Post-Covid Growth Strategy

For economic revival, public investment and exports will have to do the heavy lifting

- Sajjid Chinoy

Three decades after the 1991 reforms, India’s growth imperative remains every bit as urgent, to help recover lost jobs, ameliorate scarred incomes and sustain elevated public debt incurred from the pandemic.

The question is where will that growth come from? There is a reflexive consensus among analysts that consumption and private investment will step up to the plate. Consumption, after all, was the flagbearer of growth for much of the last decade. Why won’t it just pick up from where it left off?

To understand why, one needs to analyse India’s growth dynamics this millennium. Recall, growth had been powered by the Siamese twins of exports and investment in the first decade. But by 2012, that story had petered out. Exports began to slow and a combination of investment overcapacity and implementation bottlenecks meant the economy was beset with a “twin balance sheet” problem: corporates left with unsustainable debt and banks laden with high NPAs.

Unwittingly, this set the stage for the next era of growth. As banks were licking their wounds from infrastructure and large-corporate NPAs, they turned their attention to the one segment of the economy that had been under-saturated: households. What began was a multi-year retail credit boom, spurring the rapid proliferation of Non-Bank Financial Companies (NBFCs). On their part, households welcomed access to cheaper, institutionalised sources of credit. For a young, aspirational population, this was a means to smooth consumption over lifetimes.