Nitin Nohria, the dean of Harvard Business School while hailing the 'Make in India' campaign said that the success of it depends on improvement in ease of doing business in India.
In an exclusive interview to CNBC-TV18, Nitin Nohria, dean of Harvard Business School spoke about business outlook for India.
He hailed the "Make in India" campaign but also cautioned that its success depended on improving the ease of doing business in India.
Although there was reason to be optimistic about India, significant investments would only happen if there was more concrete policy action, he said. However, the future prospects for India remain very good, he added.
When asked in which manufacturing sectors did he see foreign investors entering - he said in areas of defense, power and related sectors but for that to happen there is a need for government to reduce the level of bureaucracy and corruption.
Nohria is the first Indian to become the dean of the prestigious Harvard Business School. He was born in a small-town in Rajasthan. He studied at the IIT Bombay and then the Massachusetts Institute of Technology. He then went on to become the chairman of Crompton Greaves and in 2010 was appointed the dean.
Below is the transcript of his interview with CNBC-TV18’s Shereen Bhan
Q: Let me start by asking you about your thoughts on the performance of the government so far. What has been your own assessment of the tenure of the Modi administration? I know you were here in July. In fact you conducted a leadership meeting at the coal and the power ministries speaking to bureaucrats and other officials. What is your own sense of how this government’s performance has been?
A: The good news is that the enthusiasm that people have for Modi's government and what it can mean for the future prospects of India remains very high. So, sentiment is a very important thing in business. I think that the most impressive thing is how much optimism remains at least in my eyes as I talk to business leaders here about the government. I think people are still waiting for some of the changes that they hoped would begin to translate into reality.
My sense is that that patience will last for probably another year and we need to see many more of the policies that the prime minister has announced translate into reality.
Some of the early things that have happened like the new coal auction and other kinds of ordinance based laws that are being passed give people confidence that at least some of the talk will get translated into action and people want to see more of that. So, all in all I think it is still a very exciting and optimistic time for the country and hopefully this optimism will sustain itself as more of the prime minister and the government's policies get translated into action.
Q: When you were here in July you spoke about India and China and you said that investors are looking more favourably at India as opposed to China at this point in time. Financial services and the financial services sector that is an area of vulnerability and concern as far as China is concerned. The government here very recently has been speaking about making reforms as far as the public sector banking services are concerned. We have seen them chart out a roadmap to reform the PSBs. Are we likely to see renewed investment commitment to India especially in the financial services sector given this governments intention?
A: I certainly feel that there is a lot of reason for us to be optimistic about both foreign institutional investors as well as foreign direct investment increasing in India particularly from the United States. By virtue of being dean of Harvard Business School I have the great privilege of meeting some of our alumni who run both financial services companies but also manufacturing companies around the world.
Two years ago there was a period where in the course of a month I had felt very depressed. I had almost half a dozen people come to me and say that they were slowing down or thinking of withdrawing their interest in India and since this election I have had many more people who have said now they feel a lot more enthusiastic and those plans have come back to the front of their attention.
So, if some of these policy changes that are currently being talked about get translated into action, in the next year or two we should see a fairly significant increase in the investment that both American financial institutions as well as American manufacturing companies will make in India.
Q: You just talked about American companies manufacturing in India. The government is trying to woo investors. Any specific sectors where you actually see manufacturing activity kick starting and FDI coming in from America specifically?
A: Defence, everybody believes that is one of the biggest opportunities. The great thing about defence is as we find in the US that once you develop a defence based manufacturing capability, it is an advanced manufacturing capability as opposed to a low skill manufacturing capability. Once you do that then you might imagine also investments will become more viable in places like electronics, particularly hardware where India has seen very little FDI.
So, there may be sectors that are related to defence where we will start to see a boost. I also think that as the power sector increases and shows more life there is a lot of manufacturing that supports the power sector from power generation equipment to power transmission equipment to many other things in between. So, where the government makes a major commitment to both growth but also opening up the market for foreign direct investment those might be the areas in which we see "Make in India" really take off.
The only thing I would say is that beyond making a commitment to a sector the government still has to do a lot to reduce the level of bureaucracy that people still experience when they think about manufacturing in India. So, the number of permissions, permits, regulatory hurdles that people have to go through and the petty corruption that is sometimes involved at every one of these stages that still discourages some major companies from thinking about making in India.
So, that is an area where I would hope that the Modi government with its commitment to trying to make things simpler, India is ranked as amongst the worst countries in terms of ease of doing business. I think that is a dimension on which there will have to be considerable improvement if this "Make in India” campaign has to achieve its full potential.
Q: Speaking of reforms the UPA tried to bring the foreign education bill but nothing came off it. We don't know if the government intends to take that forward or not. If that were to happen how interested would you be at Harvard. If you had any conversation with anyone in government about the possibility of that?
A: Many international universities have learnt that the idea of building campuses in other parts of the world is not as easy as it might first appear. It is very hard to build another campus in another part of the world and deliver the same quality that you can deliver the same quality that you can deliver at home. So our view at our business school is that our commitment is much more to help the local institutions develop. We take pride in the fact that IIM Ahmedabad which we were involved at the early stages of their founding celebrated 50 years. it is a remarkable institution.
So we think that to the extent we can help local institutions by providing technology, by providing faculty relationships, by helping them do research those are the way in which we can let local institutions prosper. So, I don't think that India's educational future depends so much on Foreign Direct Investment (FDI) in the education sector. It depends upon getting Indian institutions to become more prosperous, more successful and in that regard if international institutions can provide some support and help in any way we and many others I am sure are ready to help.
Q: The US has recovered and it looks like the recovery is sustainable. What is your own sense about the strength of the US recovery and what are you hearing from global leaders about what is happening in other emerging markets as well as the Eurozone?
A: We should all be grateful and I certainly feel very fortunate that the US seems to have turned the corner and is on its path to growth. Again the current oil price raises some questions because one of the big opportunities for the US was to take advantage of Shale and to continue to develop Shale. At current prices some people worry whether the US recovery itself might falter because it doesn't make the development of Shale sustainable. The vast majority of the new Shale in the US is only sustainable at about USD 70 a barrel.
So, there is some concern about the US but largely people are feeling very optimistic about US. The challenge that we are going to have in Europe is that Europe just as it was working its way out of the worst of its troubles in some ways the oil prices which will hit Russia very badly will call some people to worry about what happens in Europe right now. So people are anxious about Europe.
People are very optimistic as I said about India. There is some concern about China which is as the Chinese government seems relentlessly focussed on reducing corruption in China. It looks like growth in China has slowed a little bit. But in the end people still believe that China as an economy and especially as it focuses itself on developing its own domestic economy as opposed to just being an export economy will grow again. It will be interesting to see as part of my travels this year I will find myself in Japan as well. If what Prime Minister Abe is doing causes Japan to grow again that could be a huge boost to the global economy.
But we are living in a moment where the brightest spot in the global economy is perhaps the US followed by India and people have some level of anxiety about every other part of the world right now and hopefully that anxiety will quell and we can feel more optimistic about global recovery because it has been a long time the financial crisis of 2008. We are starting 2015, the world needs to grow again.
Q: What do you make of the start-up scene here? We have seen several companies that have been incorporated in under a decade now drawing some awe inspiring valuations especially in the e-commerce sector. How excited are you about the Indian start-up scene?
A: I have to say that one of the most exciting things I have been following this time in India is the Flipkart and Amazon battle that is now seeming to unfold in the Indian retail economy. The last time I was here I saw nobody sitting on an iPad ordering anything off any one of these companies and this time I have been surprised. I have been going to peoples houses and I have been seeing them on their iPads or on their computers ordering goods and comparing prices in terms of what is available on Flipkart and Amazon. So, it is really quite heartening to see that there is a real Indian entrepreneurial company that is giving Amazon a good run for their money. In some ways I have always believed that rivalry is one of the best things that can happen in business. So, I hope that this rivalry between Flipkart and Amazon will inspire many other Indian entrepreneurs to realise that they too can compete in these ways against these global giants. We are seeing what happened in China where Chinese internet companies from Baidu to Alibab and many more in between have demonstrated that they can be very successful companies in their domestic economies because they understand something about the peculiarities of the local market that some times multinationals cannot. So, for the first time there is reason to believe that India might actually create some significant major domestic internet oriented companies that would come out of entrepreneurial ventures here. So, it is an exciting time.