India is all set to beat China and become the fastest-growing economy in a couple of years, says Mukesh Ambani, Chairman of Reliance Industries. Speaking to CNBC-TV18’s Shereen Bhan at an event organised by Brown University in the Capital, Ambani and Brian Moy-Nee-Han, Chairman of Bank of America painted a glorious picture for India.
While, Ambani was gung-ho on India’s prospects, Brian who met PM Narendra Modi sounded upbeat about India’s growth potential under the new government.
Talking about the sharp fall in crude prices to USD 73 a barrel, Ambani said it is a combination of political demand and supply. For a country like India that imports 85 percent of its energy requirements, the ideal price should be around USD 60-70/ barrel, the RIL Chairman added.
Below is the edited transcript of the interview:
Q: What is the one big change that you have seen this government do in the last six months that it has been in office? What would you say, what has been that one big thing, the one standout you believe that changed sentiment so significantly?
A: I believe for all economies, it is confidence. Confidence is the most important element and we have got that back at the individual level and at the institutional level. The overall message from the government too is that the confidence, the spirit of saying yes has come back while the spirit of helplessness and ‘we know what to do but we cannot do it’ – has gone away across all platforms. Confidence is the most important thing and both internal and external confidence has come back to India.
Q: I haven’t heard an entirely convincing argument on what led to the kind of upswing that we saw in crude prices and the collapse that we have seen. As far as crude prices are concerned, shale supremacy, the OPEC wanting to maintain its dominance and supply/demand mismatch in the US; what exactly is going on as far as crude is concerned and where do you see prices headed?
A: On a demand/supply parity, I think that would be marginally oversupplied and the very fact that Saudi Arabia refused to cut in the OPEC - a lot of us in the oil industry watched that John Kerry visited Saudi Arabia many times and there are all kinds of theories doing the round that right now, the economic supremacy is the biggest supremacy. So if you want to teach Iran and Russia and Venezuela, the three countries that rely on oil revenues the most, oil price of USD 65-70 per barrel does it. The Saudis have decided not to cut, which is unusual. Therefore, it is a combination of political demand and supply.
Q: What is the theory you are buying?
A: It is a combination. The theory that I buy is that this is the right price for India and for a billion people, USD 60-70 per barrel is a good price and that is where it should have been. I have always wondered as to why it went to USD 120-130 per barrel. We should also remember that among nations, we are the only part of the world where a billion people live, where we are reliant on 85 percent of our energy on imports.Q: Do you see prices falling significantly from these levels or do you believe that some stability is going to return to the market? We have seen a slight pullback today but is it here to stay or do you believe we are going to see prices move?
A: I am a big believer in technology and productivity. By and large, if we unleash human talent on a problem, we can solve it. So there will be more shale, we will be able to reduce cost and we will be able to push things. In the long run, we will still find oil and with a robust demand and it should grow. My version of the right price of oil is between USD 65 per barrel and USD 75 per barrel.
Q: The Central Bank moved towards making it easier for companies in the infrastructure space, deal with the problems that the sector has been faced with; where do you see money coming in and which are the sectors that you are most confident about?
A: I always believe that there is a difference between business and charity. You do charity for a purpose but business is always chasing returns so all investments chase returns. Fundamentally, Indian agriculture grew last quarter. Agriculture is a great opportunity, we again have the potential to double our yields. There is enough happening on technology, just like we talked about in the oil business to do the same in agriculture.
Within industry, I take the general industry framework - they are 17 percent of the world’s population where 2 percent in terms of contribution to manufacturing output and now in real terms even in labour cost, we are one-third of China. Across all industry segments, it provides a great opportunity.
I segregate infrastructure as a separate piece; we are perpetually infrastructure short – be it power, telecommunications, energy, those opportunities exist. The challenge there is exactly what Brian Moynihan, Chairman, Bank of America said - how do we create financing and governance structures so that infrastructure is fair to users of infrastructure as well as fair to investors and then finally there is services.
Q: You pre-empted my question and I will come back to services in just a bit. But on the issue of the regulatory overhang faced by the infrastructure sector, the issue of politicising tariffs in this country has been a significant issue as far as infrastructure is concerned. Do you believe that we are moving towards a path where these are going to be less of an issue and we are going to see private sector participation move back into these areas?
A: We need to have mature governance and the recognition that any investment will need fair and transparent returns.
Q: Could it work in the telecom sector?
On telecom, business is primarily driven by technology, and this is becoming faster digital services business. The best way I can say it is - when I had dinner with the CEO of Verizon I told him about opportunities in India and he said, “Okay, in your country you still charge for voice and SMS. We have stopped that long time ago”. If you think about these businesses fundamentally, they are changing so fast and as Brian Moynihan, Chairman, Bank of America said on the impact from 0 to 11 percent - if I ask him three years from now, that 11 percent will become more than 50 percent. So this technology is moving virally, growth is exponential, it is a very fast moving space, power lies in ideas more than entrenched interest.
And on spectrum, human innovation will be so great that within the same spectrum, we will generate 20 times more capacity. Just like I believe that in oil, if we put our head together, we can cut cost. At the end of the day, it is going to be a completely new business model. It is not going to be more of the same that we have been used to. I think that whoever innovates, whoever generates, will win more consumer value in that market place and generating that only once is not good enough, you would have to generate that on a perpetual basis to win the customer. The customer today across the world has and will continue to have unlimited power. So everything is moved to the customer and if you don’t generate value for that, there is no guarantee that you would make returns until you satisfy the customer.
40 years ago, when I joined it, we were about Rs 15-20 crore in revenue and we were a textile business. Over these 40 years, we produced a year-on-year compounded annual return of 25 percent both topline and bottomline, which in the history of the world is unique. When I talk about how we would be different - all through these 40 years, our average age has remained 30. The big difference is that we have achieved what seemed most difficult to do i.e. to have a Reliance management system that is then an independent group of individuals or specific individuals and the process of institution and innovation and creating new growth platforms go on. So that is the transformation that we have just completed and at the end of 40 years and the sectors of the next many decades are going to be different. Some of which we don’t know.
With respect to communications, media and broadband, I feel broadband will take over broadcast and it will be a completely different business. We are making the transition, these are the first 30 years where we have focused, and we had a vision to compete with the rest of the world in core industrial areas. In the 1980s, I felt - why cannot we be better than the Taiwanese and the Koreans in making polyester and selling polyester to the world, why cannot we take on the Shells and Exxons of the world in terms of running the most efficient refineries and take global world share. So I think as Reliance we have done that. Now is the challenge for India and young Indians to build value on the power of ideas.
Q: In terms of future diversification, you are already diversified into retail and now as far as the broadband dream and digital India dream is concerned, are there any other areas of opportunity that you are looking at or exploring at this point in time? Also, inorganic growth is a no-no for Brian, is inorganic growth going to be an opportunity that you are going to explore, as you look at expanding into newer markets or newer areas?
A: As far as Reliance is concerned, we are contrarian so even we will be completing Rs 200,000 crore worth of investment in Q4 of the current fiscal, we will all bring that investment into production in the second half of 2015 and Q1 of 2016. Until then, we are single-mindedly focused and there is no question of any acquisitions. This itself doubles Reliance and to double a company of our size in two-three years requires focus. So, we are not going to allow anybody to defocus.
I think that all consumers are going to consume physically and digitally. One of the newspapers this morning said that the e-commerce business is basically guys from Wall Street subsidising the Indian consumer. It is a good thing, Wall Street should do that for Indian consumers but that also will move to a viable model. Each one of us will consume and we will take that consumer space and you will see an online and offline world. Whoever is able to integrate that in the interest of the customer, whoever will generate customer value, I believe will win in the market place.
Disclosure: Network 18, which publishes moneycontrol.com, is now part of the Reliance Group.
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