Emergence of Gig economy

 The emergence of digital India has supported the Gig economy in India as more and more workers embrace this idea that gives them greater flexibility to manage their time and certain working conditions. It helps workers to augment their income by taking such assignments which are generally temporary in nature. In most cases, such tasks( if related to IT sector) can be executed from remote locations, thus enabling workers to cater to demand from across the Globe. On the other hand, companies find it convenient to hire gig workers for routine tasks like admin/ delivery of goods, etc. during periods of seasonally high demand. Gig economy has its  own pros and cons. It helps a significant number of informal workers to participate in the formal economy in their own desired time slots. It helps companies to be adequately staffed to manage seasonal variation in demand without having to hire permanent workers. The disadvantages include concerns around data privacy of sensitive client data as gig workers come from various backgrounds. Also, many times, companies often make these workers work under challenging working conditions with little benefits. To summarise, Gig economy is here to stay and thrive and would provide a source of employment to people who cannot take up regular jobs.

Outlook for Indian Telecom sector for 2023

 I remain positive on the Telecom sector as  2G to 4G migration, increased data monetization and expected tariff hikes would support ARPU growth for telecom service providers in near term. Tariff hike of around 15-20% is expected in near future as telecom companies try to achieve more sustainable level of ARPU.  Bharti Airtel remains on strong footing with industry leading ARPU, growing subscriber base and excellent track record in business execution and is expected to deliver superior result going ahead. The financial condition of VIL remains precarious as it continues to lose subscribers and has the lowest ARPU in the industry (implying weak customer mix) and we expect it to underperform. It urgently needs massive capital infusion to augment its capex to catch up with peers in terms of network quality.  Reliance Jio is expected to maintain the steady growth trend in subscribers and ARPU, through the increase in subscribers might moderate going ahead.  However, at the sector level, there is overhang of 5G related capex for telecom service providers and it might adversely impact their free cash flow generation. Also, the telecom operators would have to come up with newer ways to monetize their investment in 5G technology. In terms regulatory provisions, we expect the draft Telecom bill, that consolidates three separate acts governing the telecom sector — Indian Telegraph Act 1885, Indian Wireless Telegraphy Act 1933, and The Telegraph Wires, (Unlawful Protection) Act 1950 to be passed by the Parliament in 2023.

Outlook on Indian IT sector for 2023

 I continue to be cautiously positive on the IT services sector as  it faces near term challenges due to macroeconomic concerns in the US and Europe (key markets of IT companies). This has led to more time in decision making on the part of clients and it can lead to near term moderation in deal booking/revenue growth. The clients have become cautious especially in sectors like Retail, Hitech and Mortgages etc. regarding evolving macroeconomic situation and many of them are trying to optimize their cost structure and consequently, we expect an increase in work volume related to cost optimization projects for Indian IT companies.  However, the current valuation of IT companies(down 30-40% from peak valuation) captures most of near term headwinds.  The medium to long term demand environment remains strong led by accelerated adoption of technologies such as cloud computing, artificial Intelligence, machine learning, etc.  by enterprises.  We expect employee hiring to moderate for most IT companies in near term as they focus on training/utilization of recently hired employees. The operating margin has mostly bottomed out for the sector and we expect EBIT margin should improve sequentially during Q3FY23 and Q4FY23, led by improving employee pyramid(amid increased fresher hiring) and positive operating leverage. The costs related to travel and admin have started coming back to an extent but IT companies should be able to manage these margin headwinds through  operational efficiency measures. We prefer Tier 1 IT stocks over Tier 2 IT stocks given that they are better placed to manage near term macroeconomic headwinds.

The emergence of world wide web technology

 The world saw the emergence of world wide web(www) in 1990 at CERN when Tim Lee, a scientist at CERN invented it for better document management at the CERN. He used a NeXT computer as server and demonstrated this technology. The initial version was a bit rudimentary and allowed users to only write. He also developed a web browser that allowed users to access web address. The developed of websites for common users picked up in 1994 and by that that time Netscape and Internet Explorer were leading web browsers. Web 1.0 was formally launched in mid 1990s

Web 2.0 came into being in early 2000s that led to the development of social media sites like Orkut, Myspace, Facebook etc. and it allowed an interactive environment whereby users could create content online and it led to proliferation of websites with user generated content.

Web 3.0 is expected to use technology that would allow users to execute  and create a personalised environment for users. It would make use of Blockchain Technology and AI, aided by increase in computing power

Spectre of recession facing the world

The supply side bottlenecks due to Russia/Ukraine war along with rising interest rates has the potential to adversely impact the global GDP growth rates for 2022/2023. This is also reflected in IMF revising down GDP growth estimates for countries across the globe. The European countries have already been hit hard due to erratic supply of gas from Russia. It is to be noted that European countries on average depend on Russia for 40% of their natural gas supply. 

Already, the world is facing shortage in supply of agricultural products especially wheat as Ukraine which is a major exporter of wheat globally has been hit badly in the war against Russia.

The rising interest rates by central banks globally has the potential to slow down investment activity. Also, its impact can be seen in slowing growth of mortgages in the US. Also, it can impact the capex plans of corporates globally.

The world economy is in very fragile situation currently and  a concerted effort need to be put in to protect the global economy from slipping into prolonged low growth phase as it can impact poverty alleviation efforts in Africa and Asia.

How Simplifying tax systems can generate value for India

The indirect tax system of India which was supposed to create a unified market throughout the whole of India with the implementation of GST, has only partially achieved its goals. The compliance processes with regard to GST remain complicated and its adds to the woes of businessmen. Similarly, the number of tax slabs in the GST system have added to endless confusion and litigation about exact tax slabs to which certain items belongs. India would do well with just  3 tax slabs in the GST system .i.e 5%, 15% and 25%. Rest other tax slabs cab be removed for the sake of betterment of this country.

Similarly, our direct tax system has several loopholes and provides several kinds of tax deductions. The rules are often difficult to understand and it leads to poor compliance. Some provisions are grossly mis-used. For example, Since agricultural income is not taxed, many dishonest people often report their ill gotten wealth as agricultural income. Also lot of deductions/ allowance only makes the process of tax compliance cumbersome. A simplified direct tax code can make the entire process easy to implement with better compliance. 

30 years of economic reforms

On 24th July, India completed 30 years of economic reforms which were initiated by our former PM, PV Narsimha Rao, in July 1991. Those reforms put and end to license Permit Raj and promoted greater private ownership of enterprises. It helped to boost the productivity of the Indian economy and gradually, India transformed from an economy of scarcity to an economy which is currently confident about its present and future.

It didn't happen overnight and there were some useful contribution from our former PM, Atal Bihari Vajpayee who made important contribution in infra building that led greater industrialization.  However, it would be honest to admit that the leaders since 2004 till 2021 have lacked courage and wisdom and have deliberately slowed the pace of economic reforms.

India is still far away from its true potential and a long road lies ahead of us and it would be in the interest of the country to strengthen economic reforms so that we can fulfil the aspirations of its people. Our per capita income is just a fifth of China currently, when we were at the same level in 1980. The type of politics and the corrupt politicians have betrayed us in our pursuit of prosperity and that is one area that needs to change for the betterment of nation!