Perspective on India by Scott Bayman

A Perspective on India:
By Scott Bayman who was leading GE's India operations for over 14 years.

Fourteen Years on the Inside: A Perspective on India

--------------------------------------------------------------------------------

Now is India's Time by Scott Bayman

We all know of China's rise and its incredible growth story. India's is still more a bet on the future. However, it ¡s a future that is coming into sharp focus. Few have come forth with arguments to refute the 2003 BRICs study by Goldman Sachs. The report analyzed Brazil, Russia, India and China. In the study, Goldman projects that over the next 50 years, India will be the fastest growing of the world's major economies. The report calculates that in 10 years, India's economy will be larger than Italy's. And, in 15 years, it will over-take Britain's. By 2040, it will be the world's third largest economy. By 2050, India's economy will be five times the size of Japan's, and its per capita income will have risen to 35 times its current level.

The World Economic Forum's Global Competitiveness Index ranks India 43rd, well ahead of Brazil at 66, China at 54 and Russia at 62. India is the only one of the four that improved its ranking. The other three actually slipped.

Some argue that India's path has distinct advantages. MIT's Yasheng Huang points out that India's companies use their capital far more efficiently than China's; they benchmark to global standards and are better managed than Chinese firms are. Despite being much poorer than China, India has produced dozens of privately owned excellent companies like Infosys, Ranbaxy, Tata Steel, Bharat Forge and Reliance. Huang attributes this difference to the fact that India has a real and deep private sector (unlike China's many state-owned and state-funded companies.) India has a well-developed, well-regulated financial system and a rule of law. Jeff Immelt explains, "China got the infrastructure right. Its government is superb at developing infrastructure. However, China has not developed a banking system, rule of law or private enterprise to the extent India has. India's government, on the other hand, has failed to deliver the infrastructure that governments typically are required to supply in developing countries. But, its executives are proving to be world class. Their abilities to build and lead businesses far exceed what we see in China."

Another example: every year Japan awards the coveted Deming Prizes for managerial innovation. Over the last four years, 12 Indian companies won the award, more than any other country, including Japan.

Globalization has been a key initiative for GE since 1992, when Jack Welch declared India, China and Mexico priority countries for GE. Since that time we have increased revenues outside the US from 10% to 49% and employment from 10% to over 50%.

But, I think globalization really does not describe what happened in GE and what is happening to company after company and country after country. I think interdependence is a better description. Globalization happened during colonization when a select group of countries and companies dominated other countries and trade tended to benefit only the colonizer. Today companies move beyond their borders for

‡{ Growth and Profitability

‡{ Access to markets,

‡{ Lower costs,

‡{ Higher quality,

‡{ Critical raw materials and components,

‡{ And, to diversify their workforces.

Governments more and more recognize the importance of interdependent markets. Consider all the free trade agreements signed or being discussed. There is not a successful economy today that got there by being an isolationist and practicing protectionism.

The trends are visible in India. Multinationals are coming for all the reasons I just mentioned. And, Indian companies are moving outside their borders. Globalization opened new opportunities for Indian companies, opportunities that they now are in a position to seize-thanks to the changes in India's own business and economic environment over the past 15 years.

Hindalco and Sterlite bought iron ore mines abroad because they wanted secure access to raw materials. Tata Tea's acquisition of Tetley brought a leading brand and with it millions of customers and access to new, readymade markets. Tata's acquisition of Corus and Hindalco's takeover of Novalis immediately takes these companies to a size that would take 10 years or more to build organically.

Software services companies such as Wipro, TCS, Infosys and Patni established operations in the US, Europe and China to access markets and to serve customer requirements for non-English language skills. Bharat Forge bought companies in Sweden, Germany, China and the US, because it wants to be the global leader. Tata Motors' takeover of Daewoo's commercial vehicle business provided Tata with technology for producing heavier trucks for Indian roads. Automotive components supplier, Sundaram Fasteners', expansion outside of India puts it closer to its customers as it expands its position as a leading supplier to the global automotive industry.

India's Transformation

As I mentioned, I have been in India for 14 years; surviving two GE Chairmen; six governments and five prime ministers. But, you know what? In those 13 years no one, not one prime minister, not one government has turned its back on liberalization.

Sure, each has its own priorities or its own spin, but the general direction and the commitment has not changed.

Many were surprised at the last elections. On the heels of solid growth, attempts at accelerating reforms and "India Shinning", all the pundits predicted a BJP route. The Congress led victory sent one clear message, in my mind, to all politicians. The electorate is not anti-reforms. It wants to be included. Reforms must touch and benefit those outside the metro cities, those who live in villages and those less fortunate.

Over the past four years, I have seen what I describe as four big events.

First, the telecom revolution. When I arrived, you never knew if you would have a dial tone when you picked up the receiver. If you had a dial tone, there was a question of whether the connection would be made to the number dialled. If connected, you never knew how long you would stay connected. Today, Indian telecom approaches world-class standards. Cell phones are common, even in villages where landlines still do not exist. Between 2000 and 2005, India added about 18 million fixed phone lines and nearly 73 million mobile connections. Teledensity grew more than three-fold to 11.5 percent; in urban areas to almost 35 percent. Waiting lines for phone connections have ceased to exist. I describe telecom as the "poster child" for privatization and deregulation.

My second big event is the creation of a new class of consumers driven by the emergence and growth of software, backroom processing, technology and financial services industries. Employees in these industries are highly educated and relatively younger than the workers in other industries. Ten years ago, this group likely would have lived in their parents' homes and been under-employed or unemployed. Today, this group earns a good wage and has a propensity to spend. And, with the opening up of the economy, now has a wide choice of products and services to buy. For example, when I arrived in India, automobiles were in scarce supply and required a full down payment nine months in advance of delivery. Today, you can have delivery in two or three days at very competitive prices. Colour televisions had to be purchased on the gray market, unavailable in quantity or variety. Today, virtually every manufacturer sells the latest models of colour televisions. Computers and laptops attracted high duties and needed registered in one's passport to be taken in and out of the country. The average age of a homebuyer in Gurgaon, a suburb of Delhi, has come down from 55 to 32 ¡V further evidence that this new class of consumer has real purchasing power.

The third big event is that Indian industrialists have gained confidence that they can compete on the global stage. At a Confederation of Indian Industry seminar on Manufacturing Competitiveness in April 2002, Chaired by My good friend Jamshyd Godrej, I said, and I quote, "Let me start by saying that Manufacturing is not India's core competency. Can it be? Probably not, at least in the short run. Let's face it, there are just too many barriers that all of us cannot control. Don't get hung up in thinking manufacturing can be a core competence of India. It isn't going to happen." Unquote.

Well, I was wrong. I was dead wrong. Indian industrialists no longer worry about multinational companies; they are or want to be MNCs. They no longer talk of level playing fields. They argue for open markets, free trade and view the globe as their marketplace. Indian companies now think globally. The total value of takeover deals by Indian companies, which was less than $1 Billion in 2000, rose to $8 billion in 2006. January 2007 saw two mega deals - Hindalco / Novelis and Tata Steel / Corus. There have been 72 foreign takeovers by Indian companies, worth $24.4bn in the first four months of this year, according to the advisory firm Grant Thornton. In the same period, there were 38 foreign deals for Indian companies, worth $17bn.

Indian companies possess the self-confidence to believe, to know, they will be successful in global markets. They are confident they will improve the performance of acquired companies. Whether it is Videocon or Suzlon, Tata Tea or Bharat Forge, companies are talking of becoming one of the world's big two or three in their business, if not number 1.

Global trends also favour India as more companies in the US, Japan and Europe outsource manufacturing to lower costs. In addition to auto parts, telecom equipment and pharmaceuticals, India has the potential to be competitive in such skill-intensive industries as fabricated metal products, high-end chemicals, consumer electronics and computer hardware.

Across India, total exports are rising at an annual rate of 26 percent. The manufacturing sector is growing at 10 plus percent annually, compared with 6 percent a year from 1991 to 2004. Special economic zones, the model that drove China's export-led industrialization, are beginning to spread in India.

From fiscal 2001 to fiscal 2005, capital expenditures increased from 8.4 to 24.2 billion dollars. What is striking is that over this same time, government owned enterprises' share dropped from 33 to 25 percent; multinational companies' share decreased from 8 percent to 4 percent while local private sector share of capital expenditures increased from 59 percent to 71 percent.

The rise of manufacturing could have a profound effect for a vast number of India's poor. Forever, antiquated labour laws, creaking infrastructure and paperwork have handicapped manufacturing in India. For many of the three-quarters of Indians with less than a middle-school education, few factories meant few jobs.

The fourth big event is Civil Aviation. On my first domestic flight in India, I was 35 minutes early. Upon arriving at the tele-check-in counter, I was told quite rudely that I was late. To which I responded, "I still have 5 minutes." The agent literally tossed the boarding card across the counter, and said, "You're lucky." Because of his attitude, I thought the flight was overbooked. In fact, it was only half-full. Today India has some of the best domestic airlines in the world. Moreover, that government owned carrier I checked in for on my first flight has significantly upgraded its service. Think, just

think, what would have happened if the government had not allowed private air carriers.

Today, we are experiencing the benefits of open skies agreements with increased non-stop flights from more Indian cities to more cities around the world. Choice has brought competition and the consumer is benefiting.

Those of you who travel in India might say, "Yes, but what about the airports". To which I respond, watch the impact of public-private partnership go to work. This is India. We wait for the demand, for the crisis before we respond. Once we strike out on a course of action, we know how to get it done.

Here is something to think about. India is part of the changing world political and economic order. An Asian trading bloc is developing driven by:

‡{ The decline of Russian influence in India

‡{ China's emergence as an economic power

‡{ India's and China's improving relationship and growing trade

‡{ India's free trade agreements and discussions with Singapore, Thailand and Malaysia

‡{ India's initiatives for open sky agreements within the region

‡{ China, Japan, India and ASEAN providing the four pillars; Korea, Australia / NZ, and the rest of South Asia providing the four walls, creating a very powerful trading block

‡{ India becoming the bridge to the Middle East and former Soviet states.

Obviously, this is a long-term scenario, but one companies and western governments must think about as they develop their global strategies.

Sometime back I was asked for a vision for India for 2020. That vision is very relevant to today's discussion and in fact more real today than two plus years ago when I developed it. Please allow me to share it with you. Remember, this was over two and a half years ago.

My vision includes an enhanced stature in the global community. Relationships with the United States grow even stronger as both sides recognize that they are natural allies. China and India find ways to complement each other economically and learn to live with their political differences. India plays a leadership role in helping combat the war on terrorism and re-building Afghanistan and Iraq.

My vision requires bold actions by Government to stimulate the economy over time and to accelerate additional reforms. Ports, roads, airports and seaports are improved and expanded. The trend in telecom privatization and increased competition continues resulting in lower rates, improved service and universal availability across the country. Tax policy, Companies act, labour law and land use regulation are revised and modernized helping drive economic growth.

Power sector reform takes off and accelerates. The financial troubles of the State Electricity Boards are behind us, most likely through privatization and separation of generation, transmission and distribution. Both local and foreign developers and investors return and become willing to start new projects. Lack of reliable, affordable power ceases to be an issue for most of India's citizens and businesses.

My vision includes an economy that grows beyond the four to six percent experienced in the past few years to double this amount. Four to six precludes any real change in standard of living for many of India's poorer, less fortunate citizens. Eight to twelve brings real opportunity for people to improve their lots in life.

I hope to see real progress in privatization. Privatization doesn't necessarily mean government selling out but can be accomplished by divesting through the stock market to achieve broad ownership. Success in privatization results in government "getting out of the business of being in business" and into the business of being in government, where it can do more good for the country.

When my vision becomes reality, foreign investment in India picks up. As China improves its position as a low cost supplier, including challenging India's supremacy in software and technology, India also becomes a competitive manufacturing location for global companies. Indian software firms prove their metal, expanding into China and other countries to maintain global leadership. Unshackled from regulation and aided by strong local markets, more Indian companies become truly multinational.

Lastly, India assumes its rightful place among the world political, military and economic powers.

Nine years ago at the US India Business Council, I made a talk about my perspectives of India. I was pretty hard on the country; pointing out the lack of progress across many fronts after much hype and promise. Today, as you can tell, I am happier with the progress of reforms and much more optimistic about the future.

Granted, not all is well and there are miles to travel. Pankaj Mishra described a number of challenges in a New York Times Article titled The Myth of the New India.

He points out that only a small minority of Indians will enjoy "Western standards of living and high consumption at least for the foreseeable future. The increasingly common, business-centric view of India suppresses more facts than it reveals. Mishra points out that recent accounts of the alleged rise of India barely mention the fact that the country's $728 per capita gross domestic product is just slightly higher than that of sub-Saharan Africa. Despite a recent reduction in poverty levels, nearly 380 million Indians still live on less than a dollar a day.

Malnutrition affects half of all children in India, and there is little sign that they are being helped by the country's market reforms. Facilities for primary education have collapsed in large parts of the country.

Mr. Mishra further observes that to date, India's economic growth has been largely jobless. Only 1.3 million out of a working population of 400 million are employed in the information technology and business processing industries that make up the so-called new economy. No labour-intensive manufacturing boom of the kind that powered the economic growth of almost every developed and developing country in the world has yet occurred in India.

During a question and answer session at an India Today Forum, I stood up to respond to similar examples of all that is wrong with India, to cries of "ain't it awful", to allegations that the government has failed the country and India has no chance. I made a point that Indians should stop beating themselves up so much. They should be proud or what has been accomplished. Indians should view the glass as half-full rather than half empty. I pointed to a number of examples such as: India is home to the best domestic airline in the world. Jet Airways matches up with the best of the best anywhere. India's telecom industry moved from pitiful to world class in a very short period. Indian software and Business Processing Outsourcing firms are the best in the world. A robust auto industry evolved in just a decade. Component suppliers in India are world class. They are expanding offshore. While still nowhere near enough in numbers, modern medical facilities are opening at a rapid pace.

India's GDP is accelerating: from 1.0 percent average annual growth between 1900 and 1950 to 3.5 between 1950 and 1980 to 6.0 between 1980 and 2002 to 8.0 between 2002 and 2006. Wealth must be created before it can be redistributed.

To date, India's economic growth has been largely jobless. But, as I pointed out earlier, manufacturing is expanding; and this is creating jobs. Consider the following:

‡{ India is the fifth largest commercial vehicle manufacturer in the world

‡{ India is the second largest tractor manufacturer in the world

‡{ Hero Honda manufactures more motorcycles than anyone else in the world

‡{ Bharat Forge has the world's largest single-location forging facility; its clients include Honda, Toyota and Volvo ¡V all very demanding customers

‡{ The GAP sources about $600 million and Hilfiger $100 million worth of apparel from India

‡{ Wal-Mart sources in excess of $1 billion worth of goods from India and it expects this to increase to $10 billion in the next couple of years

‡{ GE has grown from less than $100 million in local revenue to almost $3 billion with a target of $8 billion by 2010.

As manufacturing continues to expand to serve both domestic and global customers, it will create jobs.

India's competency in high tech businesses also will create jobs. There are 170 biotechnology companies in India, involved in the development and manufacture of generic drugs, whose business is growing exponentially. The Indian pharmaceutical industry at $6.5 billion and growing at 8-10% annually, is the fourth largest pharmaceutical industry in the world, and is expected to be worth $12 billion by 2008.

India's telecom infrastructure provides the largest bandwidth capacity in the world, with well over 8.5 terabits per second.

India is among six countries that launch satellites and do so even for Germany, Belgium, South Korea, Singapore and EU countries.

India produces 200,000 engineering graduates and another 300,000 technically trained graduates every year. Soon India will have the largest working population in the World. Seven hundred million people out of 1.1 billion people are young. And, the young population will continue till 2050.

I don't dispute the fact that the country must tackle huge social issues as pointed out in the Mishra article. I also don't dispute that more could have been done and more needs to be done. However, there is progress. The incidence of poverty has declined from 44% in the 1980s to 36% in the 1990s to 26% in 2000. Literacy rates improved from 44% in the 1980s to 52% in the 1990s to 65% in 2000. In addition, over this same period, life expectancy increased from 56 years to 60 to 69.

In India, we have a woman born a Catholic leading the most popular party, stepping aside so a Muslim president could swear in a Sikh as Prime Minister to lead a nation that is 82% Hindu but has the second largest Muslim population in the world. And by the way, some of the wealthier Indians residing in the country are Muslim. I defy anyone to cite another country with such diversity and tolerance.

In my 14 years, I learned one big lesson. India is a confusing and difficult place to quickly enact change and make rapid progress. Consider:

‡{ India is a 5,000 year old ancient civilization

‡{ It has 18 official languages; with 325 spoken languages and 1,652 dialects

‡{ There are 1.3 Billion people living in a land one-third the size of the US.

‡{ There are 5600 daily newspapers, 15,000 weeklies and 20,000 periodicals published in 21 languages with a combined circulation of 142 million. Moreover, as those of you who read some of them know, each has a very strong bias on every issue.

India is the world's largest democracy with a parliamentary form of Government. That's the good news. The bad news is; it makes taking tough decisions very difficult. However, I would never ever trade it for the alternative.

I argue the glass is half-full and filling; not half-empty and running out.

Thanks very much for listening.

Scott Bayman led GE India for 14 years and recently joined Stonebridge, an international advisory firm

http://www.kaumudiglobal.com/singapore/news.php?newsid=3288

This is one lovely article
Vinod Natesan