The India growth story is still good
Aug 23 2012, 15:39 | By Forbes India
That's the message coming out of a televised discussion by the high-powered jury members of the Forbes India Leadership Awards
The exhilarating economic growth of the noughties (decade of 2000-9) infused great confidence in Indian business. India Inc grew stronger and went into new geographies looking for opportunities. The sheen has dimmed somewhat in the past two years as GDP (gross domestic product) growth slowed, and international realities started biting. More recently, gloom and doom conversations abound and there is concern around the policy paralysis in government. It is almost like unbound pessimism has replaced the irrational exuberance of five years ago.
Kamath: I look at events around me as mixed blessings. One positive is that we are still growing at a rate which most of the world would give at least one limb for.
Gupta: It feels worse than it is. I would say that India is in the best position, if you look at the large economies. In Europe, the best scenario you can think of is flat growth for the next five years. The US may be able to do 2% for the next 5-10 years, China is going to slow down and if China slows down, Japan is going to have a tough time - Southeast Asia, Australia and Brazil are going to have a tough time. The only country that has a structural strong story intact is India. So, I would say what we are facing right now is cyclical headwinds while our structural story is intact.
Mody: I think it is probably feeling let down of what could have been.
Mody: Maybe not 10% but maybe much more than 5. I think that India Inc has a natural exuberance and when they feel it being dampened they probably get upset. So, it is the same animal spirits that everybody wants back, and I think there is a sense of disappointment of things that could have been better. Are we really succeeding despite ourselves? That, I think, is a mantra you hear quite often. So, often it spreads to borders beyond our subcontinent and then it sounds even more negative. If we are saying it then why shouldn't the rest of the world? But I think there is a sense of 'did we really have to do this to ourselves?'
Mody: I think there is certainly a debate which would justify some suggestion that we did.
Irani: I think the nation is showing its frustration that we could be doing much better, more than 9% and so we are doing something between 5% and 6%. We have an added advantage that we have a population of 1.2 billion and, therefore, there is a tremendous capacity for internal domestic consumption and we are not that dependent on external factors. We could be doing a lot more within ourselves. There is, of course, a desire that the government should move on to the next phase of reforms and that is not happening. Maybe, in the next few weeks, we will see a positive change in that area. Let's expect that, but I think it is not so much a matter of pessimism. It is a matter of frustration that the nation says we want to go ahead and the conditions are not allowing us to go ahead. Of course, when I say conditions, the gateway for that has to be opened by the policymakers.
Irani: Political and bureaucratic.
Venkat: Let me go to Adil Zainulbhai - chairman of McKinsey India. There are some fears that the 'I' in BRIC [Brazil, Russia, India and China] could be soon replaced by Indonesia or Vietnam. Are those fears overstated?
Zainulbhai: Let me start by looking at why people are being pessimistic. Though GDP growth has slowed from 8% to 5.3%, industrial production has fallen much more and gone from 9.7% to 0.7. This is what industrialists and people involved in manufacturing, in industry are worried about. It is much more significant than the drop in the GDP.
Kamath: I am bullish. Because if you look 10-12 years back - to me those were the darkest days for Indian business - when you had to reinvent yourself from 40 years. You had to build scale, cost effectiveness, and quality. And India Inc did it. They did it again in 2008. Indeed, people can stand up and all the problems can be sorted out. However, we need to keep in mind two or three things for this to happen. You have to drive the climate for investment and the climate for demand to arise. If people can't afford to buy, you are going to stall demand in the first hurdle and that's what is happening today - affordability has dropped dramatically and we need to address this. I think there interest rates become a key. The common man is burdened with EMI (equated monthly instalments), so that engine of growth is not firing as it did three years back.
Kamath: Clearly, it is not intact. It is going on, but if there is no growth there why would you invest, so your investment cycle is also in a slow gear. The leg which could spur growth is infrastructure. There has been a dramatic slowdown in infrastructure investment.
Kamath: On the private side if I look at what banks were doing I would say that infrastructure offtake has come down to maybe 25% of what it was just two or three years ago.
Gupta: There are two factors. In the first UPA, we had the benefit of reforms that were done in the previous regime. What we are seeing today, is that the effect of what was not being done in the last five years. Also, the global situation today is much worse than it was during the UPA-I and India is vulnerable to this. If the world doesn't finance our deficits we have liquidity constraints. So, I think partly what is happening is that because of inaction we have made ourselves more vulnerable to the global instability. If we had strong leadership and I think that's where some of the frustrations are - this was really our moment.
Gupta: Nations don't have only one or two years.
Gupta: Worldwide, you see democratically elected leaders are failing to do the right things. This is because right things mean short-term pain and long-term gain. So, most of our leaders are worried about the next election rather than doing the right thing.
Venkat: Every time a corporate leader takes a long-term decision, which is going to impact his company in the short term, that leader is pilloried. Are corporate leaders guilty of this flaw?
Irani: That is given to us because of our historical background. Twenty years ago, who was asking for quarterly results? Nobody and now we have this breed of analysts and financial planners and so on, and 50-60 TV channels and people are thinking about what is to be done this month, three months later, forgetting what should be done for the five-year programme. I am very proud to say that there is one group in our country which refuses to give any forecasts, quarterly results or six-monthly results or annual results. I think what we need to do is to think of the country as a whole. What are we likely to be in five years?
Mody: Many are. I don't think we can characterise them broadly like that. But when we were growing and India was brilliantly shining, there was a lot of 'me too'. If somebody went abroad and did an acquisition I want to be there too and that was good.
Mody: We will see. But in terms of gloom, I think it's more the fear. Should I invest in this country? Should I look elsewhere to put my capital? Will somebody in the system get arrested rightly or wrongly? So, I think these are the factors that hold people back. It's just life.
Kamath: Indeed they did. What are the weapons that they bought? If you look at the last 10 years, many entrepreneurs have cleaned their act and got the balance-sheet right, got debt down, changed cost equations. They have built scale, become globally competitive, many could go out to acquire companies and turn them around. By and large, every Indian company that has gone abroad is because of hard work. These were the weapons they bought, using the dividend from the growth. When we look at 9% we are exuberant, yet when we look at 6% we are depressed. To that depression you add what you get from the media. Then you get depression from the people who analyse you and so on and so forth. So, it just builds on itself.
Gupta: It's all leadership. A few good leadership actions can change everything. The sentiment can turn because the fundamentals are there. We just need that catalyst and to me it can only be leadership.
Mody: I would be cautious.
Mody: I just think, seeing the present landscape, we are concerned about a fractured mandate. These lead to political compromises which are the name of the game in order to get the government going. So, it would be wonderful to have a very strong leader who could cut through....
Mody: Now, I am going to play safe.
Mody: I think there are many options and each one comes with a pro and a con, frankly. I think that the struggle that I and many of us will have is that we just don't have one or two names that we can say, "Of course!" and that is really the tragedy.
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