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Globalization, technological advancements and innovations are touching every aspect of our daily lives with the promise of a better world. Paradoxically, the morose sentiment over the global and Indian economy in the past few years has been a growing threat. The question is, whether the slowdown is structural, cyclical temporary or a phase of mutation that can be stabilized by synchronizing the different actors like Government, private sector and the central bank.

Globalization, technological advancements and innovations are touching every aspect of our daily lives with the promise of a better world. Paradoxically, the morose sentiment over the global and Indian economy in the past few years has been a growing threat. The question is, whether the slowdown is structural, cyclical temporary or a phase of mutation that can be stabilized by synchronizing the different actors like Government, private sector and the central bank. Indian economic slowdown is now a reality accepted by leading economists. IMF has slashed GDP growth rate forecast from seven percent to 6.1 percent. Dithering domestic consumption, the under performance of major sectors like automobiles, non-performing manufacturing sector, and increasing NPAs have contributed to the decelerating economy. Consequently, measures like demonetization, and the introduction of GST & RERA have slowed the economy. In the current economic scenario, a keyword that comes to mind is consolidation. On one hand, there is market-driven consolidation where larger players are engulfing smaller players, thereby creating more space for themselves in the market. For instance, the bankruptcy of Jet Airways has led to bigger market share for Indigo and SpiceJet.

On the other hand, the Government is driving consolidation among PSBs to create four big banks. Consolidation helps strengthen balance sheets and brings focus on profitability, but it has an initial negative impact on growth. Consider the bank mergers; while public sector banks are in the process of integration and focusing on the NPL issues, their customers are migrating to the private sector banks due to their better customer service and client centricity. The NPL issues created by bankrupt promoters have led to huge capital erosion in the balance sheets of PSBs, due to which they do not have the capital to lend to the eligible customers.

These factors combined with the IL&FS crisis have created a liquidity shortfall, making it difficult for NBFCs to get access to wholesale finance. The liquidity concerns of NBFCs and MFIs have made it difficult for SMEs

to acquire loans curtailing their role in pump-priming the economy. For an individual, housing and automobile loans have become less affordable and accessible. Another important factor is the growing distance between a producer ­ like a farmer and a consumer ­ in the production chain punctuated with intermediaries due to whom profits fail to reach the producer. This has hit the rural economy. Due to liquidity crunch and lower job creation, there is an overall slowing-down of consumption leading to lower average capacity utilization in the manufacturing industry. Given that the capacity utilization is at the lowest, fresh investments in manufacturing sectors have slowed, resulting in companies resorting to cost cuts rather than fresh private sector CAPEX. Only CAPEX happening is from the Government that will slow-down in the fourth quarter to keep the fiscal deficit within the target of 3.5 percent.

The need of the moment is to take banking to the bottom of the pyramid where the cost to service small ticket size loans is high and target customers are price-sensitive

The Government has announced some structural reforms such as upfront capital infusion of Rs.70,000 crore into PSBs, simplification of registration procedures, cut in tariffs to liberalize trade, corporate tax reduction and the Rs.25,000 crore bailout fund for real estate. These moves have brought-in foreign investors and private players in almost all sectors. They have led to the strengthening of the public grievance system that has instilled confidence and stability into the economy. However, while the corporate tax rate cut is a reform to improve supply, the slowdown is due to a slump in demand. Considering that companies will expand and invest in new plants only when there is demand and utilization of their existing plants reaches 95 percent, corporate tax cut may not yield the desired results.

The Way Forward ­ New Business Models, Technology Driven Transformation, Innovation Led Reforms & Investments
For a country whose domestic consumption is the primary driver of its economy, there is a need to increase the purchasing power, rationalization of GST slabs and reduction in personal income tax to increase disposable income. This will result in CAPEX utilization to go up from 74 percent to 90 percent that will stimulate private sector CAPEX.

The need of the moment is to take banking to the bottom of the pyramid where the cost to service small ticket size loans is high and target customers are price-sensitive. We need ultra-­low-cost business models for the middle and super ultra-low-cost models for the bottom of the pyramid.

Digital disruption through technology is essential to lower the cost of customer acquisition and improve penetration. Thus, it is time for banks to look at reimagining their digital frontend and radically transform their back offices via cloud-enabled platformification, design-led transformation, omni-channel solutions and cognitive-led transformation of their core business to support the ever-growing consumer needs. Public sector banks as part of their priority sector lending mandates have started building online marketplaces for agriculture to eliminate middlemen and hoarding. There is huge potential in rural e-Commerce, with 5G connectivity investments expected to further boost consumption. This will in turn boost capex investment. Digital channels will help retail drive personalized and premium offering. We are also seeing a huge movement on lending, basis transaction statement versus older ways of looking at collaterals. Lending is changing from uniform pricing to individual pricing of risk based on digital footprints, i.e. data from social media, and credit bureau. Our cognitive solutions will dramatically reduce the credit appraisal time to minutes and help banks to develop moats.

Finally, it is imperative to create harmony among social actors and technological advances so that each of them grows and contribute to the growth of every player ­ big or small, farmer or entrepreneur. The Government must play an active role in making sure the nation garners adequate investments essential for building an innovation-led infrastructure. Investments in infrastructure and business initiatives will create enough jobs in the future, provided there is no skill imbalance. Together with financial reforms, reskilling of the population is extremely crucial for our future. The Government must quickly introduce multiple levers of reforms in collaboration with the industry.