India may be the fastest-growing large economy in the world, but has the time come for business leaders and investors in Europe to take it seriously? This is the question we put to Alan Rosling at the second event of the 2017 Asia Leaders Series in Zurich.
Rosling is a well-known figure in Indian business. During his role as India Chairman at Jardine Matheson Group, Rosling had negotiated the joint-venture agreement of Concorde Motors with the Tatas. He was then hired by Ratan Tata, and became the first non-Indian member of the Group Executive Board at Tata Sons, where he adopted the responsibility of spearheading the group’s international expansion strategy. After a very active 5-year period which included the acquisitions of Jaguar Land Rover, Corus, The Pierre and many others, Rosling eventually stepped down in 2009. He subsequently embarked on his own entrepreneurial venture, co-founding what has become one of India’s fastest-growing solar energy companies, Kiran Energy.
After 30 years in the field, Rosling remains bullish about India, however his talk reveals deep insight into the current challenges faced by the nation as it defines its new position on the global stage.
Rosling begins his talk comparing India to China in the early 1980’s, when he first found himself travelling in Delhi with four university friends from Cambridge. In those years, Rosling explains, China and India were broadly comparable, on criteria such as GDP per capita, where both floated around the $300 USD mark.
Since those days, China has done almost exactly five times better on GDP per capita. China has done better on social measures such as life expectancy, literacy, quality of life. The reason for this is partly because Chinese reforms began around 15 years before they did in India. In addition, China has benefitted from a focused, forward-looking government whilst India is a democracy, with all the complexities that a democracy entails.
Nonetheless Rosling explains, he believes that India has advantages which China does not. India has advantages of democracy, history, education, and language. What has happened politically in recent years in India suggests that the nation has a new opportunity. However, as is reflected in the title of his book, there are big question marks (“Boom Country? The New Wave of Indian Enterprise”). India has had great opportunities in the past, but there has always been something which has cropped up to hold it back.
So, India has now had 25 years of reforms, which have had a great impact since the foreign exchange crisis of 1991. Before delving into the reasons for his optimism, Rosling recalls how in the summer of 1991, the country only had two weeks of foreign exchange reserves. The Indian government eventually had to transfer its gold reserves to the Bank of England in order to secure the loan required to meet its immediate obligations. The trucks which were tasked with transporting the gold to the airport broke-down in transit, in the Parel neighbourhood of Mumbai. He explains how in many ways, this symbolises how parlous the situation really was – that the country was unable to hawk its own gold to its former colonial partner in order to bail itself out.
Those days seem like a distant past. Since the economic crisis of 1991 and the reforms which Narasimha Rao, Manmohan Singh and other political figures agreed to introduce, GDP growth has risen to about 7%, having peaked at 10% just before the 2008 financial crisis. India’s performance in the reform era has been considerably better than during any other era of ruling. And this performance has had a significant impact. It has had an impact on wealth creation, but also on poverty.
On the subject of poverty, which cannot be ignored in India - In 1993, some 450 million people (45% of population at the time) were below the poverty line. In 2012, about 270 million people remained below the poverty line (22% of population). Whilst the number remains high, tremendous progress has been made on this front since the beginning of economic liberation.
Rosling reiterates that India is in a very unique position to excel over the next 20-30 years, at a time when China will inevitably slow down. China cannot carry-on growing at a rate of 8% per year, whereas given India’s current position, it can.
So, why India?
1 / India is almost certainly now the most populous country in the world. Official numbers are hard to come by, but it is very likely more populous than China. Because of its size, growth can have an enormous impact internally, but also on the world.
2 / A functional, stable, constitutional democracy. This matters because, although as Churchill famously said, democracy is the worst system apart from all the others, only democracy can allow the steam out of the complex system which India is, and allow for stability. Sometimes business leaders say they would love to have the Chinese communist party running India, but they also understand that this would never work in a place where everybody has an opinion.
3 / Broadly-positive economics. The economy is still growing at 7% with the potential to return to 10% with good government. Budget deficit, trade deficit, external debt – there are no indications that India is currently in a bubble. Inflation is higher than some would like it, but broadly-speaking, India is in a positive position.
4 / Reforms. There is nothing like a crisis to allow politicians to make a change. There are now increasing numbers of people who benefit from the reforms that have been introduced, and who subsequently become drivers of these reforms. There is still further to go on infrastructure investment, but India’s reforms are having an impact.
5 / Private sector. Indians are very often entrepreneurial by nature. Underneath the institutions, the auditors, the stock exchange, the research companies have all continued to exist. These are the key pillars of any economy, which China has had to create for itself. On top of this, there are large numbers of world-class companies in India such as Infosys, Tata, Dr.Reddys, Bharat Forge, Mahindra. India has, in Rosling’s view, more world-class companies than China does. India is ahead of this game in the private sector.
6 / People – India has a tremendous number of very high-quality people. It also has large numbers of loyal, dependable people who are willing to work at a competitive rate. This is a very compelling proposition, particularly at a time when labour costs in China are rising.
With all of these advantages, India is at an early stage of its progress.
Rosling now changes tone, acknowledging that in a forum such as this, made up of senior business leaders, much of the time would usually be spent discussing the problems which India poses to foreign investors. He agrees that all is not perfect, and provides two short examples of Swiss companies which have experienced difficult situations in India: Novartis and Nestle.
These two examples demonstrate that India can be unpredictable. They demonstrate that powerful global companies can still be side-swept by a single, well-connected individual. Rosling moves on to another example, highlighting the recent decision of the supreme court to ban alcohol from any bars or hotels within 500 meters of a high-way – in an effort to reduce drink-driving. Whilst well-intentioned, such a blanket policy has caused unnecessary disruption to the hospitality industry.
So India is indeed a complicated place. It is behind China. It is certainly not the United States, or Switzerland. So, why is it different now?
First, politics – for the first time we have a majority government which is business-oriented. On pure economics, this is a government unlike we have seen before. Sensible economic management - India has finally managed to pass the GST, a unified Goods & Services Tax, meaning that the 28 states of India are unified into a single market. In economic terms, this is clearly a very positive development. A government willing to take tough political decisions, such as demonetisation. Because the government positioned this measure in terms of reform, despite the huge upheaval, the people accepted it. Modi’s ambition is to take India into the top-50 of ease-of-doing business by using IT to eliminate corruption, and investing in infrastructure. Rosling adds that the development which excites him most is India’s increasingly open acceptance towards Entrepreneurship.
Rosling explains that the availability of risk-capital for early-stage ventures has been transformed over the past decade, stating that the total of $15bn USD is ten-times more than it was 10 years ago. With India’s relative position as a market to invest in, this amount can only increase.
So, opportunity, government, money, and probably most importantly – culture. If you talk to young Indians, they believe that the future is their future. They believe that they really can and will shape the world. Rosling puts this down largely to India’s strong connection to the land of optimism – the USA. This cultural shift of parents accepting entrepreneurship as a credible career path is a huge societal development.
Rosling explains how through his time at Tata, at Kiran Energy, and most recently through his 100+ interviews with leading entrepreneurs for his book - he has seen the deep pool of young talent in India. And this is why he believes the question mark after the words “Boom Country” should be removed.