A chartered accountant by training, Anuj Kalra heads the operations and the finance function for Zeiss South Asia. With over 18 years of rich experience at GE and then Zeiss, Bengaluru-based Kalra is optimistic about the future and expects his company’s customers to expand too.
In an email interaction with Shalini S. Dagar, Kalra shares the risks and the opportunities that he sees from his vantage point of view in a global conglomerate.
German origin Zeiss, formerly known as Carl Zeiss AG, is a manufacturer of optical systems and optoelectronics. Edited excerpts:
Q: What are the biggest risks that you see for your business right now?
A: India is in the middle of a severe credit contraction that started with the liquidity squeeze triggered by the crisis in the non-bank finance companies (NBFCs) which has now spread to deposit-taking companies as well.
We are a market leader in most of the sectors we operate and have strong stake in capital equipment business as well. Liquidity challenges are causing delays in customer buying decisions.
We have started seeing some green shoots in the last few weeks and are confident that we will see recovery in the next couple of quarters. In our healthcare business, the major challenge is the pricing regulation which is evolving and keeping our customers in wait and watch mode.
Q: Is the coronavirus a source of great worry for you? And more generally are you building in scenarios where it could last longer than a quarter?
A: Coronavirus spread has been very unfortunate especially from a timing perspective. We don’t see an immediate big impact as Zeiss is truly a global company with a very well-diversified portfolio and geographically spread risk.
However, China plays a very strong role in Zeiss portfolio and we will have some short term business interruption if the situation doesn’t improve by March-April. For certain businesses, Zeiss India will also get impacted in the short run if it (the situation) doesn’t improve in a couple of months. As of now, we don’t have any reason to panic as we are taking all necessary precautionary steps.
However, in the long run it will help India as this will force businesses to put even stronger supply chain risk mitigation plans and India can play the role of strong alternative option. We have already started seeing this trend in the industry.
Q: How much of an impact have trade tensions been for companies like Zeiss?
A: Trade tensions have caused some concern for our global operations as Zeiss has a very strong presence in both the USA and China. Similar to the coronavirus situation, India will gain a strong potential alternative option from supply chain risk mitigation perspective. We have already started seeing some traction in this area and we are helping our global sourcing teams by building alternative global suppliers base in India.
Q: What has been the outcome of the corporate tax cut in India for your company? Is it encouraging you to make fresh investments?
A: Corporate income tax cut (effective tax rate down from 35% to 25.63%) will give a big boost for corporates as additional profits can be utilized to increase capital expenditure, corporate investment and spur production in future years which is good news for us for two reasons.
Firstly, we are in expansion mode and the lower tax rate will accelerate this expansion. Secondly, we have strong stakes in capital equipment supply and we are expecting our customers will also increase investments.
Q: What are the top issues that India must fix for it to emerge as a somewhat viable alternative to China?
A: In winning the battle for investment, India also has to fight perception issues. India is ranked 63rd in the World Bank’s latest ease-of-doing-business rankings, a big jump from 142nd place, when the current government took over in 2014. Though we have made good progress, we still have certain bureaucracy challenges. A new narrative is needed, highlighting some success stories.
The government has taken the bold move by sharp reduction in corporate tax which can be a game-changer. Coming as it did in the midst of severe fiscal difficulties, it puts India on the radar. Potential investors, however, may still be unwilling to take the plunge unless further reforms are taken up.
At the top of the list are land reforms. Investors have been frustrated by India’s excruciatingly cumbersome land acquisition laws that result in heavy cost and time overruns.
Equally important is to reform complex labour laws that make it difficult for companies above a minimum size to fire workers. Corporates have typically chosen to stay small to avoid legal hassles. This is not a position from which India can attract investment relocating from China, where economies of scale have been forged by employing thousands of workers in gigantic factories.
India’s poor infrastructure is another major barrier to investment. The problem here has been funding. The public-private partnerships the government hoped would be the answer proved an unhappy experience. With the gradual easing of the bad debt problem that has weighed down India’s financial sector, it should be possible to encourage private investment back.
Like its regional peers bidding for manufacturing capacity leaving China, India hopes to leverage its wage advantage. The average monthly manufacturing wage in India is a fraction of what it is in China. But this is neutralised by India’s low productivity owing to a poor skill endowment. The government has launched a programme to improve skills across both blue- and white-collar sectors. Here, even small improvements can yield big dividends.
Q: You are also an angel investor. What makes for a good investment?
A: Angel investment is all about taking calculated risks. A good investment starts with a good due diligence process which must include assessment of leadership capability of the founding team, scalability of business model, clearly defined problem statement backed by a strong passion to solve the problem.