‘Govt spending, private sector incentives crucial’

To Sumit Jalan, 2020 felt like a year of two diametrically opposed halves.

Jalan, an investment banker, and managing director and co-head of India investment banking and capital markets at Credit Suisse Securities (India), assessed that 30% to 40% of existing business models were deeply impacted by the Covid-19 pandemic. But at the same time, economic activity picked up for 60% to 70% of businesses, such as those in the tech space, those providing services related to home consumption or working from home, and generally any business linked to logistics or digitisation.

“At Credit Suisse, we advised on many capital markets and advisory transactions for such businesses, especially in the fourth quarter,” he said. The Indian economy showed recovery in the second half of last year, after a massive 23.9% year-on-year contraction in the April-June quarter because of the virus and the 68-day nationwide lockdown.

His company completed five equity capital markets deals in five days because the meetings were virtual. “Previously, those same deals would have each involved 15 days of globetrotting and significant logistics. We saved on both travel-related expenses and time,” he said.

It was a rollercoaster ride of a year, he added. Jalan lives in Cuffe Parade in South Mumbai, with his wife and their 12-year-old, who is a gaming and coding enthusiast.

While the virus hit many sectors of the economy, pushed up unemployment and depressed salaries, Jalan felt in the investment banking sector, the second half of the year made up for the disruption of the first half. “Our own industry, investment banking, saw a significant uptick in client activity in the second half,” he explained.

In 2021, Jalan predicted a reverse of 2020 — still a tale of two halves, but with the first half seeing the bulk of capital markets activity. “As far as India’s Union Budget is concerned, I’ve been tracking it annually for two decades, and over the years it has evolved from being the primary platform through which government announcements are made or reforms introduced, to today being one of many,” Jalan added.

In December, the government announced a demand stimulus package consisting of ₹73,000 crore public expenditure by March 31. This followed a ₹20.97 lakh crore economic stimulus between March and May 2020, though the industry demanded more relief.

Still, there are a lot of expectations. Jalan mentioned three areas — government spending, private sector capital expenditure and consumption. “To boost consumption, the government could reduce GST [Goods and Services Tax] or simplify it further. However, the main thrust for economic acceleration, it is anticipated, will come from either government spending or providing incentives to the private sector to increase investment,” Jalan said. “Indian entrepreneurs, who tend to be among the most resilient, are not taking as many investment risks when it comes to the economy.”

Jalan hopes the government takes the lead on investing in infrastructure projects to boost economic activity. If this means that the fiscal deficit figure – the government had projected a deficit of 3.5% of GDP for the current year – goes up for a while, so be it, Jalan added. “As the government will likely need to borrow to make such investments, we would expect this to increase consumer confidence, and therefore consumption, as well as encourage private sector spending and investing,” he said.