Foreign investors have continued to focus on India, and they are concerned about the problems being faced by India as they see great opportunity here says S Gopalakrishnan, president, CII & vice chairperson, Infosys.
Speaking to CNBC-TV18's Menaka Doshi on the sidelines of the Davos 2014, Gopalakrishnan said the spotlight of the World Economic Forum will be on equality equity.
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“There is inequality going up in many parts of the world, unemployment is very high in many parts of the world especially with youth, sustainability is a challenge with climate change. So, this is an opportunity to address some of these issues in this year’s forum,” highlights Gopalakrishnan.
On India, Gopalakrishnan said things on the ground were improving gradually, and that he expected the situation to get even better after the upcoming Parliament elections.
Below is the edited transcript of Gopalakrishnan's interview to CNBC-TV18.
Q: What the sense you get of what 2014 holds in store for the global economy? Is this going to be a year of a stable recovery?
A: The global economy is recovering and in that sense the focus is now shifting to some of the societal issues. So, one of the key agenda point this time, for Davos is equality equity.
There is inequality going up in many parts of the world, unemployment is very high in many parts of the world especially with youth, sustainability is a challenge with climate change. So, this is an opportunity to address some of these issues in this year’s forum.
When it comes to inequality, I think India has a story to tell because we have been trying to address inequality. If I look at the last 20 years, we have done a fantastic job of brining large number of people, more than 200 million people into the middle class. I think that is something we can be proud of and we can talk about.
Q: Are you getting a sense that the investment mood amongst large multinational corporations (MNC) is finally picking up - that Europe has turned the corner, the US is looking better with every passing months and even though we had trouble with emerging markets in the last year, things are not half as bad as they did seem in the beginning of 2013. Will this be a year of recovery for the global economy?
A: It is a year of recovery for the world economy. It is a year of looking at opportunities for investment for multinational corporations, for businesses around the world. It is a year where they would reassess what opportunities exists and how they want to take advantage of those opportunities. However, the focus on cost will not go away.
There is tremendous focus on cost across the board. When I meet people in Australia, Europe and in the US; the focus on cost is not going away because growth markets are developing countries and developing countries are very sensitive to price. So, those are the growth markets and they are very sensitive to price and so multinational corporations will have to make sure that they are competitive, they can create a large opportunity for themselves in developing countries.
Q: When they talk to you about investments, do you see a bulk of those investments headed to emerging markets (EMs) as you pointed out or are we, countries like India, going to face stiff competition from countries like the US, which are picking up in terms of growth where opportunities are in the multitudes and where a lot of multinational corporations (MNC) would feel a lot of comfortable with the regulatory or governmental environment and say why not invest at home if things are going to look better as oppose to investing in a country where I do not have the clearest idea of regulation or policy which has been the buzz there for India as well?
A: The US is expected to grow around 3 percent this year and this is a pretty good growth rate for a large economy like the US. It amounts to USD 15 trillion growing at around 3 percent.
Definitely USA is going to compete for investments along with developing countries. Now India has to fight for its investments. India cannot be complacent, cannot say that we are a growing economy, so investments must come here.
We have to look at the ease of growing business; we have to look at our policies in the foreign direct investment side, we have to make sure that the policies are consistent, long-term. We have to reassure the corporations around the world, the governments around the world that we mean business. I think it is necessary and when I look at the last six months, I am optimistic that, of course we have to go beyond the elections. Once the elections are over, I am very optimistic.
Q: Let met question you in a little more in detail about that on two fronts – first, the last couple of years here in Davos - and I have been witnessed to it first hand, the India story was dead, nobody wanted to talk about India. Is this year going to be a slight improvement as far as the India positioning at Davos is concerned?
A: The focus on India, the attraction on India never went away, in fact if you listen to people, they are concerned about India because they believe that India is a great opportunity.
They believe that India should do well, they want India to do well and that is the reason why when you talk to people in private, they tell you very clearly that they are concerned about India because of the opportunity that India provides them.
Yes, in the last two years things have been difficult, things have been very slow and lot of issues came up because of retrospective amendments and things like that. Those pose challenges, but many of those are getting addressed. Some of the infrastructure projects are getting restarted and that is why I said we should look beyond the elections and beyond the elections I am optimistic at this point.
Q: We looked beyond the assembly elections. It was a rout for the Congress. It was a fairly big victory for the Bharatiya Janata Party (BJP) but more surprisingly was coming to power of the Aam Admi Party (AAP) in Delhi. While I don’t think anybody in this country will not support the citizen movements, some of their economic policies are currently being criticized. For instance, the power subsidies, the water subsidies and we are seeing this have a copycat impact on the politics of other states as well. Maharashtra as recently as just a couple of days ago decided to cut power tariffs, are you not worried as the head of CII and the head of one of the country’s best known companies that this competitive populism as it is called is going to be another fatal blow for an economy that is struggling to recover from the last few years of policy paralysis?
A: Yes, it is a cause for concern but I would point to two things. One is that the AAP is a new party. It is just six months old. I think they will struggle to figure out how to govern. Hopefully, once they figure this out, once they get a broader base, hopefully they will move to the center.
Q: You sound very encouraged about it. What is your view on the coming to power of the AAP?
A: Clearly, they will have an impact on all the political parties and they will have an impact on how inclusive these parties would become, the candidates they would put up for.
Q: So a positive impact?
A: I believe it is a positive impact and there is positive and there is some negative also. This is an election period. So, every party is now focused on winning. Hence the populist measures are clearly targeted towards the election.
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After the elections, I am hopeful that people will go back, look at their finances, look at their balance sheets and figure out that some of these things are not affordable. They’ll figure that some of these things are not right for job creation, right for the economy and I believe we will have better policies after the election.Q: This hope is predicated on the coming to power of which party because we clearly have two models that are competing right now. If I was to rule out AAP from a seriously big national position and that is the Congress style of economics, which many criticizes saying that this has been the last decade for India and the BJP Modi style of politics where everybody keeps pointing to the Gujarat state model and says if he can do that with Gujarat maybe he can replicate it with the country. I don’t know the answer to either one of those but I am putting you in the hot spot and asking you, your hope that things will get better after the election is predicated on which one winning?
A: I am going to give you a diplomatic answer because I said business leader as an industry body we are apolitical. We will work with all the political parties, we have to work with all the political parties.
I will also point out to one other data point. If you look at the top 10 states in terms of growth, these states are growing even at this point 7-8 percent. They are ruled by six different political coalitions. So, that suggests that every political coalition, which could possibly come, will support economic growth.
In the last 20 years, the average economic growth was around 8 percent. In the last 10 years it is actually about 8 percent. So, I strongly believe and all these data points say that it doesn’t matter which party comes, hopefully, we will have a centralist policies, we will have support for economic growth and we will have the GDP growth coming back.
Infact, what is positive is that some of the analysts have started saying that India could get to 6 percent this year and maybe 7 percent next year, GDP growth which I believe is a positive sign and this is something that has happened in the last six months. That is positive.
Q: Would you say the same applies if we have a third front style government come to power or do you think the instability of that mortally a coalition puts sort of a cloud on all of this that you are talking about?
A: In the last 20 years for a short period, we had a third front and we had one of the best budgets presented by our current finance minister, P Chidambaram. Of course instability is a concern because economic growth requires stability. So, I am hopeful that whichever coalition comes, we will get a period of stable growth, we will get a period of at least maybe 3 years or 5 years of a stable government.
One other data point I want to mention is that in Delhi, nobody got a majority but AAP was allowed to form a government.
Q: But with outside support from the Congress whom they were fighting tooth and nail and that makes one of the craziest kind of government ever?
A: But they are not pulling them down.
Q: Yes, but you came to power opposing this very party and it has ruled for the last 3 terms.
A: I believe that is because of the realisation that we cannot have continuous elections. We need to have some government, some stability.
Q: Political maturity, you are saying?
A: I believe so.
Q: You sound very optimistic.
A: This is the first day of Davos.
Q: You said the CII is apolitical but I do remember in 2002 after the Gujarat riots it had taken a position, at least some key CII members had. Since then, of course I think under your leadership the CII has welcomed Narendra Modi stepping into the national arena. You have said that he is a global leader. I am just wondering this shift in position makes you apolitical now and political then or were you always apolitical because you have changed the organization to some extent, has changed its views?
A: CII always has been apolitical. Of course members can have their own positions but CII always has been apolitical, we have actually worked with every state government, we are in every single state. That is the strength of CII because every state has its business leaders, we have worked with the political leadership in those states and have managed to keep pushing our agenda. Sometimes we get what we want, sometimes we don't but we have to keep pushing our agenda.
Q: We spoke about business confidence and you said that it will return post elections. So does that mean that any recovery in the investment cycle will and can only take place towards the second half of this year more likely the end of this calendar year for India at least and not before that?
A: It seems more likely after June. I think everybody will be watching what happens in the elections and who comes to power, etc. And if a stable government comes, I think there will be a number of investments that come to India. However, in the last one year also, India has attracted significant foreign institutional investments and foreign direct investments because our current account deficit (CAD) position has improved.
We were so worried from June because the rupee was moving dramatically every week but it looks like it is a thing of the past.
Q: The India momentum has tapered off since 2006 and also the Infosys momentum tapered of not since then but there after. We are finally seeing signs of recovery but they are all linked to the return of Narayan Murthy. What do you make of that and the commentary that Infosys sees around the return of Murthy, his son joining in, that persists quarter-after-quarter even though the numbers are looking better every quarter.
A: See if the numbers don't look good people are definitely going to comment on, people are going to attribute reasons for it, everybody will have their own reasons for it. What within the company we look at is what can we do; how we can improve the situation; how can we change the numbers and that, will then change the perception. It is true for Infosys, it is true for India.
It was not good last two years for India, I believe things will improve, in Infosys things are starting to improve and hopefully if we succeed in continuing with this, again this will be a thing of the past.
Q: So India has turned the corner and so has Infosys according to you?
A: The results from last two-three quarters for Infosys clearly say that at least in the last two-three quarters we have turned around. Now if we can continue on this path I think we would have turned the corner. In business there is a saying, ‘you are only as good as your last quarter.’ So, you have to continue to fight for attention, fight for investment, you have to do that.
Q: The return of Narayan Murthy also meant that you have moved back to the vice-chairman position, in the last six months we have seen several senior management exits, much has been said about why, Bala was the last one to leave. When is this flowing out of senior talent going to stop because Narayan Murthy in the last press conference said ‘good for them, good for the company’? I can\\'t make out if this is part of the plan to bring in new blood and therefore the old people are leaving or is there something else at play here?
A: Clearly we have to look at succession; we are all getting old so we have to groom the future leadership. I would look at it differently, I would look at the depth of leadership that Infosys has. If you looked at the leaders that we have today, how they are presenting themselves, at least for me there is tremendous confidence in the leadership, the depth of leadership and that is what I would look at. There will be churn, different people have different reasons for staying or leaving and that is life, we have to go on and we have to make sure that we take care of the people who we retain, make sure that we mentor them, we give them the right responsibility.
Q: So you are not concerned about the senior management exits?
A: See, whenever anybody leaves yes there is a vacuum temporarily but if we have good leadership that gets filled up very quickly and that is what happens.
Q: What are you most looking forward to in the next four-five days?
A: I am a coach here and I want to find out what that means and enjoy that coacher position this year.
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