the same hierarchical structures. Moreover, there is an active correlation between safety measures and the efficiency of workers. If proper functional welfare measures are taken, then productivity will also increase.

The NITI Aayog, in its report titled ‘India’s Booming Gig and Platform Economy’, released in June, suggests fiscal incentives like tax breaks or startup grants for companies with about one-third of their workforce women, to increase the labour force participation of women in the gig economy. This suggestion can be applied in factories and establishments as well. The enforcement costs will be offset by the incentives provided.

Anu Maria Francis is Research Associate, and Gauthaman V is Research Intern, CPPR. Views are personal, and do not represent the stand of this publication.