For $10 trillion GDP by 2035, India needs to draw on patient capital: Spark Capital CEO Rama Rao at ET Now GBS
- Finance
ThePostMaster- 0
- 5 minutes read
“A few weeks back a news item caught my attention… the Norwegian sovereign wealth fund achieving $2 trillion assets under management. Two things in that news item in The Economic Times are relevant for discussion today. They built this over three decades of disciplined investing… their compounded annual return is 6.1%. It’s not the fancy 20-25-30% return we hear in venture capital and private equity… it is not the fancy 100%… dus ka bees Indian mentality,” said Rama Rao while addressing a gathering at the ET NOW Global Business Summit in New Delhi on Saturday.
Rama Rao pointed that countries such as Korea, Singapore and Japan had seized their respective opportunities and cemented their future growth trajectories in key decades where crucial decisions were made. “In 1960, South Korea did this. They took universal education as their decade of disruption. As a result, they created their century of change. $158 per capita in 1960 is over $36,000 of per capita today,” said Rama Rao. “Singapore did this in 1970 and we will hear about the Changi airport story today. Primarily they invested in ports and the world-class airport. $900 in per capita in 1970 is $90,000 today… they declared their decade of disruption through physical infra,” Rama Rao remarked. India would have to pursue the path of asset creation, which will require heavy investments if it had to seize the opportunity in the decade leading up to 2035, according to Rama Rao.
“We need to create a lot more gross fixed assets in this country… anywhere between $300-400 billion of incremental annual investments are required for us to put in the form of gross fixed capital formation if we have to achieve the $10 trillion goal,” he said.
The capital for such investments could come from two sources, according to him. He pointed to global sovereign wealth funds and infrastructure funds and to domestic sources from where India could draw the capital required to accelerate growth.
“Today we will get good sources of patient capital in the form of sovereign wealth funds or infra funds. We have significant domestic capital and savings to channel and if we can do this well we will create a Vikasit Bharat. We have $300 to 400 billion of annual savings in households in this country. We have $1.2 trillion of assets in EPFO, mutual fund AUM’s and insurance. So we have $1.6 trillion of domestic household savings in one form or the other to start making this disruption today,” said the Spark Capital executive.
Rama Rao pointed that India needed the sort of capital that is not chasing return on equity and profitability targets on a quarterly basis as that capital cannot help build long term infrastructure. “While it is important to generate RoE (return on equity) and profitability…at certain times in nation building one has to move from obsession with RoE to building capital, building assets and infrastructure and buffer zones that will put us in good stead in a crisis,” he said. “When we do such investments, at that time it may seem like an inefficient use of capital. When a crisis hits us that will be the difference between survival and bankruptcy.” Rama Rao referred to Prime Minister Modi’s speech at the ET NOW Global Business Summit on 13 February and reflected on the priorities for the country that were pointed out in that speech. “He (Modi) talked about three pillars – significant annual investments in infrastructure, both digital and physical , upgrading our global manufacturing capabilities to global scale and global quality, so that we benefit from the 38 trade deals that we have signed and he spoke about need to continuously pull people out of poverty and supporting the neo middle class,” Rama Rao said.
