Fundamentally strong India best long-term prospect: Kholsa

All the ingredients required for a good growth story are present in our economy, says Vinod Khosla, founder, Kholsa Ventures.

Speaking to CNBC-TV18, Khosla shared his bullish views on the Indian economy. He says once the structural impediments are removed from the system, the economy will show  a strong positive trajectory in the long-term. Below is the edited transcript of Khosla's interview to CNBC-TV18. Q: There is a sense of gloom and doom about the Indian economy at this point in time but as you sit here in India are you as pessimistic as some would say the media or corporate India or do you believe that if you are a long-term investor in India the fundamentals continue to look strong?
A: I am an optimist, I take the long-term view and my view is very much all the ingredients for good growth are in the economy. There are clearly a lot of hurdles and the sooner they are removed the faster the economy will grow. But as a long-term investor if I look around the world where the best opportunities are, India is clearly one of those places. Q: The infrastructure deficit and all of that has been stuff that you have obviously dealt with in the past but the fact that there seems to be now increasingly a governance deficit. Has that made you more apprehensive about investing in India, in Indian companies, in the Indian start-up system?
A: We are in a period before an election, there is always a governance deficit before an election in every country. So, what I would say without knowing too much about the politics in India is that these are normal cycles but that doesn't change the fundamentals.
The fundamentals in India have been going in the right direction for a long time and I think they will continue to be. I believe the reason is people have tasted the benefit of participating in an economy that is a different kind of an economy, a rapidly growing economy with a right set of opportunities, incentives and other requirements.
When I take a 10-year view, it doesn’t faze me very much. When I take a short-term view, then one has to start worrying about where the rupee is- whether is it undervalued, overvalued. One has to worry what is going to happen to the oil bill, what is going to happen in Syria but I suspect three years from now, we won't be talking about Syria. I think 10 years from now we won't be talking about the value of the rupee. We will be talking about the fundamentals in the economy.
There are a few large economies meaning hundreds of millions of people and when one looks at which countries are most competitive in that arena, among the developing world, Brazil has done very well, they have had their own fêtes and starts, their own corruption scandals. Q: On a relative scale they are doing worst than us at this point in time?
A: Yes. There aren't too many companies or countries that have large enough population to originate new efforts in. If a country has 30 or 50 million people, it is very hard to start a business. There are very few countries with this kind of an ecosystem, with lots of people, reasonable amount of talent and a demographic dividend, I am pretty optimistic about that.
I think we have the basic institutions not all the institutions- we have democratic institutions, capitalist institutions, and private enterprises enough of it to give examples of how growth can happen.
Net-net there are lots of problems, lots of things to be negative about lots of things that one can say will never get solved. However,  the question is, will we be making a forward progress on the whole. I believe we will. Q: At this point in time the government very keen to try and mobilise NRI capital, there is talk of an NRI bond for instance, do you think it is a good idea. Would NRIs want to invest in India if the government were to come up with an attractive scheme mobilizing NRI capital?
A: I suspect where the government is and where people's belief is; NRIs tend to believe in the country, they like to complain about all the problems just like everybody else here but they do believe in the country on the whole. I do believe they actually have a genuine desire to help. It will help but not at large enough scale to change the value of the rupee and that only gets solved at very large scale.
If one looks at what China has done, they have artificially suppressed the value of their currency. So, why is that such a terrible pain? It will make us comparative internationally; of course oil prices will go up. Q: That is the big worry because your import bill on oil is going to balloon if you were to allow the currency to depreciate significantly and that is what causing all of the panic in the alarm bells?
A: Yes, there is and again it is a short-term problem. If I take a 10-year view, I have to assume that high oil prices will cause people to invest in efficiency, greener technologies alternative, all that will happen because energy prices are high and that will result in a more comparative economy. Q: I buy the efficiency argument but do you believe that a country like India should for instance subsidise electric vehicles; do you believe that the government should get into the business of subsidising cleaner technology?
A: I do not believe subsidies may extend at all. I think a country like India cannot subsidise at any decent scale energy. However, does it make sense to incentivise investment in high efficiency, more efficient car engines or truck engines? Trucks are big consumers of diesel and it absolutely makes sense to create the right incentives for higher efficiency. What that does is it may cost little more today and may slowdown growth today a bit but over 5-10 years will result in a more energy efficient economy.