"In knowledge-based industries, India has an advantage over China"

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  1. huaxia rox

    huaxia rox Senior Member Senior Member

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    In knowledge-based industries, India has an advantage over China: Kris Gopalakrishnan - Business Today

    India will be the third-largest economy of the world after US and China by 2035, but it is a long road ahead, says a Goldman Sachs report. What are the phases India will have to go through to reach this milestone?
    The immediate task is to get growth back to eight or nine per cent. For 18 months we were growing at around nine per cent. Now growth has come down to four to five per cent. The government is projecting that in the current fiscal year we will grow at six to 6.5 per cent and in three to five years we will get back to eight to nine per cent. This is achievable especially because government has taken some action through the Budget, announced measures such as opening up foreign direct investment in multi-brand retail and issued clarifications on retrospective amendments.

    But are these measures enough?
    We need to get to eight to nine per cent growth over the next three to five years. We can accelerate that if we look at some key reforms such as GST, if we accelerate infrastructure projects that are stalled for various reasons.

    Reforms like bringing in a GST need political consensus. Won't it be very difficult to do so with elections looming?
    We need to try and connect with states ruled by opposition parties. There can be some kind of convergence on GST even though it is an election year. That is the first step. The second step is looking at the next five to seven years, let us say till 2020. Today the per capita income in India is around $1500, if we are able to grow at eight to nine per cent it is possible to get the per capita income over this period to about $4,000-5,000 which is a significant jump. China has achieved this already and we can do this over the next seven to eight years. That is the first phase I see. And that will bring about a significant change. Our economy will go from $1.4-1.5 trillion to over $5 trillion in 2020.

    What are the three biggest challenges facing the economy right now?
    First and foremost is investor confidence. Second is getting implementation right, getting projects executed on time, creating a consensus on growth. The third is about the whole dimension of ease of doing business. The World Bank has ranked India 132nd out of 185 countries in ease of doing business. We should try to get to the top 25 per cent of the world's nations in this category. It will help not just existing businesses, or improve investment flow from outside, it will also help startups, entrepreneurs.

    Is there any anecdotal evidence that investment is happening?
    On investor confidence, if you look at some of the reports coming from the analyst community today, they are saying that we have hit bottom and growth has started to pick up, which means investor confidence is coming back to India. Today, we saw inflation coming down (Inflation in March 2013 stood at 5.95 per cent, the lowest in three years), we see gold prices coming down. We see oil imports coming down. It means that possibly interest rates will also come down. That is also going to improve consumer confidence. That is why I feel growth will pick up. On the projects' side, especially large projects, they are getting approved. The prime minister talked about more approvals being given in the next two to four weeks. He also talked about the national manufacturing investment zones and how they are being set up in various six or eight states. We need to keep the momentum going.

    Do you think consumer confidence is not as high as it used to be? Car sales have dipped for the first time in a decade.
    If interest rates go down the expectation is that this will spur consumer spending. We don't have data yet because interest rates have not gone down. So we will have to wait. Maybe in three months we will get a better picture. We are seeing a slight improvement in the confidence index in a study of CII members. We were in a negative spiral, now we are getting into a positive spiral. I think we can get the growth up to six to 6.5 per cent this year and may be closer to eight per cent later.

    Mere statements will not revive investor confidence.
    It is not mere statements…some of the concerns have been addressed by the acceptance of Rangachary committee report. If they continue in this direction, we will see growth return.

    The finance minister is in the US, Canada to woo investors.
    He is meeting large investors interested in India… He wants to reassure investors that India wants to regain their confidence, wants investments to happen. That we are serious about attracting business.

    Do you see an industry body such as CII bringing PM aspirants Narendra Modi and Rahul Gandhi together on the same platform?
    No, we will not have a debate, along the lines followed in the US. That is something a media house can do. We will meet with leaders from all political parties. Create a platform for them to interact with our members. We will have public meetings involving all major parties.

    What is your view on wealthy promoters defaulting on debts? Case in point is Vijay Mallya. It affects a huge sector like aviation.
    I do not want to comment on a specific person or company… there are two sides to this. In sectors where the capital investment is huge and where the returns happen over many years, there has to be a stable policy regime. In the case of the airline industry, the fluctuating fuel cost and increasing competition created problems for almost all airlines. Except for maybe one or two everyone is losing money. Some of them have started to turn around. So, it is very important for the government to nurture industries like these very carefully. They should not overcharge the consumer but they should operate in an environment where if they run their businesses well, they make a profit. They can invest back in the business and we can create a healthy business environment in that sector.

    On promoters defaulting….
    We need to ensure the business environment is stable. We also need to look at public companies, how we can manage business in which long term business debt levels are reasonable, huge risks are not taken. Here the responsibility lies with the board, with the executive management. If there is anything wrong in how they run the business, the government can step in. Typically the boards should ensure the risks are managed, becoming over ambitious on risk should not be allowed. That is something the boards must act on and if they do something that is wrong, such as taking money out of the business, then the government can step in. If they have not done anything wrong, if their strategies were wrong, or their projections were wrong, or they took too big a loan, then the boards are responsible.

    How do you think we can bring back jobs?
    The best way to create jobs is to accelerate economic growth. At eight to nine per cent growth we will see lots of more jobs being created, which is possible in the next two to three years. The government wants to increase the share of manufacturing in GDP. Right now it is 16 to 17 per cent and they want to take it to 25 per cent. This will create jobs in manufacturing, services around manufacturing. For example, in logistics, in supply chain, retail, construction, broad areas of services. In the agriculture sector jobs are created in agro products which again comes back to manufacturing.

    Do you see green shoots happening?
    It will take some time. We were on a downward path. In 18 months, the economy went from eight to nine per cent down to five per cent. We need to get this to turn around and growth will come back.

    What kind of lessons can the manufacturing sector draw from the services sector or from a company such as Infosys?
    I am positive about sustainability. I believe sustainability is similar to what the Internet brought. It spurred huge amount of investment and growth in the technology sector. Similarly, sustainability can create huge amount of investment and growth in manufacturing even in services. Taking the home as an example, if you think about green buildings, we need to re-engineer building management systems, we need to reengineer how we construct buildings, probably we need to look at pre-fab, improvements in air-conditioning, improvements in how windows, doors are built so that they are more energy efficient. We need to look at the design of houses, we need to look at natural light, for more energy efficient appliances.

    Imagine the same thing in automobiles. Only 3.5 per cent of Indians today own cars. As India becomes more wealthy, a lot more cars will be sold. Should there be more energy efficient cars, hybrid cars? Yes. Otherwise, pollution levels will increase dramatically. That is the opportunity that can be tapped.

    The other sector which will benefit is defence, we will have to increase defence manufacturing in India. We should look at electronics being manufactured locally because the government's projection of electronic imports is $400 billion, exceeding oil imports which are at around $350 billion now. If we want to reduce imports, domestic manufacturing should be encouraged.

    Even while opening up FDI in multi-brand retail, the government sets so many conditions, which are not attractive for foreign retailers. For instance, Ikea, the Swedish furniture maker which has been allowed entry into India but with stiff pre-conditions…
    We must simplify policy around business formation. That is why ease of doing business is one of the priorities. We will look at all aspects of doing business…how businesses should be set up.

    What about corruption?
    Business should be conducted legally, ethically. There has to be a certain code of conduct. We will work with the government to streamline government processes, for example the purchase processes. We need to simplify processes, procedures on business creation to reduce corruption. Can it be made online? Can interaction between government and business be made online? Government is doing a lot of these e-governance initiatives around that.

    Does India compare well with China on this score? Can we grow better than China?
    We are short of China on growth, right? But we will have our own model of growth, ultimately if we can sustain this we will derive the benefit, we will be competitive in several sectors. For example, the IT services, where we are better than China. We should sustain those sectors, create more sectors where we will be better than China. Typically, these are knowledge-based industries where India has an advantage.
     
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