Why I am just a little worried about this economic slowdown, but not too much…

So the key problems with the Indian economy are principally in 3 sectors – Banking, Real Estate & Automobiles and a larger problem of a slowdown in private investment.

Of the above, 2 of these industries are in self-correction mode and the 3rd is a generational consumption shift.

Banking is in the middle of possibly the largest banking cleanup in the history of India, if not the world. There is no other path that this sector was going to go down, once the fixed-term AQR initiated by Raghuram Rajan was undertaken. The combination of corrupt ‘phonebanking’ practices during UPA 1 & 2 clubbed with cyclical business failures of a coupe of large industries have led to these issues and there is nothing that can be done in the short term. This will resolve itself as the balance sheets of the banks are drip-irrigated by capital while receiving regular boosts from the IBC process. The recent bank mergers should help build size & scale of banks, enable them better leverage as their balance sheets get stronger and also enable their easy privatisation.

Real Estate is reaping the ill-rewards of its own stupidity and of investor awareness. The highly successful Mutual-Funds-Sahi-Hai campaign has led to a lot of real-estate ‘investors’ looking at MFs as an option to RE. Further, a ridiculous oversupply of high-end residences and the emergence of RERA (which has put an end to unethical business practices) has locked up most of this industry’s inventory. Affordable housing, for that matter, is booming (double digit growth) and with strong government support, has the potential of lifting this industry out of the pits. However, the ticket sizes of these projects are small in comparison to those that are not selling. So Real Estate, too, will too take some time to recover.

Automobile Industry is afflicted by a double whammy of cyclical downturn made worse by a fundamental correction. The cyclical downturn has usually caused a 10-12% reduction in auto sales. However, it has been made worse by a generational consumption shift. IMO, the Indian automobile industry has hit its Hubbard Peak (or equivalent thereof) in 2017-18. People's auto-buying mentality has changed. People that are 30-40 yrs old now are the last generation that will buy cars as a matter of a fundamental household necessity. Today’s under-30s do not look at cars as an asset, nor a necessity. They will either use Uber-Ola or ZoomCars. Cars will be bought by them only after they turn 45 and that too, will be luxury cars, as a treat to themselves for having worked hard through the age of 25-45. Also, whatever car sales will happen, will move sharply away from petrol-diesel towards EVs as the destructive impact of climate change stares all of us in the face. Hence, the auto industry is in line for a major correction and they better wake up, smell the coffee and scale down, as appropriate. That said, new entrants like MG & Kia both have 6-month booking waiting lists, so perhaps the problem isn't entirely about the product but about brand (maybe)...

Private investment is down big time & that is being offset by increased government spending (mostly on infrastructure). Yes, that does throw up a sectoral imbalance but it does ensure that the rate of job growth does not crash.

That said, none of the above are what one can call ‘key structural vulnerabilities’ of the Indian Economy.

India’s economy has 3 key structural vulnerabilities – Price of Oil, the Monsoon and our interest rate

Price of Oil – Now and over the next few years, there’s very little chance of that shooting up. The shale fields of Texas have just about start to show what they can deliver and as those barrels go up, the price is going to crash. Mukeshbhai’s strategic de-risking from the Oil industry is as clear a signal as any that the price is going to go only one way – DOWN. This is great for the Indian economy.

Monsoon – India is now in its 3rd straight year of a good monsoon. That is also borne out by the fact that over the past 2 years, there has been a large increase in agricultural production, which has also caused a reduction in agri-prices, needing the centre to offset the reduction in the farmer’s income with MSP. So that is not a problem too.

Interest Rate – India’s rates are low. And dropping. This is going to enable competitiveness in domestic businesses. Also, there are over 4Cr businesses that have been started by the Mudra scheme. Many of these will complete their startup phase soon and will move into the growth phase. A low interest rate will help them grow better, faster and be more profitable. Further, The US 10-yr treasury bond yield is 1.55%. India’s is 6.5%. This is an incredibly attractive rate, even with the forex hedging cost.

In addition to all these, our inflation is low, Fiscal Deficit & CAD are low too.

Given the above, I do not see any major serious structural trouble with the Indian economy. This is a cyclical slowdown and will correct itself in the near-future.

Now, one reality here which I simply can’t wrap my head around is the steep drop in individual household savings… It just could be that people are preferring to spend, rather than save… Maybe??? Can't figure that one out...