Asset Management

India’s entrepreneurial revolution, through the lens of a UK resident

December 2018

Read Time: 4 minutes

Investors in far-away markets suffer because they are fed information through a lens of how that country is behaving politically in relation to the rest of the world. This tells you virtually nothing about the real investment outlook. 


It is much better to discover the nitty gritty of what is happening on the ground. And what the national government is doing to help or hinder business enterprise. 


Take India. Here is a vast country far bigger than Europe, with an economy that is growing a cool three times faster than the UK. 


Two hours from Delhi lie vast fields of golden wheat. Until recently Rajnish (17) would have been waking at dawn to tend the family’s buffaloes. Instead, at 6 am every morning, he sets off to work on the new motorbike he bought with a loan, 38 km to Amazon India’s first and biggest fulfilment centre. Rajnish has big dreams. “I’m paid INR 20,000 (£200) a month with medical benefits, insurance and incentives. I will be able to set up my own logistics business if I work hard,” he says. 


He is only the second in his family to opt for a non-farm job, encouraged by one of Prime Minister Modi’s early initiatives - offering cash subsidies in the form of collateral-free loans and help to new start-ups. This ‘Mudra’ scheme is aimed at providing non-traditional employment to those with no recourse to capital. 


In 2017-18, Mudra loans worth GBP 200 million were made to 48 million borrowers, which translates into an average loan size of £52. Many argue the amounts are too small to finance any scalable business model with employment generation potential. 


But its merit lies in how the scheme gives young entrepreneurs like Rajnish the confidence to take the plunge. He’s thought it through: once he’s understood the business, he will draw up a business model, take it to the bank, borrow money and work, first with Amazon which is looking for outfits it can outsource its operations to, and later, set up an independent business. He will vote for the first time in 2019. And no prizes for guessing for whom. 


That’s the politics of it. In addition to the Mudra scheme, Modi launched a massive skill development programme to provide training to those who are school-goers currently but hopefully, will opt to circumvent university once they finish and adopt a trade. 


Modi has frequently lauded the merits of education. Education loans are more heavily subsidized than ever. State governments in India are engaged in populist competition – some have offered first time voters free laptops. Others have thrown in a subsidized wi-fi connection. This is spawning a communications explosion of a kind never seen before in India. 


India is the fastest growing market for mobile phones globally – more homes have mobile phones than toilets. But a fact less well known is that 37 per cent of all India’s internet users are between 15 and 24, the largest chunk. 78 per cent of them have two mobile phones. Half of them are connected online 10 hours a day. They are avid consumers of digital services like music and media like Netflix. They may not have an income yet, but 18-21 year olds in India (or Gen Z as retailers like to refer to them) will usher in the next wave of e-tailing consumption. 


One hundred and thirty-three million Indians will turn 18 in 2019. That means that over twice the population of the UK will join the job market and become first time voters in one year. In no way can existing Indian businesses absorb this scale of manpower. But Modi knows that if he can mobilise the entrepreneurial forces of these young people, the expansion of India’s SME sector will be a given. In the process he will lock in young voter support and set the foundations for economic growth in the decades ahead. 


Now with that weight of political momentum in favour of business enterprise, investors should sit up and take note. The benefit is likely to be felt keenly in the small and mid-cap sector over the next few years, away from the big cap Indian multi nationals that are anyway buffeted by the same worries about trade wars and global growth as other major corporations based in the US, Europe and Asia.

Author: David Cornell, Managing Director and Chief Investment Officer, Ocean Dial Asset Management, UK

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