India is not immune, GDP growth will slowdown due to global headwinds says Deepak Parekh

India is not immune to global shocks emanating from geopolitics, with spillover impacts on trade, services, technology and capital flows, HDFC Chairman Deepak Parekh said.

However, India has proved to be more resilient than many large economies, he added.

“For sure, India’s GDP growth will slowdown because of global headwinds. But India has enough tailwinds in the form of political stability, vaccine security, food security, a robust domestic consumption based economy,“ Parekh said at an event organised by SPJIMR’s Centre for Family Business & Entrepreneurship (CFBE).

We have leap-frogged on digitisation initiatives and the regulatory system for the financial sector is robust, he added.

RBI Governor Shaktikanta Das, in his latest bi-monthly monetary policy statement, said: “India’s real GDP growth is expected to have recorded a growth of 7.0 per cent in 2022-23, while the real GDP growth for 2023-24 is projected at 6.5 per cent.”

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According to Parekh, geopolitics has dominated geo-economics in the recent period with spillover impacts on trade, services, technology, capital flows and even in the mobility of the labour force. 

There is a distrust among the countries at a time when we most need the global co-operation to solve common pressing issues such related to global supply chains, global warming, cyber threats, money-laundering, data privacy and responsible use of artificial intelligence, he added. 

“The other critical global issue for much of the western world has been the sudden change from years of quantitative easing and negative interest rates to a sharp rise in interest rates to combat inflation. 

“This has resulted in a cost of living crisis across many advanced economies. In India, based on Thursday’s announcement (by MPC), we are lucky to have finally got a pause in the rising interest rate cycle,” Parekh said.

He noted that some of the government-owned enterprises now compete as efficiently as many in the private sector. Almost every large MNC wants a slice of the Indian story, he added.

Family owned businesses

The HDFC Chairman underscored that the harder decisions in family owned businesses is the ability to honestly address issues on gaps in the company. 

“The million dollar question is when should the family make way for non-family professionals? Another critical issue is that seniority in age or patriarchy should never be mixed up with leadership,” Parekh said. 

Having a strong, diverse and inclusive board without conflicts of interest helps family owned entities navigate through sensitive issues and tough decisions, he added.

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“It is important to be able to prioritise what is good for the company over what is good for the self. This is always easier said than done. Yet, long-term survival means being alert to changing realities, inculcating right governance practices and having a succession plan in place,” Parekh said.

‘Think in generations’

Parekh emphasised that those that truly believe in corporate governance and its benefits are the ones that succeed over the long run. 

“It is quite right when they say that well-run family businesses think in generations and not in quarters – or what is popularly known as “ quarter se quarter tak”. Short-term view has often led to the downfall of many organisations,” he said. 

The HDFC Chairman observed that entrepreneurship is thriving due to conducive start-up environment in the country. India has the third largest number of start-ups after the US and China. Many say that Indian start-ups are the new-age family businesses in the marketplace. 

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On start-ups, he said, “Many investors still have plenty of dry powder for good, innovative ideas, but the days of cash burn and high valuations are behind us.”  

Offering “an old man’s advice on family businesses”, Parekh said “While one hopes families stay amicable, one must desist from going to court and suing and counter suing each other.

“Court cases take years, wealth gets depleted and the same problems get passed down generations. Always opt for an arbitrator–a person trusted by the both parties—and both should sign an affidavit that they will abide by the decision of the arbitrator. This, I promise will help all sleep well at night,” he said.