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Banking wrap: From India’s ‘real’ 20% GDP growth story to Account Aggregator revolution

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The low GDP growth base can have you convinced that we’re growing at a remarkable pace, when in fact, we may barely be growing.

Banking wrap: From India’s ‘real’ 20% GDP growth story to Account Aggregator revolution
India’s 20% GDP growth: Not the real story.
The star data this week has got to be India’s statistically spectacular 20 percent GDP growth for the April-June quarter. But before you get giddy about the smart revival on paper, remember this is not the whole story. What base did we get this 20 percent growth on will give you a better sense of where we stand, economically.
We measure growth based on what happened in the April-June quarter last year. I needn’t remind you of the start of the pandemic and the nationwide lockdown of 2020, do I? India recorded its worst-ever economic slump, a contraction of 24 percent in this quarter last year. This low base can have you convinced that we’re growing at a remarkable pace, when in fact, we may barely be growing.
Let’s look at the GDP figure itself more closely.
GDP is simply Consumption (C) + Investment (I) Govt Spending (G) + Net Exports NX (Exports-Imports)
First to C. The biggest engine of growth is consumption (C) demand from private individuals. And private demand is almost exactly the level where it was in 2017-18. This is bothersome. Unless demand picks up, businesses will not need to invest to expand more, and the economic activity will not increase.
The second most important engine of growth is investments, or technically referred to as Gross Fixed Capital Formation or GFCF. Q1 GFCF is also languishing at 2018-19 levels.
That brings us to Ģ. Government Final Consumption Expenditure (GFCE). Government expenditure actually fell below last year’s levels, which may sound counterintuitive, as you typically expect governments to spend more than usual during periods of low activity to create demand to revive the economic engine.
This could be a drag on future growth.
The last element, Net Exports or NX expectedly remained in the negative territory. Since India typically imports more than it exports, it is the smallest engine of GDP growth and is often negative.
But there’s still more to the story. There are several other data points that show that growth wasn’t all that bad, especially given that we went through a second wave of COVID-19 during the first quarter.
The high-frequency indicators point to some uptick in toll collections, GST collections, electricity consumption, trucking activity, and even vaccination pace is picking up. All these are good things.
Account Aggregator: Tipping point for fintech?
The Reserve Bank of India’s account aggregator framework went live this Thursday, with eight banks on the network.
These include State Bank of India, ICICI Bank, Axis Bank, IDFC First Bank, Kotak Mahindra Bank, HDFC Bank, IndusInd Bank, and Federal Bank.
The framework has been in the testing phase for the past several years and has finally been opened up to the public. The word on the street is that Account Aggregators (AA) can revolutionalise the fintech space. Revolutionalise is a strong word. So is it really?
First, what is this AA?
The idea behind it is basically this. Think of all the places you leave your digital footprint. Your bank has your financial data, your insurance firm has it too. So does your broker or advisor, and so on. It’s really all over the place right now. An AA will solve this problem. It will “aggregate” all this data such that you can access it from a single touchpoint. So no more papers and bulky documents. A snapshot of your financial data is available digitally for you to use.
If at this point you are worried that the AA will have access to all your data and leave you vulnerable, well, that is also sorted. The AA itself cannot use or even see this data. It simply acts as a conduit to facilitate the exchange of data between.
AA apps will provide a secure environment that both educates the users as well as enables them to better control their data. Great.
How can it benefit you and me?
Think of it like a UPI for financial information. Just like you use NEFT or UPI etc to transfer money seamlessly, you can use the AA to transfer information just as easily. Or imagine a scenario where you are applying for a home loan. The bank will ask you for your Aadhaar, PAN card, salary slips, income tax returns and…well you get the idea. Now instead of wasting time and money in physically aggregating and processing this data, it can be shared with the bank with a click of a button. Sounds wonderful, right?
Jet Airways resolution stalled
What’s not so wonderful is another hindrance in the revival of the country’s once largest private carrier. Punjab National Bank has moved the National Company Law Appellate Tribunal (NCLAT) alleging gross irregularities in the conduct of Jet Airways' Resolution Professional, and sought a stay on the implementation of the Jalan-Kalrock resolution plan that was approved by the National Company Law Tribunal (NCLT) earlier.
While the court has not granted a stay on the implementation of the resolution plan yet, it has agreed to hear PNB's plea and said it is open to considering a stay on the plan based on the arguments or the case presented in the court.
Why is PNB seeking a stay? It had invoked about Rs 200 crores of pledged shares of the company before the commencement of the insolvency proceedings. Subsequently, the IRP reduced the debt claims of PNB by the value of shares invoked, which has not gone down well with the lender. This is at the heart of the matter- PNB wants the full shares and the entire debt to be considered. Needless to say, some of the other lenders involved aren’t too pleased with the petition, but also don’t want to be dragged into the court case.
PNB wants to have its cake and eat it too. Next hearing- September 21.