- The idea behind IndiaDataHub
- What goes into aggregating and sanitizing economic and financial data
- Alternative data
- Learnings from building the company
- The state of the Indian economy post-COVID19, formalisation, household savings, and other highlights from The Data Book.
Bhuvan Hey Ashutosh, thank you so much for doing this.
Ashutosh: Hey, thanks for having me, Bhuvan.
Bhuvan: The second half of the conversation is really interesting, but let me start with the first half first, first and get to know you a little bit. Let’s start right to the start and tell us how you ended up where you are today. A bit of your origin story, if you will.
Ashutosh: Alright. Okay. So, if I go really back, it’s a series of accidents. One of my most favorite things that I hear is Steve Jobs, Stanford commencement. And, he says, I’m just going to tell you three stories, that’s it. And one of the most important stories that he has with my mind is that the dots always connect in hindsight and any sort of person growing up in the eighties, early nineties, your career essentially was you’ll study, you’ll go take science, you’ll study engineering and, you’ll end up with, let’s say, because I come from Bombay, you’ll work with L&T or Reliance or something of that sort or you get into software and you go abroad and work in some software job.
It’s strangely some coincidences, I ended up taking commerce, ended up taking accounting, ended up having a fascination for capital markets, ended up doing MBA, landed up first job with J.P. Morgan, doing equity research, fascinated with it. Ended up with IIFL, spent almost 11 years with them. Doing research and, yeah, at some point of time you say that, okay I have done what I wanted to, I got bored a bit. I need something different in life and that’s how IndiaDataHub started and that’s why I guess I’m here talking to you.
Bhuvan: Got it. So, what was the role exactly at IIFL? I’m guessing that’s where you spent a good chunk of your career.
Ashutosh: Yeah. So 2007 up until 2018, so about 11 years, I was sort of started typically as an associate to a lead analyst, then you become the lead analyst to ourselves. So I became the economist, did a bit of equity strategy, thematic research, largely macro stuff, which is what I used to do at J.P. Morgan as well. I have throughout my equity research career has largely done sort of macro research, thematic research. So that’s what I’ve done for about 12, 13 years on this side.
Bhuvan: Okay. Let me ask you an odd question about your time at IIFL. So what does the day in the life of an economist in an institutional desk look like? Like how boring to how interesting it is?
Ashutosh: Depending on how you see it, what happens typically is that you have two distinct, or three distinct hats that you wear. So one is you are tracking the high frequency data committing on that understanding what’s happening with the economy, how that might impact with let’s say, interest rates or inflation or what, how that might impact corporate earnings for example.
So that’s sort of the high frequency data monitoring of that, and sort of interacting, sort of passing on that with the other research members who see a slightly different picture, who see more, a bottom up picture in terms of what the companies are telling them. So that’s the sort of the one hat that you wear.
The other hat is obviously client facing. If you are a writing analyst or if you’re a senior analyst, you are on the phone talking to people, meeting people, doing road shows, travelling extensively and sort of communicating in a sense, your views, your thoughts to clients.
And the third hat is sort of the thematic research, which is where you try and sort of do bit of crystal gazing and see, okay, three years out, four years out, five years out, what are the big trends that clients should be watching out for, or sort of analyst should be on top of it and how that might impact let’s say the FMCG sector is likely to see a bit of a change, is it likely to see tailwinds, is it likely to see headwinds, sort of what’s happening with the IT sector. If the rupee is going to depreciate, is that good news, bad news, sort of slightly longer term crystal ball gazing. So that’s sort of roughly the three hats that you wear.
Bhuvan: Got it. So I think one interesting skill that you might need when you’re, you know, poring through all these data sources and all this data is the skill to judge what’s right, and what’s wrong, throughout your career, how did that evolve in the sense that, because there are hazaar data releases in a given month. But how do you filter the noise and then get the signal?
Ashutosh: Yeah, I guess that’s something that you sort of cultivate over a period of time, that sort of which data is relevant, and within that when is the particular data release of that data set, sort of relevant. It’s either signifying a change in trend, a change in trajectory, etc. It’s sort of largely judgemental that you develop. I mean, for example, inflation, you will see inflation sort of going up, newspapers will make a big story out of it and then you look into data and you say it’s sort of vegetable, onion prices, which have gone up, and you say, okay, onion prices go through this very, very high oscillation, they might go to a hundred rupees a kilo, they might crash to five rupees a kilo, and you’ve seen every two or three years, you see that cycle.
So there’s nothing that as an economist or as an investor you should be worried about, you should sort of look through the data. So it’s sort of a judgment that you develop for a period of time, but maybe it’s something to do with rural wage growth or some other factor that you see structural and then you say, hey, inflation is going up, but it’s going for factors that I probably think are durable or likely to go sustain. So you should take a note of it and, and evolve your thesis in the way you are either investing or borrowing or lending, etc.
So it’s sort of to an extent of judgment, to an extent depends on sort of granularity of data that we can access and learn.
Bhuvan: Got it. So you left the action-packed world of institutional research, and today you are the founder of IndiaDataHub. So tell us what IndiaDataHub is and also more importantly what was that initial seed which sparked the idea of IndiaDataHub.
Ashutosh: So I quit IIFL in 2018 and it sort of happens when you’ve done something for 10 years. So one of the problems sort of that happens in equity research career is that there is no growth per se. In a corporate sort of life you might start, you let hierarchy, you might become the VP, senior VP, MD, etc., that are hierarchies, responsibilities that you take. So your role in a sense keeps on evolving.
But as in equity research, it’s true for economists. It’s true for any other sort of analyst that you essentially are doing the same thing pretty much day in and day out. Some people like the kick that they get out of it and some people over a period of time get bored of it and that’s essentially what happened, and then one fine day I said, let’s try and do something around data because that’s something that I have been doing for the past 10-12 years. That’s probably something that I understand a bit better. So we started that as a hobby, I guess, IndiaDataHub essentially was a hobby, let’s see where it goes sort of an idea. Early 2019, when we started, July, August, 2020, when we first had our first book, and somebody approached us and said, hey, can you license this for us? That’s when it sort of hit us that maybe we can monetize it and it’s no longer just a hobby project. That’s when it became a bit more serious as a business, evolved from just being a hobby where we were getting a kick out of doing what we were doing, to now sort of where it’s sort of slightly, serious business venture that we’re doing.
Bhuvan: Got it, so what does the team look like today, and what are the backgrounds of the founding team?Ashutosh: I, as you know, come from the institutional background. My partner Pranauti, she comes with a tech background, she’s worked with J.P. Morgan, Oracle and Infosys and all of that; largely under technology domain. So she leads the technology side for us. I look at the data side for us. We have Dyuti and Anisha who work with me on the data side. Couple of people, Akshay and Zuyli, on technology. So we are six people, a couple of interns; eight, nine member team as of now.
Bhuvan: Got it, so the first time I came across IndiaDataHub was actually by a tweet from professor Sanjay Bakshi. So I was looking for some data, and then it was, it was a nightmare. So then I went to the website and there was some public resources PDFs that you guys had put out. And there was, if I remember that old version of the website, there was a landing page full of open data points. So, and it made my life simpler at that point of time and then I was wondering why doesn’t something like this exist.
So if you were to sort of step back and look at the competitive landscape, I know it sounds like a scary word, but like who are you competing against and what does that landscape look like today? Because everybody says data, data, data, and it’s almost become a meaningless buzzword.
Ashutosh: So, actually we don’t think in terms of competing against someone, what we’re trying to do is something pretty different. So, I mean, if you look at it, slightly bigger picture in terms of providing data there are vendors out there who provide people with access to data. They are both domestic firms as well as large global platforms, including the likes of Bloomberg and Reuters and all of that. So you have pretty much the entire spectrum where access to data is concerned. Some of them do a decent job. Some of them are very expensive across different price points and across different use cases and all that.
But what we’re trying to do is something different. So we are not in a sense being a data based company. I think that’s something that we are trying to do differently. So data is sort of the raw material and what we are trying to do is help people, or help users understand that data, contextualize the data and sort of make their life simple by saying, okay, these are not the things that you need to worry about. These are the things that you need to worry about. So, in that sense, our role is not as a provider of data but as somebody who curates data, contextualizes data, and visualize a presence that data in a manner that reduces the clutter and noise, I think the problem that I see over the last few years that I’ve interacted with people is that people get put off by data because it becomes so complex and I think what we are trying to do is to take that complexity out and say, okay, there might be a hundred indicators out there that might exist but that is not what you need. These are just the 10 indicators, for example, that you need to track if you need to be on top of let’s say banking or if you want to be on top of telecom, that’s essentially the role that we are providing, and sort of data in the sense comes rather than input rather than the output for.
Bhuvan: Got it, this will sound like a weird question but like you mentioned there’s you know, giants in this space, right from everybody from like, say CMIE, to S&P to your Bloombergs. You also mentioned an interesting point in the sense that you guys aren’t really a database company, you guys are more synthesizing the data and presenting it in an actionable form or more digestible form. But in a weird way, have you thought about why nobody’s done this in this space in India? Because we are in 2022 today and this is a pain point in the sense that any reason why none of these established giants have attempted to do this?
Ashutosh: I think, two or three reasons. One is that I don’t think even they know if the market for what we are trying to do exists. For us, it’s also an idea. So we are working with a hypothesis that a market exists for that and we’ll see and find out if the market really does exist. So they also don’t know. If they knew that a market really exists in a reasonably large market, they probably would’ve wanted to do that. That is A.
B, I think they have the large pocket of clients in a sense whom they sell bulky subscriptions and if you make it piecemeal, then you sort of end up losing revenue on the large corporate institution because a large corporate might pay for a corporate subscription, it’s only two people in the team who might be consuming that and for them a fraction of if it’s offering individual retail subscription they might take for that. So your revenue, in a sense you end up cannibalizing, your existing revenue base. So I can think of those two being the larger the reason why anybody hasn’t done it.
And I think in a large sense it is also a function of inertia, you don’t do something a certain way for the last 10, 15, 20 years, some of these firms are like 30, 40 year old firms and you have a standing in the market, you are large, then wanting to change something drastically is not easy.
So the whole processes, systems, everything is set up in a certain way and there is no pressing need to change. Just the business continues. So then let the status quo continue in a sense, I guess, these are the sort of reasons why nobody’s tried what we are trying.
Bhuvan: Makes sense. To your point about even you guys trying to validate this hypothesis as to whether there’s a market for what you guys are doing. Two, three years into what you guys are doing, do you have a sense that there is, you know, a large enough audience that will pay for the services and, you know, and the tools that you guys are building?
Ashutosh: Yes, I think, so far we’ve been happy with the response that we’ve got. So I think as things stand now, I think, there is a reason to believe that the path that we are going onto is the right part. How big the market is we will figure out, but I think the early science in the sense, like election day, 10 o’clock, early trends are encouraging.
Bhuvan: On the same note, there’s that old Charlie Munger quote: always invert. So if you’re to invert and potentially think now what could potentially disrupt India. I know it’s too early in the journey for the question of disruption. But if you just flip the question, have you thought about what’s that big idea that could potentially disrupt this whole data space, so to speak? Or the space that you guys are playing?
Ashutosh: Sure. So I don’t think we think in terms of disrupt, because when you use the word disrupting something, you envisage that there is a large existing incumbent which a sitting duck out there and then and upstart comes in and takes it head on and defeats we’re too small for somebody to disrupt us in a sense, I think, if I were to give an example of let’s say Amazon, which started in 1997 and you had an existing setup called the borders or Walmart, etc, where you could go and buy books; Amazon started with the hypothesis that the way you buy books currently which is you go to a bookstore, you sample different titles, you maybe read the first few pages and you bought a book. That’s the setup, that was in the mid 90s. But people would rather prefer to just order it online and that convenience is what people were after and Amazon started in a sense with that hypothesis, that there is a large enough market, which craved for that convenience. And they were proven right.
What we are doing is going with the hypothesis. There is a large enough market, which will want to understand data, contextualize that data, somebody who presents the data analyzes data without it being click bait, without it being over the top, etc, and there is a large market.
So what can go wrong for us is there isn’t a large enough market, which could either be that people want ready-made investment ideas. For example, what we are not doing is in the business of investment advice. So there isn’t a large enough market, for that, or that, there is probably a market, but we are too early. The market might be out five years down the line. We might be a bit too early for that. So I think we like every startup, we are starting with a presumption that there is a need for what we are trying to do and it may be that we are mistaken and there isn’t a large enough audience a lot enough market for what we are trying to do.
So if anything can go wrong, it’s either that, or that there is a market, but we couldn’t execute it and somebody else comes along and there’s a far better job at executing it. So it’s either that we got the market wrong or we couldn’t execute it, rather than in terms of somebody disrupting us, I think being too small for somebody.
Bhuvan: Got it. If you were to step back and also, I think, you know, people in FinTech will really appreciate these questions because their entire life revolves around CSVs. I think internally, someone from a tech team says “we are in the business of importing CSVs and we are not really a FinTech company, but we are a CSV importing company and your life revolves around CSVs”.
Just at a big picture level. So how hard it is to collate all the data. I mean, you guys must be reading and passing hundreds and thousands of sources. What does that landscape look like, how bad is the data that you guys consume? What are the pain points that you guys deal with when you guys are cleaning up, sanitizing it, and making it presentable? How bad is it or how good is it?
Ashutosh: It’s getting better actually. Glass is as they say primarily half full. So in a sense, you can look at the upside or you can look at the downside. I think things have improved significantly in the last few years, but there’s still significant challenges.
The data is, I mean, as something as basic as that there is no fixed date on which data gets released. For certain departments of the government, for example, we’ll have a specific date. Okay, 5:30 PM on the 12th, you will get the CPI data. If it’s a holiday, it’ll be on the 13th. If it’s a holiday, you’ll get 14th. It’s a set line in stone. But that is by and large, very, very far and few in between, by and large, most departments, the data gets released the date is approximate. So we have an economic calendar for our website. That data is largely based on our judgment as to when the data is likely to be released in most cases.
So that is one of the problems. The other problem for example, is that the reporting units before across departments and sometimes the same department will change. So I mean, RBI up until a few years back used to report data in billions and billions. One fine day, three, four years back, they changed it overnight. Data got released in crores and lakhs and everything that we had set up, everything went for a toss because we couldn’t figure out what was happening and when we dug into it to sit and find out, okay, the data is not in billions and we wondering why everything is down 95% and 99% the world is not coming to an end. So something as simple as that.
And then you have some government department still releasing data and in millions, some in some in billions, some will still report scanned PDFs, rather than Excel, or a CSV. So, you can think of it as being bad but if I look at the last 10 or 15 years that I have worked with this, I think I can say that things were worse before and things are getting better and if they continue to get better, it makes our life a lot easier.
Bhuvan: Got it. Also broadly speaking, I think there’s this move towards open data quote unquote, so to speak. So be it unlocking data, it could be something as like open banking in the UK and also unlocking data that resides inside institutions, for example, that account aggregator framework and also the government also, I think, is making some attempts with, I think the, I don’t know, when was the exact date was the data gov. portal where they tried to make this all clear.
So is that more happening in the sense and how does it change life for you guys in the sense that government and institutions trying to make data more open and cleaner?
Ashutosh: Oh, absolutely. I think there is a thrust and a determination on the part of the government to make this happen and there are steps being taken in that direction. So we see a lot more data out there, which we can access which we earlier wasn’t the case. So I’m quite optimistic that if I look at five years down the line, the data, the landscape for data will change. And I’m sort of hoping that a stage comes when the government will start releasing data in machine format that we don’t have to spend a lot of time and resources cleaning and sanitizing the data and we can sort of focus a lot of our energy on. Saying, how do we make sense of the data and how do we sort of present that data in the most user friendly format. So if you have to just focus on that, we’ll be very happy if that were to happen and sort of the more the data out there in a sense, the more the opportunity for us, because there is so much more data that we can help make sense of.
So I think more data is always better for us. And, if it is presented in a far more accessible manner, that’s also sort of helps us in being able to present that data and sort of make sense of.
Bhuvan: Got it. So, on that sense, let’s assume that in an ideal world, everything is clean. There are no scanned images of PDFs and excels, and then data is as clean as it could be. If in that ideal world, do you think there is still a large enough market for somebody like you, who’s making sense of their data because I’m thinking of the recent inflation report that you guys put out and it had a really quick snapshot of what happened, you know, what are the changes across categories, which I can’t really for the life of me, find it on some government website or RBI website and make sense of it quickly. If I’m acting with something, in that ideal world, then does your role become more about synthesizing the data and ensuring there are actionable insights rather than just presentations?
Ashutosh: Not really. So, in an ideal world that you describe, I think, our focus will … access to data will no longer be an edge, because the data is accessible to anyone easily, you don’t have to struggle to find for data, so that does not. But the presenting of the data, the making sense of that data, that still remains a challenge and that still remains an opportunity that, Hey, we can help you make sense of the data better than somebody else. So that’s essentially what we are trying to do, we’re not trying to say that we have data that is unique.
The data is not unique. The data is out there. We’re just presenting it or helping you trying to make sense of that data rather than saying that we have some proprietary data, the data that we use is not proprietary. What we are trying to do is, we help you make sense of the data. We help you make understand the data and we can help you give the context behind the data, Hey, last year, this happened and hence this year’s data, we should be interpreting it with caution and not sort of jump the gun and say that, okay, all is hunky dory or everything’s bad.
That role of ours, in a sense that you are trying to sort of still remains, it just makes our life easier because we have to worry less and spend less time and resources in the back end in getting that data and processing the data. So, that’s the way I look at it.
Bhuvan: Today who uses your data, you guys are a B2B only for that group from whatever I was spoken to you have no plans of either doing B2C in the immediate future. So, today who uses the data and how do they use it just to get a broad sense of?
Ashutosh: The large sort of users will be the corporate and the businesses in a sense, the analyst community in a sense, our users, as you call it, who need the Excel plugin who need the, sort of the data, as in when it’s released and … But we do have a subscription line for example, for all the analysis that we produce, not for the underlying data which I suspect is not of much use to the ordinary limit to be able to access the sort of the tens of thousands of integrators, but the sort of the content or the analysis that we produce quite a bit of stuff wvery week, three, four times a week, so that is accessible through a B2C subscription.
And the book, for example, part of that subscription can be purchased separately. But the entire platform in a sense, which includes the API access, the Excel plugin, the dashboards, and all of it is largely targeted at the B2B audience.
Bhuvan: Correct, if you were to step back and just take a broader view of the landscape today that you guys operate in and if you were to think about any white spaces where there’s a lot that could be done, that would potentially help businesses, governments, analysts, etc. like, are there any white spaces that come to your mind?
Ashutosh: Oh, so in terms of the data coverage, there is so much of stuff that we still have to do. I mean, you sort of barely scratch the surface in terms of sort of covering the data. So we, for example, at building a district product, for example, which is, we sort of call it all the district level data that we can and so you can in a sense understand at a very micro level sort of what’s happening or sort of well different. So, is Jaipur for example, a more prosperous market or is Jodhpur a more prosperous sort of region? Some of those questions, for example, can be answered better with more granular data than let’s say just the state level data.
So, that’s sort of one of the spaces that we will get into later this year. Corporate data, the whole scheme for corporate data, and then sort of doing analysis based on that is again something that we will be doing later this year. So, those are just sort of two of the white spaces and then there is a whole area of sort of alternate data GIS and all of that, which we haven’t talked about. So, that sort of becomes the third layer of data. In terms of data, I think the problem is what we want to do at a given point of time; rather, there is too much to do and sort of too little bandwidth in that sense.
So, I don’t think we will run out of ideas anytime soon. The question is whether you sort of focus on something that is worthy and then executed, and then whether your hypothesis that there is a market out there for that.
Bhuvan: I mean, it’s good that you mention alternate data because it’s been like this fancy term in the past, I don’t know, maybe call it 7, 8 years. I’m thinking these hedge funds were using this satellite data, tracking the parking lots of Walmarts and tracking the heat density of the Indian, this thing to figure out how the economy is doing and then investing based on that. Do you think there’s things to be done in making sense of this alternate data, so to speak or is that largely hyped?
Ashutosh: I think there is a bit of both, I think it’s to some extent it’s also a marketing plan. I mean, if I’m a hedge fund, if I give away an impression that I’m using cutting edge … as a hedge fund, I’m also, there’s an AUM that I’m managing. So it’s also and I generate a fee based on a percentage of the AUM. So there is a bit of that also in terms of the way you want to position, but the alternate data, there is a huge wide spectrum and something like, for example, we track how, which sectors are seeing new companies being registered, where is, where are businesses being set up in India?
For example, last four or five years, we’ve seen chemical sector being very strong, chemical companies going up and that was sort of consistently getting reflected quarter after quarter in new chemicals companies been formed. I mean the last four or five years, the number of new chemical companies being formed in India has gone up by four times. In a sense that validates what you’re doing in the secondary market, because if chemical companies are profitable, it’s logical that you will see new chemical companies being set up.
But equally as an alternate, sort of, if you think slightly ahead, you will say if there are so many new entrances coming into the sector, maybe there aren’t as many entry barriers in that sector, maybe some of these companies will become big and it into the profit sort of the existing large profit booth. So this in a sense becomes a signal that can be a coincident indicator or a contain integrator, depending on how do you assess the cycle to be playing out to be.
So, sort of GIS is sort of one manifestation of the alternative data, but something like this is the other way of looking at our data. This is something that very few people track, but this becomes a very useful, sort of time to track all sort of people track commute these days, for example, and see sort of what’s the urbanization sort of urban, urban demand trend, etc.
So, there are things that you can do, and there are things that you can sort of go overboard and say that I’m doing this, but I think there is space and as we sort of go along there will be more opportunities to do something in that area. We sort of getting into it in India, sort of early days of doing that. Especially in China, things are at far more advanced level. Where pay to track people’s behavior involves for example, through wifi, beacon, and all of that. So things are at a far advanced stage in some of those countries. So, I think we’re sort of getting there, but there will be hype and there will be some general use cases.
Bhuvan: Speaking of use cases, I mean, going back to the institutional days, like, how was this data digested by let’s say somebody like an analyst or somebody who was allocating money in funds, so and so forth. Because again going back to the earlier point, there’s so much data, is there, I mean, is there any, so because also this, you know, investing and trading based on macro data is also notoriously hard and not many people have managed to do it successfully also.
Bhuvan: So, what’s the art and science behind, you know, using this data to ensure that you are investing successfully? At a more philosophical level If you would.
Ashutosh: I don’t think it’s just about sort of macro data. It is also about asking well, whether the hypothesis that, whether the data that is coming in is sort of fits into the hypothesis that you have.
So, let’s say you might have a hypothesis, for example, that HDFC bank is going to get profits at 3% per year for the foreseeable future and that would mean that, let’s say their loans have grew at 25%. Their deposits have to grow at, let’s say, I dunno, 30%. CASA has to grow at etc, etc. percent. So what the banking aggregate industry data will tell you is that if the banking industry is going to go at 5%, is it possible for HDFC bank to grow at 25%?
It may be, may not be, but that’s sort of the hypothesis. Sort of the question that you ask, whether if the industry is slowing down from 15% to 5%, does it change my hypothesis that I had for HDFC Bank or ICICI Bank, or IndusInd Bank? And if it does, do I need to do something about it and if it doesn’t, or maybe I don’t need to do anything because the stock has already corrected or maybe interest rates have gone down and that offsets the fundamental change because of the lower cost of capital, or maybe I do need to do something, then what do I need to do?
So, it’s about that I have a hypothesis, or a framework in which my portfolio is built and sort of every sort of set of data that I come by, sort of ask myself, is this broadly in sync with my portfolio or does it warrant me to change something in my portfolio?
So, let’s say monsoons are going to be bad and I have a very large exposure to consumer stocks. So do I need to do something about it or I’m a very long-term investor. I’m just ride it out. Or I think that some of these stocks are at a very frothy valuation and they could correct and so I better trim down my overweight and sort of move into some other space for the time being and if the stocks do correct I can again go back to my overweight, my position back.
So it sort of also about checking whether your hypothesis makes sense or not. Or whether you need to know …Bhuvan: One of the reasons why I asked this is because there’s a tendency, especially among the retail investors, to think, Oh! GDP is up, market up, inflation is down, stocks are bad and this binary thinking always gets me … So, I just wanted to get your sense
Ashutosh: Absolutely, get that.
Bhuvan: Taking a step back. So two, three years into building India data from being a hobby project, so to speak to a serious business today, like what are some learnings that you guys have had, you know, in building this out?
Ashutosh: I think in terms of learning it been that, I mean for example, I have learned some bits of technology, which I never thought I could learn, for example, so sort of I have added, so that of, I think vice-versa my sort of partner who has had nothing to do with economics has understood a bit of economic data. So at a personal level it’s been…
But I think the bigger picture is that if the environment in which we operate in India has become so conducive for somebody to start a business. There is a support environment whether it is funding, whether it is advice, whether it is simply going finding a place to work with this whole co-working places. That, in a sense, some of the risks that are typically associated with starting out and starting a business. I think some of the downside risks have to some extent been mitigated. And I think, it’s something that you knew as an economist at an abstract level, but when you are right in the middle of it and sort of exposed to it as an entrepreneur I think you experience it first-hand and sort of you realizes the impact that it has and equally, I think on the flip side, you sort of realize that there is a lot of talk of let’s ease of doing business, but how far are we still off from sort of that idealistic environment in which compliance has become easier or sort of, it’s easier to start a business or to do X or do Y that while we could have, we have taken steps, but it’s still a long way to go where it becomes very, very easy for somebody to start a, let’s say, start a company, run a company and sort of execute it. So it’s sort of been a very fascinating journey,
Bhuvan: Correct, so as an economist and also as a data analyst, you are. You look at companies in the aggregate, for example, but on the flip side, as a founder, you are an input into the very data that you analyze. Does wearing that hat of an economist help you in terms of making business decisions? Anything related to building IndiaDataHub, has it been useful?
Ashutosh: Yes and no. It’s been yes, to the extent that, you sort of have a certain mindset with which you enter a business. So, I sort of come as a student of Sanjay Bakshi. For example, from a very, very conservative sort of a background where it comes to investing, focus on cash flow, focus on some of those things and you sort of apply that sort of time business. So, instead of it’s whether that’s a positive or negative we’ll find out, but you sort of are in a sense that sort of mold of thinking, sort of building a business so that’s how it happens.
It doesn’t help in the sense that when somebody asks you, how are you doing? And the first, only 1% of them survive. So you said the odds of my surviving are just 1%. So you start off with that. And then somebody says, how can you survive with that mindset? But I said, I’m very, at this point, I hope I’m that 1%, but yeah.
Bhuvan: That’s interesting. And so one of the reasons I was really, really excited about having this conversation with you was, this publication that you guys put out, this India Data Book, which gives you a bird’s eye view of… If I’m not wrong, this is the second edition, right?
Bhuvan: So I’m really curious, how did this idea about putting out this insanely complex and comprehensive data, rich publication come about, like, what is the thought process behind it?
Ashutosh: Oh, the thought process for this was The Economist magazine publishes this pocket book world or book of statistics or something of that sort. Which typically every alternate year I will go and purchase. So it sort of cost, I think 10 pounds is what it would cost. It’s sort of most of the time available in India, but sometimes it’s not because you’re all sort of traveling to the UK once in a while, every year you go and pick it up from there and I sort of always fascinated by that book and that’s largely comes from background of being fascinated by numbers. So we thought, and there isn’t something comparable of that sort in India. So, we started off by wanting to do something of that sort for India and they said we are doing that. But why don’t sort of add our own flavor to that? So we added our own flavor through a lot of charts. This time we have some commentaries and all that. The product has evolved over the last couple of years.
So, that’s been the inspiration for us, sort of like anybody from the economy, it’s a big thumbs up to get it.
Bhuvan: For the listeners, the India Data Book is a really, really comprehensive state of the economy across your macro indicators, across demographics, industries, capital market, so on and so forth. I’ll include the link in the show notes so that you guys can go and purchase.
It’s absolutely fascinating. But I just wanna pick up a few things from the book, just to give sort of a limited teaser, if you will, to the listeners. Right now, we are at a very interesting moment in history, like given whatever is happening in the last two years, there’s that old quote that, “There are decades where nothing happens; and there are weeks where decades happen”.
So, if you were to, you know, look at it from the lens of being an economist. So also somebody who knows and spent a lot of time poring over economic indicators in preparing this book, pre-COVID-19 and post COVID-19, how is the Indian economy doing today? Are we on the road to recovery, or are we in a bad spot? What does your economist perspective tell you?
Ashutosh: I think the Indian economy in a sense has a habit of surprising people and I mean, one of the learnings that I had over the last 15 years is that you should never get too optimistic or too pessimist.
So, whenever you get too pessimistic about the economy, like, for example, a lot of people got in early 2020, when the pandemic first hit us, they were all surprised and I think we’ve come out reasonably well from the pandemic. Most indicators seem to suggest that, we are sort of at pre-COVID level in terms of activity, if not higher, there is some bit of dispersion and activity in terms of the rural side of the economy still seems to be struggling a bit more compared to the urban side. But I suspect that is largely a function of lead and lag. There’s a large migration of people that happened from urban to rural in 2020, not everything has come back. So I think, and that’s because you’ve seen the first wave and second wave, then a mini wave. You see it in Jan, I’m not sure people have the confidence that we are sort of done with this, for sure and for good and we can sort of go back and not have to worry about coming back. So I guess some of these is transitional sort of friction, etc. But I’m optimistic that I think that the economy is doing reasonably well.
I think sort of the worry if anything is sort of what’s happening globally, which fits into India in terms of higher oil prices, higher commodity prices, inflation, RBI having to tighten rates, etc. But these are largely cyclical. I think if you look at the next sort of 5, 10 years south, I think there is every reason to be optimistic that the economy should be doing well over that timeframe, there will be ups and downs, but I think on the whole as Mr. Buffett says about America, you should never be bearish on America. I guess the same goes to us. you should never be sort of long term bearish.
Bhuvan: Oh yeah. I mean, if you look at the performance of our market from 2000, I mean, we are clearly in the top quartile of the global market, so it has been a good bit of a mix, so to speak. There’s also an interesting section on formalization of the Indian economy broadly speaking in the report also, what do the numbers tell you?
Ashutosh: So I think what was surprising to us for example, was that through the pandemic, the pace of new firms being created in India, didn’t slacken at all. I mean in FY21, which is April 2020 to March 2021, which is sort of the first wave, the move that in the prior year when they were no COVID, and in FY21 to 22, which was when the second wave, much more seriously, even more number of companies that got set up.
And I sort of, as I am aware the economists said somebody will set up a firm only if he expects profits. It’s with that expectation. It’s not necessarily that they will get better, but it’s an expectation. So if in the middle of the pandemic, when sort of everything is declining, people are dying and all that. If entrepreneurs have the confidence that we can look through these passing few months, we can look at the long five, ten year picture. I think that is the biggest confidence that you can have on the economy. That people are putting their money in a sense and setting up new firms and sort of that shows that your GDP might be declining, your industry production might be declining, but people wouldn’t set up a firm and incur the cost that sort of comes along with it unless they were optimistic about the future, and unless they expected profits and production and growth in the future.
So I think the formalization trends over the last few years, it’s been a conscious policy of the government to encourage formalization. We have something like 60 million informal businesses in the country and less than 2 million formal enterprises. Such a huge imbalance that we have currently and you’ve seen the policy trust and sort of some of that sort of playing out in terms of data. I think the number of new firms that are getting registered have doubled in the last few years. The number of active firms adjusted for a number of firms that are closing down have also increased by more than 50%.
So, I think, sort of as an economist, you want firms to get bigger because when they become bigger, they hire people, they invest in new capacity. So there is investment that happens and capacity. So you are seeing sort of in a success, some of that happens to sectors like manufacturing, for example, which is part of sort of policy from the government seeing significant increase in the number of new firms. It also helped, for example, education. Agriculture, for example, which is a big surprise to us.
That is a sector which is as sort of riddled by friction and policy, as agriculture is seeing sort of so many new corporate entities being set up, this could be for trading. This could be for new commercial agriculture, et cetera, but that tells you that there is private capital flowing into some sector, which is as unproductive as you can get. I mean, that sector can really benefit from a productivity boost.
And if private capital is going through it as somebody who’s sort of a believer or free markets, private capital going into a sector is always a positive. So I think there is lots of, sort of longer term positives from this whole process of formalization. Confidence in the economy, capital going into sectors, which are too unproductive or well blowing very fast and I think that sets the stage in a sense for sustained momentum with some…
Bhuvan: That’s really interesting because this also speaks to the reason why you guys exist, because if somebody were to go and look at the pace of, you know, new company creation, it’s very, very tough to get the data. You have no clue. For example, I was looking at this post, the pandemic period and the US data is really, really easy to come by. The trend mirrors there because new business starts have been at record highs. So, I was interpreting that data in the Indian context and thinking it must be the same, but I had no clue it was… This is really, really amazing.
And also there’s a quite comprehensive section on capital markets in the report, which is our bread and butter. Big picture, like what are the interesting trends that stand out in the capital markets, so to speak?
Ashutosh: I think the big picture is that people are willing to put a far higher proportion of their savings into capital markets which could be sort of mutual funds as well as direct equity, In a sense that sort of suggests that the whole campaign by the mutual fund industry “Mutual fund sahi hai” encouraging systematic investment flow, et cetera. The work that firms like yourselves have done at making it easier for people to directly invest in the equity. So all of that, it’s a combination of people willing to take on risk and also sort of the private sector, sort of in a sense, responding by creating awareness and making it easier for people to invest.
So I think far too long, have we had a certain scenario where people would be content with fixed deposits, sort of in a sense, the risk capital. We’ve been reliant on foreign investors for providing that risk capital but the domestic market now itself, I mean, last few months, for example, you’ve seen continuous outflows from foreign investor but sort of in a sense, the entire outselling being absorbed by the domestic investors, which is largely driven by the retail flow that directly into equity or from mutual funds.
So that sort of suggests that the domestic market is now getting mature enough to handle the volatility that comes along with sort of the economic ups and downs, global news flow, Fed tightening, et cetera. But also an important counter buffer now to what the foreign portfolio investors might do. So we are not as vulnerable to their massive sort of volatility in their flows and also that there is now risk capital that domestic investors can make available to domestic companies for their growth. And that cuts across not just the secondary market, but equally the primary market. I mean, we’ve seen a tremendous amount of funding for startups in the domestic market.
So I think sort of the capital markets, also, the economy is getting financialised in a sense which is sort of the reliance on banking system in a sense is going down and sort of the other mechanisms are going up, which is again long term positive.
The only caveat is that if you sort of have a long enough cycle, a lot of the arguments that you see currently were made in 2007, 2008 before the global financial crisis hit us, and then it sort of took us 2008 to 2014 before investments, domestic liquidity recovered. So it’s not the first time that I’m making… I’ve as an analyst in 2008 made exactly the same arguments that domestic investors are coming up, domestic liquidity and all of that and then the Lehman Brothers went under one fine day and the world changed.
So these things can, the capital markets especially have very, very deep cycles, sort of very sharp and very deep cycles. So, sort of next month, the picture could change, but I think the data so far is sort of very, very encouraging of the economy and the investors community.
Bhuvan: So one segment of the listeners who are a big segment of the listeners of this show will also be the people from the start-up ecosystem broadly, so to speak and for somebody who’s also building in FinTech the ultimatedata point to look at essentially becomes, are there enough people with enough disposable incomes to save, invest, which means, which will eventually feed back into the markets, so-and-so forth.
But one worrying data point from the report was this decline in savings rate, household savings rate. We had a secular increase from the 90’s, but then from call it 2015, there’s been a steady decline in the savings rate. Like what does your sense tell you as to why it is also can an inference be made saying that the savings rate is decreasing at the time when household indebtedness is increasing, is that a reasonable influence to make?
Ashutosh: To some extent. I think the bigger driver there is, so a large part of household saving goes into real estate and sort of the last five years when you’ve seen savings go down sort of coincides with the real estate industry being sort of struggling a bit. So it’s sort of explained to large extent by real estate as an asset not being attractive enough and money sort of not going into real estate.
In a sense, it’s a worry. It’s a worry because, especially for a lot of people in the capital market, look upon real estate, look down upon real estate as an investment. But the real estate in a sense, or the construction industry for example, is by and large one of the biggest employers in the country. The labor intensity of that sector is more than manufacturing. So in a sense, when the real estate industry is sort of struggling, it’s also sort of the job creation at a slightly lower level that is also struggling.
So in a sense, the real estate industry needs to come back, whether that means prices need to correct, inventory needs to go down, et cetera. So sort of, that’s a separate discussion, but that the health of the real estate industry is important from an economic point of view because it’s a large employer of slightly lower end of the sort of social data. Real estate industry being struggling, sort of largely by people haven’t invested in housing and people haven’t invested in housing because the savings rate has been going down.
Financial savings if you see during that period, especially in the last sort of 2015, 16 onwards, there was a couple of years of … but again, 2020, 21 financial savings are … So I don’t think it’s a case of something that we need to be worried about a lot. But I think it’s something that we should think more from the point of view of the real estate industry struggling.
And the other drag, especially in the last two years has been the government because tax revenues have been weak and they’ve had to spend because of the pandemic, and their revenues are not met. So they’ve in the sense, had higher deficits than what they had in taxes in 2019, or so…
Bhuvan: There isn’t a specific section on startups in the report. Broadly speaking, if you were to infer the data point, make inferences from the data in the report. So one was this pace of new company creation, which as you said, is really, really heartening. The second thing was domestic financial flows more than making up for the foreign outflows. Like, are there any other data points that give you a sense of how the Indian startup ecosystem is doing in terms of entrepreneurship, so on and so forth?
Ashutosh: So the other sort of data that we have is for example, on factories. We’ve seen increasing number of factories in the country and that sort of links up to the manufacturing sector. There is a trust in the PLI scheme on Make In India and so on. So in a sense, you’ve seen investments in manufacturing sector that reflects in number of factories increasing as well as new firms in manufacturing increasing. Sort of the two data points that point towards the same direction.
If you look at electronic exports, for example, they’ve increased for manyfold and that is largely again, a function of not a startup in a classical sense but investments that are happening in the electronic sector, which is either to basically next to zero in India. That sector coming into large and typically when you see a sector, which is non-existent, starting to become big you will see a lot of ancillary companies that will grow. I mean, if you look at Gurgaon for example, Maruti went there one day and then the entire hub came about because of Maruti.
So I think once you have a certain minimum threshold of large firms, you will see the whole ecosystem develop around it which will open up again, a lot of opportunities for firms to feed into that hive and grow…
Bhuvan: So the other thing that broadly affects everything that you mentioned in the report is also sort of the policy stance of the government. It could be anybody. If you were to take a big picture in terms of how the policies have fared in the last, call it a decade and also slightly taking a step back and looking from the time we recovered from the 2008 crisis, because India wasn’t really too deeply impacted by the crisis because we weren’t really integrated into the global financial system.
So if you were to take a look from, call it 2008 and until 2022, how do you make sense of the policy landscape in terms of whatever we have done to increase savings, entrepreneurship, so on and so forth and also like if you had the power to change anything in a given day, what would you change?
Ashutosh: The second question is actually very easy. I’ll have a minister, a new cabinet minister, whose job is to cut down that … It’s absolutely clear. I mean, we need somebody who’s just going to cut, make a lot of jobs irrelevant in the bureaucracy. So I think that’s the sort of the easiest question.
I think if you step back, we panicked a bit in 2008 when the global financial crisis hit. As you said, we weren’t as integrated into the world system then as we are now. The financial sector was, the financial sector got this disproportionately impacted, but the real India, in a sense wasn’t as impacted, but we responded to a huge fiscal stimulus and that in a sense escalated into the 2013 taper tantrum crisis as we call it and the currency fell by 20%, we had a 5% current account deficit and then we had to overnight raise interest rates when Rajan (Raghuram Rajan former RBI Governor) came in and so on.
But if you sort of look at it from post thereafter, the last couple of years of the UPA government, when they had a tight lid on fiscal deficit and reign so far, it’s been the consistent policy to liberalize, to cut taxes, so the public tax rate in India has sort of gone down. The tax system has got simplified, we moved to a GST which is a far efficient tax system than the earlier various different taxes at the center and state level. The whole trust on Make In India, the ease of new business. All of these are steps in the right direction.
The Only complaint. If I had with it, we are not moving fast enough on several of these factors. So there is a lot more to be done on some of these things than we achieved so far. And as somebody who sort of set up a company, running company, something as simple as setting up a company, I can see that, okay, it’s now become easier, but there’s so much more that we done to make it simple, to just simple register a company.
So I think there is a lot of things that you can do to make it easier. I mean as somebody who believes in free markets, wealth in an economy is created with (crosstalk) because the two transact because it is value. Both of them find value in making that transaction and sort of the more the transactions that happen in the economy, the more the wealth that gets created and the more that sort of wealth that created the more, then you can, you can decide how to distribute that wealth. You can then have taxes that distributed, then you can have a basic income, you can have a …, so all of that can be funded if you have that. But the premise has to be that there has to be a lot more transactions that happen between two willing private sectors, private entities or individuals.
I think if you sort of focus on that and make it easier to do business, either within India, between India and outside, I think will sort of achieve that goal of getting to eight to 10% GDP.
Bhuvan: The final thing I wanna pick your brains on is this in moment topic of inflation and central banking because mostly investors and the market watchers tend to worry about it but I think because some of the founders and startups would also be listening to it, it also affects them because inflation is regressive tax, which kind of eats into the the discretionary spending of people, which means inevitably indirectly, they will also be affected.
So, if you were to look at how our central banks have reacted, how our governments have reacted and also, just to take a step back, this isn’t clearly our inflationary pressures we are also importing a lot of this inflation due to supply chains and you know, all this fiscal spending in the US and other advanced economies, but broadly speaking, how do you grade our central banks policy makers in the response towards inflation.
And also from the last, let’s say three, four data releases it kind of seems like we might be moderating. Like, what’s your sense, in terms of where we are headed?
Ashutosh: Yeah, I think the data as it stands now does suggest that we might be at the peak and things might be moderating so on, but sort of we’ve seen, for example, the supply chain shortages was first talked about in 2020 was supposed to be transitory, then in 2021 it was supposed to be transitory and now we sort of in 2022, and we’re still saying that it is transitory.
So yes. I mean the data is encouraging, but fingers crossed so to say. But I think it’s clear to me that central banks across the world have been too slow to react. I think it’s sort of the one thing that we need is low and stable inflation. That’s sort of at the heart of from a monetary perspective, from the currency perspective and from financial stability perspective. If you have lower stable inflation, then everything else follows, you can keep interest rates low, you don’t need to make an abrupt change in interest rates that you take businesses by … you don’t impact the poor for example, who are disproportionately impacted by higher inflation and so on.
So I think it is imperative for every central bank to ensure that they stick with their mandate of low and stable inflation and sort of across the globe, I think there is hardly any central bank, which has managed to stick to that mandate. So in a sense, It’s been disappointing that they’ve been caught napping.
Bhuvan: Got it. Thank you so much. That was my final question. It’s been a brilliant learning experience for me. I’m pretty sure the people who are listening will also have plenty of takeaways. So thank you for taking the time and doing this