Satyam episode won't impact India: Jeff Immelt

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As the world grapples with a million economic problems, right at the centre of it remains GE, the industrial and financial conglomerate. And as its Chairman and CEO, Jeffrey Immelt has a ringside view of developments in the economic world.

In an exclusive, CNBC-TV18's Udayan Mukherjee meets up Immelt and talks to him on the financial crisis. "I have never seen anything like it," says Immelt. "I would say the combination of the amount of turmoil in financial services, how quickly it happened, the ultimate impact on the broad economy vis-à-vis recession, the amount of government intervention and interaction, I have never seen anything like it."

 

Immelt adds that the government stimuli will however succeed in producing a turnaround. "My own belief is that when there is as much government stimuli as you are seeing right now both in the forms of banking support as well as infrastructure stimuli and things like that, at some point, it works. At some point, you have so much liquidity in the system; the gears will start to click," he says. "What I don't know is: [is] that July of '09 or is it October of '10 or is it January of '10? But at some point, those gears do click."

 

Commenting on the Satyam scam, Immelt said he does not think this episode is a detent of India in any way shape or form.

 

Here is a verbatim transcript of Jeffrey Immelt's exclusive interview on CNBC-TV18's show The Appointment. Also watch the accompanying video.

 

Q: In your 26 years at GE, have you ever seen anything like what is going on in the world today?

 

A: Nothing close. I would say the combination of the amount of turmoil in financial services, how quickly it happened, the ultimate impact on the broad economy vis-à-vis recession, the amount of government intervention and interaction - the number of different things going on at the same time - I have never seen anything like it.

 

Q: Could you see this at the start of 2008 because it was beginning to get difficult then but has the speed at which things have worsened over the last 12 months taken even you by surprise?

A: I would say that we knew we were heading into a slowdown. We knew that we were likely to see recessionary times in 2008. The financial services impact started in August of 2007, but we had a reasonable good fourth quarter of 2007. Even in the second quarter of 2008, we had a fairly healthy market in our financial service business. Then, the first weekend in September, all hell broke loose.

 

Everybody looks backwards to see what should I have seen, what didn't we see, what didn't the government see - but once you're into it, you're into it. So it doesn't do any good to look backwards, you just have to fix the problem. But it has been fast and severe.

 

Q: But you've been through recessions in the past in the US and at GE. Does it look like one more of those recessions slightly may be more severe in character which will get over after two-three quarters of stimulus or is it looking like the fix will also take a much longer time?

A: What's different about this time is the simultaneousness. You're always going to have cycles - 1990-91, 1980-82, the Asian crisis in 1997, 2000-01 and bubble bursting. What's happened this time is this simultaneous down cycle along with meltdown in financial services: bankruptcies, forced consolidations and that one-two punches have made this more severe.

 

Some people compare [this] to 1974-75, some people give it tougher comparisons - they go back to 1920s-30s - I tend not to be a historian about these things.

 

I just think it has got the simultaneous-like economic cyclicality along with financial service restructuring that makes it particularly difficult right now.

 

Q: Is it that you have to be optimistic as a CEO that you are seeing this or do you genuinely believe that this will get over and not get to the depression kind of stuff that people are talking about?

 

A: I am an optimist by nature, but I am a realist too. I am a business guy. I think what you have to do when you are running a company like GE is you have to be ready for lots of different scenarios, and you have to plan for even tougher scenarios than what we are seeing today. One of the things we have done outside the company is we now have USD 50 billion of cash on the balance sheet. So, we can weather significant volatility. So, you've got to do a lot of scenario planning, you've got to be ready for a lot of different outcomes.

My own belief is that when there is as much government stimuli as you are seeing right now both in the forms of banking support as well as infrastructure stimuli and things like that, at some point, it works. At some point, you have so much liquidity in the system; the gears will start to click.

 

What I don't know is: [is] that July of '09 or is it October of '10 or is it January of '10? But at some point, those gears do click.

 

Q: You are not in the school that believes that the stimuli will come and go but will not make any difference to demand eventually. It will fail to solve the problem.

 

A: I step back and say, what do you believe in? I believe that over the long term, there is demographic growth in places like India and China, the emerging world, and that there are secular drivers of demand and productivity, new technology that create an underlying economic growth.

So, I don't think that New York City's financial market meltdown destroyed China's ability to grow over a generation. So, I think if you believe that there are underlying economic drivers over time then you say at some point things do get clarified and you can get broad economic growth. The bigger questions are at what cost? In other words, if the US has a USD 1-2 trillion deficit, what does it mean for inflation, interest rates? So there is a whole series of second order effects that may mean your growth is slower than it should be.

 

But I don't believe that this has been the meteor that destroyed all the levers of growth that had existed pre-crisis like emerging market development, productivity and things like that.

 

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