New Delhi: India’s banking crisis is at the heart of the country’s economic woes, Morgan Stanley’s chief global strategist Ruchir Sharma said at the News18 Rising India Summit on Saturday.
"Every country needs a public sector, but no country is as unbalanced as India. Public sector banks hold two-thirds of the assets while private banks are involved in more transactions. This is choking the Indian banking sector. This needs to addressed as it lies in the heart of India's problems. The situation now is ‘death by a thousand cuts’. This is malign due to neglect," said Sharma.
He admitted that privatisation of banks was not a practical solution and said the government needs to remove the upper hand that state-run banks have in terms of political preferences. "There is regulatory overkill in the Indian banking sector because private banks will keep lending, but central banks are still holding assets."
He deduced that the direct result of this is the adversity faced by medium and small enterprises. "We are heading for a credit freeze," Sharma said.
Talking about India losing out significantly on domestic wealth, Sharma pointed out that, "Since 2014, 23,000 millionaires have left this country. Last year, 7,000 millionaires left India. The year before, it was 4,000. A major side effect of this is that you need your own people to invest in your country. This affects domestic markets.”
However, he also reassured that it is not all gloomy for domestic markets.
"For me India has been forever rising. The highest number of quality companies in the world are in India. Over the last five years, at least 70 companies in India with a turnover of over a billion dollars have doubled their value despite crony capitalism," said Sharma.
Global markets have been on the surge since the last decade with companies charting profits more than ever. Sharma felt that India has somehow not been able to capitalise on the boom. However, India still stands a chance to make money through its equity markets.
"The biggest cliche in the world is that easy money has already been made. I think there is always money to be made. I see enough opportunity in Indian markets. There are good quality companies," said Sharma.
While talking about rampant unemployment in India, Sharma said, "The world unemployment is at its lowest in 40 years. There are enough jobs in developed countries, but India has been battling with lack of jobs."
Looking ahead at brighter prospects, Sharma added, "Working age population is shrinking in 40 countries of the world. That is a major headwinds in economic growth."
India's average working population age is below 26, which takes the country ahead of its developed counterparts.
"The key to success in most developed economies was that they exported their way to prosperity. We are now in an era of de-globaisation. It is now difficult to export your way to prosperity. Now, we need to move to low-end manufacturing with low input costs," said Sharma.
Talking about India’s GDP aspirations, Sharma said, "Nobody in the global economy is growing above 8%. ‘We are the fastest growing economy’ is a great marketing tag. But 8-10 percent growth is difficult because the global climate has changed. It’s unlikely for India to get there.”
"The best hope India has is to keep ushering in an era of competitive federalism. There has to be more decentralisation of power," Sharma said.
Sharma also cautioned against investing in cryptocurrencies like Bitcoins. "I think the crypto boom was the last vestiges of liquidity boom. I don't think the crypto boom can last and it is already cracking. I would not advise anyone to play the game."