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India’s Debt to GDP is around 86 percent, compared to 120-130 percent in other developed countries. For a country that is growing rapidly, India’s debt market is underleveraged. Financial deepening and raising debt need to go hand-in-hand for improvements in economic well-being.
The Indian economy has been a beacon of hope even amid global uncertainties. India has continued recording steady and robust GDP growth. According to the World Bank, in 2021, the Indian GDP grew three percent faster than the world GDP average. Rapid digital transformation and integration of digital tools in various aspects of business, five years of ‘making in India’, supply chain reorganisation post-Covid, strong consumption, and infrastructure investments have resulted in economic growth. India is poised to leapfrog over the next decade.
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However, despite being unusual, the Indian economy is not impervious to global economic headwinds and sooner or later the economy would run into the risk of stagnation. This, in order for our economy to continue growing, shaping the credit market will become key.
India’s Debt to GDP is around 86 percent, compared to 120-130 percent in other developed countries. For a country that is growing rapidly, India’s debt market is underleveraged. Financial deepening and raising debt need to go hand-in-hand for improvements in economic well-being. A healthy level of debt ensures money is lent, invested, spent, and paid back to further accelerate the growth of businesses by stimulating aggregate demand and output, employment generation and an overall increase in productivity. Debt allows businesses to invest even under circumstances when revenue streams are disturbed or there is insufficient working capital. Having the ability to borrow allows fiscal authorities to stabilise the macroeconomy.
But when does debt actually become beneficial? When it is accessible, available, cost-effective, and easy to use. If there are barriers to debt, economies will stagnate.
The only way to prevent economic stagnation is by leveraging the trifecta of networks, protocol and digital infrastructure to strengthen the Indian credit market.
Network: In a country like India, geographic complexities serve as a significant barrier to accessing banking and financial institutions and securing credit. Coupled with a lack of information, especially in the more remote regions, this makes the process a lot more challenging for underserved segments. Under such circumstances, a ‘network’ essentially provides the outcome of bringing together multiple ecosystem players on a single tech-enabled platform. This eliminates physical barriers and allows the ecosystem to share collective benefits while educating, informing, and providing greater choice & accessibility to the end user. The rise of online marketplaces has ensured that borrowers find the right lenders to meet their capital needs on time, at the lowest overall cost of the transaction.
Protocol: There is a significant asymmetry of information and a lot of red tapes involved in processing loans. Once the network of lenders and borrowers is onboarded onto a unified platform, the next step is to enable a free and open channel of communication between the concerned parties. The protocol layer establishes this direct line of communication between the two of them to share their preferences, and parameters with each other and source vital information to fairly evaluate each other. Application Programming Interfaces (APIs) are playing a key role in enabling traditional financial institutions to create such protocols with their borrowers and eliminate the issues of information asymmetry.
Digital Banking Infrastructure: When it comes to financing, one size doesn’t fit all. This means that a standard financial product cannot serve the needs of all borrowers, who come in different shapes and sizes, at different stages of their life cycle, with differing needs. The final piece of the puzzle, therefore, is to make available appropriately packaged financial products to meet the diverse needs of the borrowers. For the network to be optimised, and meaningfully utilised, the right financial product needs to be made available to the right people, in a secure yet scalable fashion, with last-mile reach. While this banking infrastructure is in place already, it’s rife with inefficiencies like vast amounts of manual paperwork and long-drawn processes. A technology layer added atop this infrastructure can seamlessly enable a frictionless flow of credit in our economy.
Today, the need of the hour in India is the proliferation of marketplace infrastructure platforms which can be built on this trifecta of network, protocol, and digital banking infrastructure to reshape India’s credit landscape. With more such platforms, discovery costs can be lowered and overall efficiencies can be enhanced by eliminating manual underwriting and offline processes. The ultimate goal is to increase accessibility to raise capital for an exponentially large pool of borrowers in need. In particular, it will be able to deepen India's credit market and propel growth in the right direction by accelerating the movement of capital to the priority sector. Credit has the power to truly unlock human potential, transform dreams into reality, help seize opportunities, and foster the spirit of innovation, all of which exist in abundance in India today. Unlocking access to credit for all and ensuring optimal distribution can help India be on the right track to realise a $5 trillion economy.
— The author, Gaurav Kumar is the CEO and Founder of Yubi. All views expressed are personal.