India can be a $5 trillion economy by 2025: Mukesh Ambani

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India can be a $5 trillion economy by 2025: Mukesh Ambani

Reliance Chairman Mukesh Ambani has said at the power packed Institute of International Finance Summit that India can be a USD 5 trillion economy by 2025.

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The power packed conference at the Institute of International Finance Summit had Reliance Chairman Mukesh Ambani and Citigroup CEO Vikram Pandit in conversation with KV Kamath, the Non-Executive Chairman of ICICI Bank , playing the moderator. Both Mukesh Ambani and Vikram Pandit spoke on what they think of the India story, and the global economy.

Ambani firmly believes that India can be a USD 5 trillion economy by 2025. He said real businesses are about creating real goods and services and that businesses cannot be about financial jugglery.

Talking on inflation, Ambani said that it is not a problem as such but supply constraints have led to rampant rise in food and wholesale price inflation.

He said India's biggest challenge lay in growth combined with financial inclusion. However, he said, globalisation and technology have led to outbound M&A from India.

Ambani is also confident that the government's ambitious UID project will revolutionise states' distribution system. He said India is creating unprecedented infrastructure for digital distribution.

This was the concluding session at the IIF Banking conference. Luminaries from the banking including more than 700 bankers from across the globe attended this conference this is the concluding session.

Below is a verbatim transcript of their discussion. Also watch the accompanying videos.

Kamath: In the larger context of the global financial system, I have a general take that there is a view from the developed markets and there is a view from emerging markets as to what has really happened and where are we? Since you have been to many countries, what seems to be happening in the emerging contexts?

Vikram Pandit: That is the broad question and Mukesh help me along the way here. Have you watched what is happening? It is great to be here with all of you and I am honoured to be on the same stage with the two of you. I think the most fundamental change in the world that we have seen that the last three years is that the model of growth has changed completely and I think that is important to understand this fact because for a long period of time the model of growth was the developed market and US consumer consuming and the banks in the financial system making credit available to enable them to consume and this is been going on for years and really something that created growth in GDP but also resulted growth in debt, personal leverage, financial leverage as well as government debt as well. It is clear that that is no longer the driver of growth and the new drivers of growth are not necessarily obvious but the ones we know about, the emerging market consumer and frankly many of the developed market economies are going to have to flip the model going from their consumer-based driving growth, emerging market consumer-based driving growth, its globalization of trade, you are seeing greater emerging markets and emerging market flows that is the matter of fact, that is the shift that's occurring which exponential in terms of growth again you are seeing other sort of searches for where the growth is likely to come from, of course it is going to come from innovation and new businesses and it is going to come from investment spending in the emerging markets, there are lots of different drivers but they completely come back to this notion of emerging markets are critical, global markets are critical.

When you have such a big shift in growth drivers, it is going to affect everything that affects the financial economy as well. Where we find ourselves around the world is with lot of the developed markets, which with a significance of debt, of course the financial price is behind us. But the imbalances that cause the financial crisis still need to be worked out, and those are high amount of debt in the developed markets, high deficits, and trade imbalances, is all of that, all of which takes time. But the migration is clear, it may take time but the migration towards the emerging markets is clear. The financial system has to follow. And I know we can talk of lot of regulatory issues and all that but fundamentally, the change in financial systems is one of banks becoming banks again and trying to support the real economy and adjusting their business models to this new line of growth. And that adjustment manifests itself in variety of ways including IIF meeting in New Delhi, at this time.

There are these signs which are sort of obvious as you believe in the new drivers of growth and we really believe and I believe that this era is going to shape the banking system. It is going to shape the world growth rates and one thing that is really interesting to me is we are multinational. We are in 100 plus countries around the world and many places. We have been therefore more than 100 years. India is one of them, we have been here since 1902 and for a long period of time, multinational was really a hub and spoke and you did business here and there is your developed market head office and you went back and forth. The difference today was it's a much more of a network world and the increases in business we are seeing is emerging market and emerging market in terms of trade and capital flows is a big sort of a structural job for us is how do I take city in national institutions global one and get it squarely positioned to intermediate these emerging market to emerging market flows and almost a new type of multinational from where it was before, that is just us.

KV Kamath: You used a very interesting phrase, "Banks becoming banks again" and for us bankers who are here, I know there are other players from the financial system here. That I think is a very telling phrase. Now would you think that banks would have thought of becoming banks again but for the shock of 2008?

Vikram Pandit: Having come to city after the shock I only look ahead, so I do think that there has been a core role of banks for the last 2500 years and good businesses need good banks and good banks need good businesses and the fundamental model should be that we are here to help our clients and if the clients do well, we do well and that's a formula that has worked really well for 2500 years now, I don't know exactly why there are cycles in the business but I am really glad we are kind of here. I would also say as a corollary and its not true of many of the emerging market banks, Indian banks or so but that as a corollary we have lot of discussion on regulation, there is too much capital, too little capital and I firmly believe regulators and the banks and all of us have the same objective. You want a strong financial market and strong growth and that provides the backdrop for banks to serve the real economy as well but the most fundamental thing that we have to do as banks, and that's again particularly true of some of the western banks is re-earn some of the trust that has been lost through this process.

KV Kamath: Same timeframe 2008 and post, are you happy with pace at which the world has recovered? Is it something surprising to you that it has recovered the way it has or did you expect something more?

Mukesh Ambani: I will start where Vikram ended, with "Banks becoming banks post 2008". In India, we were fortunate that banks were banks because of our strong regulatory system but the problem was that corporations were trying to become banks. The mindset was that you can only juggle with money and make money and there was a lot of financial gamesmanship and one created lots of value out of nothing and I think now everybody has realized that real business is about producing real goods and services that people value and you just cannot create a market cap out of thin air or you cannot create sustainable profit out of doing some financial juggling. I think that's what we saw in our part of the world in 2008-2009 while our banks were still banks and everybody else has come on.

In terms of the global recovery, I agree with Vikram entirely that we still have to see a roadmap to deleveraging. I think we are out of the ICU but what I am struggling with is really what happens? The debt has not gone away, we have got some breathing time but we have to have path to what that path is and it has to be transparent to all of us and I think that its really the entire global community that is involved in that and that is still not seen and that's is why the lack of confidence and that is why the high amount of money.

Everybody says, there is trillion of dollars on corporate balance sheet and that's at least a view that I have. Within emerging markets in India in particular we have been insulated from this. We have as you all know recovered pretty well. This year, we will end with near 9% growth. My own view is that the potential for India to grow is double digit. We really have to get our act together and our issue is really are how do you manage the supply side. It's not inflation as much as supply side on both food and energy. Food and agriculture, I think, is a very big opportunity for India. Energy in the short run is outside our control.

To catch the full discussion watch videos...