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Deleveraging of mkts to hit all countries: Infosys

Published on Fri, Nov 14, 2008 at 11:31 | Source : CNBC-TV18

Updated at Mon, Nov 17, 2008 at 21:02

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Nandan Nilekani, Co-Chairman of Infosys is known to be ahead of the curve in his day job, he has helped create one of his most successful companies Infosys. While the world was celebrating an unprecedented bull run, Nandan Nilekani was hard at work pursuing a new passion, his book Imagining India, Ideas For The New Century makes a timely launch later this month. It comes at a time when the world is looking for new imagination, new ideas and a new order.

Nandan Nilekani, Co-Chairman of Infosys said after years of global liquidity boom, we are seeing a process of deleveraging, which is going to affect every country in the world. "As debt becomes more difficult to bet, liquidity becomes more difficult, companies have to tone down and put more of their own equity into their business. This is a problem that is going to be faced around the world and I don't think India is particularly immune from that. So just as the world slows down growth, India's growth will also slow down."

Here is a verbatim transcript of the exclusive interview with Nandan Nilekani on CNBC-TV18. Also watch the accompanying video.

Q: First question I am going to ask you is on the macro view. Everyday the numbers get worst, today Germany has officially announced that it is in a recession, China's October factory output numbers are the lowest in seven years, it just seems like a dismal situation across the world. How much damage will India suffer in this global meltdown in your assessment?

A: I think after years of global liquidity boom, we are seeing a process of deleveraging. So, I think it will affect every country in the world. As debt becomes more difficult to bet, liquidity becomes more difficult, companies have to tone down and put more of their own equity into their business. I think this is a problem that is going to be faced around the world and I don't think India is particularly immune from that. So just as the world slows down growth, India's growth will also slow down.

Q: What are some of the challenges that you think are peculiar to India, some of the issues that we were facing that we need to get cracking on really hard?

A: I think unlike the Chinese who have a trade surplus, a current account surplus and a fiscal surplus we have a deficit on all three and that makes it a little more tricky because if you pump in more money and do more deficit financing that further potentially creates inflation. So, there is a challenge in managing the impetus to start growing the economy again at the same time making sure that we don't create so much of liquidity that we bring inflation back. So, it is really a tightrope walk for several months now.

Q: Do you have any out of the box ideas?

A: I feel that this crisis has really brought the focus back on the fundamental reforms that India has to make. In some sense, the last several years of 8% growth has made us complacent and led us to believe that we don't really need to do anymore reforms and that the growth was now in autopilot. Now, it is very clearly not so and I think our fundamental reforms whether it is in education, whether it is in labour reforms building infrastructure, creating a single market all these things can no longer be averted. In some sense, we are back to basics now.

Q: The perception is that it is a good thing that we didn't open up our markets, our banking system as much and so definitely all kinds of reforms will now go back on to the back burner because the world has paid the lesson for too much reform or to much liberalisation. Is your view contrary?

A: Absolutely. I think this whole argument that this is a great argument for not reforming is a bogus argument. The challenge for us is to take our half done reforms and take them to the end and reforms is not about creating high-priced investment bankers in Mumbai it is about making sure that the common people have access to education, healthcare, infrastructure, urbanization and so forth and what kind of policies we need to do that. Even in the financial sector ultimately it is about making your financial system efficient so that those who save capital can lend to those who need capital at the most efficient manner. Those are very basic things and we shouldn't get confused about that in fact half done reform is worst then no reform and the challenge is to go full speed ahead but be very clear that we should do reforms that are designed in a way that create opportunity for people that's the key thing.

Q: The other big event that had taken place in the last 15 days has been the election of Barack Obama as America's President-elect as you call it now. Many businesses are viewing President-elect Obama a little suspiciously unclear of what his economic policies will be, will he raise taxes on corporations on higher income groups really in order to protect American jobs, discourage American corporations from outsourcing will he push for more regulated economy. What is your assessment of what kind of impact Obama will have on American economy and therefore by association Indian business?

A: He is much more to the liberal side of the American political spectrum and therefore certainly he will try to address issues of improved regulation, which anyway is solely required in the financial sector. He will try to reduce inequity in the US because in the last several years, the US middle-class has not really gained in terms of salary increases and he is going to try to see how we can tax the richer people so that he can pay for more social programme. So, that is what the thinking is but one thing I like is what he seems to come through is a pragmatist and he understands the role of markets and he has talked about the role of the markets and at the same time he believes that market should operate within a box of regulation and rules. So, he is pragmatic enough to find the right mix of markets and government intervention.

Q: You have no worries on account of the whole outsourcing issue?

A: I think a certain amount of rhetoric over outsourcing has been a part of the dialogue for the last decade. So, it is nothing new and I think we have to just role with the punches in some sense and figure out whether it will continue to grow and prosper both in this economic climate as well as in a situation where there could be any possible challenges on protectionism for outsourcing.

Q: The other big dialogue that is going on around the world and this is a precursor to the G-20 meeting that we are seeing over the weekend is also this new form or new avatar for capitalism. Could that just mean more regulation but what is your assessment of what kind of new deal everyone is talking about will turn out to be?

A: I think there are two-three different things here. One is there is a short-term issue of resolving the current crisis and coming out with a coordinated strategy across all countries to get out of the current crisis. That to me is a short-term preoccupation.

There is a longer-term issue which is how we rebalance global power because whether you look at the G-8 or whether you look at the United Nations, the Doha round of negotiations, climate discussions which is going to happen in Copenhagen next year or whether you look at any other like the bank of international settlements or look at the world bank in the IMF all these global institutions are created 60-years back and if you look at the structure and the voting patterns and the clout in these organisations, they really represent an old era. So, the longer-term issue of rebalancing global power to reflect the rising power of countries like India and China that's as much a part of this negotiation as economic it is actually a political conversation about rebalancing power.

Coming to the question of markets, I think the message is clear that if you have unregulated markets and allow high level of leverage and if we allow products to be sold at neither the buyer nor the seller understands you are setting yourself up for failure as well as you have the wrong incentive for managers. So, I think it really makes the case that requires a fine balance between markets and government and government's role is to define the sandbox in which you play and the sandbox is rules, regulations, incentives and so forth. But, we need to allow market forces within that to provide what they do as well which is to provide most innovative products and services for people.

Q: Your book is out at the end of this month Imagining India, Ideas for the new century. Give us a sneak picture at some of the ideas that you have proposed in the book that will work for India in the years to come?

A: This is really as I said a back to basics book. I think I have talked about the Indian opportunity and why it is so spectacular and why it is so strategic and then I have talked about all the unfinished tasks that we have to really redeem; the promise of this opportunity and it goes back to things like what is happening on education, what is happening on infrastructure and I really found that in India things happen when an idea gains credence and credibility. So, really it is a book of ideas which talks about the ideas that have arrived, ideas that we need to execute, ideas which we should stop arguing about and also ideas we need to anticipate because if we really create a high economic growth we are going to have a whole host of other consequences like energy environment, health and pensions that we need to anticipate rather than deal with them when the problem occurs.

Q: I know you almost go authored the world is flat with Thomas Friedman.

A: No, I didn't do that. I gave the idea.

Q: Your first book what was it that you liked to sit down and write the discipline of writing, the discipline of being able to take all this crazy ideas in your head and now articulating them in your cogent book, did anyone help you?

A: It did and actually people shrink when I say this but I treated writing the book like a software programme. To me it was like you have this big problem in software you break that up into smaller problems and then you create sections and within sections you create modules and then you design the module and how the module talks to other modules so I applied this same thing. And you would like this approach.

When you write a book with 18 ideas unless you have clarity of how these ideas are structured and how they interact you land up with a spaghetti solution so I had to do it like a software programme.

Q: So just like a software programme did you outsource any part of it to anyone else?

A: No, I had a very talented researcher working with me and her name is Devi and she had done extraordinary job of doing all the research but the fundamental I really did the book in terms of designing it and writing all the elements to make sure that all the ideas fitted together.

Q: Was that a discipline everyday you sat down and wrote for two hours or did you write when it struck you or did you write on weekends?

A: You are exposing all my secrets. I would probably work on weekends not really during the week it is difficult because you have office obligations but weekends and sometimes in the evening but the other thing is that I spoke to over 120 people for this book it is not just my view, I have talked to the wide range of people from economists to political activists to environmentalists to entrepreneurs, so I have really assembled this book from conversations with over 126 people.

Q: Felt a bit like going back to college end working on a research paper or something like that?

A: Definitely.

Q: I am going to end with a quote that you gave one of the newspapers in the recent past few weeks and you said, "People are centered and have an equilibrium about themselves and their place in the world, they can cope" this of course with in reference to people having to cope this current situation. Is that how have you cope when you see that the market capitalisation of Infosys is fallen by over 50% and therefore your wealth is eroded by over 50%?

A: I don't get particularly euphoric when things are going well and nor do I get particularly depressed when things are going bad. I think I am quite at peace with myself and I just get up everyday to see how I can add value.

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