| | SEPTEMBER 20209INDIAN ECONOMY: AN ENIGMATIC REALITYan individual, housing and auto-mobile loans have become less af-fordable 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 prof-its fail to reach the producer. This has hit the rural economy. Due to liquidity crunch and lower job creation, there is an overall slow-ing-down of consumption leading to lower average capacity utiliza-tion 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 Government has an-nounced some structural reforms such as upfront capital infusion of Rs.70,000 crore into PSBs, sim-plification of registration proce-dures, 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 sec-tors. They have led to the strength-ening of the public grievance sys-tem 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 in-vest 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 Busi-ness Models, Technology Driv-en Transformation, Innovation Led Reforms & InvestmentsFor a country whose domestic consumption is the primary driv-er of its economy, there is a need to increase the purchasing power, rationalization of GST slabs and re-duction in personal income tax to increase disposable income. This will result in CAPEX utilization to go up from 74 percent to 90 per-cent 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-sensi-tive. We need ultra­low-cost busi-ness 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 re-imagining their digital frontend and radically transform their back offices via cloud-enabled plat-formification, design-led transfor-mation, omnichannel 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 mar-ketplaces for agriculture to elim-inate middlemen and hoarding. There is huge potential in rural e-Commerce, with 5G connectiv-ity investments expected to fur-ther 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 trans-action 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 so-cial media, and credit bureau. Our cognitive solutions will dramati-cally reduce the credit appraisal time to minutes and help banks to develop moats.Finally, it is imperative to cre-ate 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 na-tion garners adequate investments essential for building an innova-tion-led infrastructure. Investments in infrastructure and business ini-tiatives will create enough jobs in the future, provided there is no skill imbalance. Together with fi-nancial 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. 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
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