A 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
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Now is India's Time by Scott Bayman

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

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 onlyone of the four that improved its ranking. The other three actually slipped.

Some argue that India's path has distinct advantages. MIT's Yasheng Huangpoints out that India's companies use their capital far more efficientlythan China's; they benchmark to global standards and are better managed thanChinese firms are. Despite being much poorer than China, India has produceddozens of privately owned excellent companies like Infosys, Ranbaxy, TataSteel, Bharat Forge and Reliance. Huang attributes this difference to thefact that India has a real and deep private sector (unlike China's manystate-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 developinginfrastructure. However, China has not developed a banking system, rule oflaw or private enterprise to the extent India has. India's government, onthe other hand, has failed to deliver the infrastructure that governmentstypically are required to supply in developing countries. But, itsexecutives are proving to be world class. Their abilities to build and leadbusinesses far exceed what we see in China."

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

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

But, I think globalization really does not describe what happened in GE andwhat is happening to company after company and country after country. Ithink interdependence is a better description. Globalization happened duringcolonization when a select group of countries and companies dominated othercountries and trade tended to benefit only the colonizer. Today companiesmove 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 interdependentmarkets. Consider all the free trade agreements signed or being discussed.There is not a successful economy today that got there by being anisolationist and practicing protectionism.

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

Hindalco and Sterlite bought iron ore mines abroad because they wantedsecure access to raw materials. Tata Tea's acquisition of Tetley brought aleading brand and with it millions of customers and access to new, readymademarkets. Tata's acquisition of Corus and Hindalco's takeover of Novalisimmediately takes these companies to a size that would take 10 years or moreto build organically.

Software services companies such as Wipro, TCS, Infosys and Patniestablished operations in the US, Europe and China to access markets and toserve customer requirements for non-English language skills. Bharat Forgebought companies in Sweden, Germany, China and the US, because it wants tobe the global leader. Tata Motors' takeover of Daewoo's commercial vehiclebusiness provided Tata with technology for producing heavier trucks forIndian roads. Automotive components supplier, Sundaram Fasteners', expansionoutside of India puts it closer to its customers as it expands its positionas a leading supplier to the global automotive industry.

India's Transformation
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As I mentioned, I have been in India for 14 years; surviving two GEChairmen; six governments and five prime ministers. But, you know what? Inthose 13 years no one, not one prime minister, not one government has turnedits back on liberalization.

Sure, each has its own priorities or its own spin, but the general directionand 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 punditspredicted a BJP route. The Congress led victory sent one clear message, inmy mind, to all politicians. The electorate is not anti-reforms. It wants tobe 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 wouldhave 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 numberdialled. If connected, you never knew how long you would stay connected.Today, Indian telecom approaches world-class standards. Cell phones arecommon, even in villages where landlines still do not exist. Between 2000and 2005, India added about 18 million fixed phone lines and nearly 73million mobile connections. Teledensity grew more than three-fold to11.5percent; in urban areas to almost 35 percent. Waiting lines forphoneconnections 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 bythe emergence and growth of software, backroom processing, technology andfinancial services industries. Employees in these industries are highlyeducated and relatively younger than the workers in other industries. Tenyears ago, this group likely would have lived in their parents' homes andbeen under-employed or unemployed. Today, this group earns a good wage andhas a propensity to spend. And, with the opening up of the economy, now hasa wide choice of products and services to buy. For example, when I arrivedin India, automobiles were in scarce supply and required a full down paymentnine months in advance of delivery. Today, you can have delivery in two orthree days at very competitive prices. Colour televisions had to bepurchased 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'spassport to be taken in and out of the country. The average age of ahomebuyer in Gurgaon, a suburb of Delhi, has come down from 55 to 32 ¡Vfurther evidence that this new class of consumer has real purchasing power.

The third big event is that Indian industrialists have gained confidencethat they can compete on the global stage. At a Confederation of IndianIndustry seminar on Manufacturing Competitiveness in April 2002, Chaired byMy good friend Jamshyd Godrej, I said, and I quote, "Let me start by sayingthat 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 barriersthat all of us cannot control. Don't get hung up in thinking manufacturingcan 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 worryabout multinational companies; they are or want to be MNCs. They no longertalk of level playing fields. They argue for open markets, free trade andview 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 megadeals - Hindalco / Novelis and Tata Steel / Corus. There have been 72foreign takeovers by Indian companies, worth $24.4bn in the first fourmonths of this year, according to the advisory firm Grant Thornton. In thesame period, there were 38 foreign deals for Indian companies, worth $17bn.

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

Global trends also favour India as more companies in the US, Japan andEurope outsource manufacturing to lower costs. In addition to auto parts,telecom equipment and pharmaceuticals, India has the potential to becompetitive 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. Themanufacturing sector is growing at 10 plus percent annually, compared with 6percent a year from 1991 to 2004. Special economic zones, the model thatdrove China's export-led industrialization, are beginning to spread inIndia.
From fiscal 2001 to fiscal 2005, capital expenditures increased from 8.4 to24.2 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 whilelocal private sector share of capital expenditures increased from 59 percentto 71 percent.

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

The fourth big event is Civil Aviation. On my first domestic flight inIndia, I was 35 minutes early. Upon arriving at the tele-check-in counter, Iwas told quite rudely that I was late. To which I responded, "I still have 5minutes." The agent literally tossed the boarding card across the counter,and said, "You're lucky." Because of his attitude, I thought the flight wasoverbooked. In fact, it was only half-full. Today India has some of the bestdomestic airlines in the world. Moreover, that government owned carrier Ichecked in for on my first flight has significantly upgraded its service.Think, justthink, what would have happened if the government had not allowed privateair carriers.

Today, we are experiencing the benefits of open skies agreements withincreased non-stop flights from more Indian cities to more cities around theworld. Choice has brought competition and the consumer is benefiting.
Those of you who travel in India might say, "Yes, but what about theairports". To which I respond, watch the impact of public-privatepartnership go to work. This is India. We wait for the demand, for thecrisis before we respond. Once we strike out on a course of action, we knowhow to get it done.

Here is something to think about. India is part of the changing worldpolitical 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, Thailandand 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 westerngovernments must think about as they develop their global strategies.

Sometime back I was asked for a vision for India for 2020. That vision isvery relevant to today's discussion and in fact more real today than twoplus 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 sidesrecognize that they are natural allies. China and India find ways tocomplement each other economically and learn to live with their politicaldifferences. India plays a leadership role in helping combat the war onterrorism and re-building Afghanistan and Iraq.

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

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

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

I hope to see real progress in privatization. Privatization doesn'tnecessarily mean government selling out but can be accomplished by divestingthrough the stock market to achieve broad ownership. Success inprivatization results in government "getting out of the business of being inbusiness" and into the business of being in government, where it can do moregood for the country.

When my vision becomes reality, foreign investment in India picks up. AsChina improves its position as a low cost supplier, including challengingIndia's supremacy in software and technology, India also becomes acompetitive manufacturing location for global companies. Indian softwarefirms prove their metal, expanding into China and other countries tomaintain global leadership. Unshackled from regulation and aided by stronglocal markets, more Indian companies become truly multinational.

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

Nine years ago at the US India Business Council, I made a talk about myperspectives of India. I was pretty hard on the country; pointing out thelack of progress across many fronts after much hype and promise. Today, asyou can tell, I am happier with the progress of reforms and much moreoptimistic about the future.

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

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

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

Mr. Mishra further observes that to date, India's economic growth has beenlargely jobless. Only 1.3 million out of a working population of 400 millionare employed in the information technology and business processingindustries that make up the so-called new economy. No labour-intensivemanufacturing boom of the kind that powered the economic growth of almostevery developed and developing country in the world has yet occurred inIndia.

During a question and answer session at an India Today Forum, I stood up torespond 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 countryand India has no chance. I made a point that Indians should stop beatingthemselves 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 pointedto a number of examples such as: India is home to the best domestic airlinein 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 shortperiod. Indian software and Business Processing Outsourcing firms are thebest 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 areopening at a rapid pace.

India's GDP is accelerating: from 1.0 percent average annual growth between1900 and 1950 to 3.5 between 1950 and 1980 to 6.0 between 1980 and 2002 to8.0 between 2002 and 2006. Wealth must be created before it can beredistributed.

To date, India's economic growth has been largely jobless. But, as I pointedout earlier, manufacturing is expanding; and this is creating jobs. Considerthe following:
‡{ India is the fifth largest commercial vehicle 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 ofapparel from India‡{ Wal-Mart sources in excess of $1 billion worth of goods from India and itexpects 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 $3billion with a target of $8 billion by 2010.

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

India's competency in high tech businesses also will create jobs. There are170 biotechnology companies in India, involved in the development andmanufacture of generic drugs, whose business is growing exponentially. TheIndian pharmaceutical industry at $6.5 billion and growing at 8-10%annually, is the fourth largest pharmaceutical industry in the world, and isexpected to be worth $12 billion by 2008.

India's telecom infrastructure provides the largest bandwidth capacity inthe world, with well over 8.5 terabits per second.
India is among six countries that launch satellites and do so even forGermany, Belgium, South Korea, Singapore and EU countries.

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

I don't dispute the fact that the country must tackle huge social issues aspointed out in the Mishra article. I also don't dispute that more could havebeen done and more needs to be done. However, there is progress. Theincidence of poverty has declined from 44% in the 1980s to 36% in the 1990sto 26% in 2000. Literacy rates improved from 44% in the 1980s to 52% in the1990s to 65% in 2000. In addition, over this same period, life expectancyincreased 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 Ministerto lead a nation that is 82% Hindu but has the second largest Muslimpopulation in the world. And by the way, some of the wealthier Indiansresiding in the country are Muslim. I defy anyone to cite another countrywith such diversity and tolerance.

In my 14 years, I learned one big lesson. India is a confusing and difficultplace 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 1,652dialects
‡{ There are 1.3 Billion people living in a land one-third the size of theUS.
‡{ There are 5600 daily newspapers, 15,000 weeklies and 20,000 periodicalspublished 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 strongbias on every issue.

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

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, aninternational advisory firm.