I would dissect "Make in India for the world" into two parts. First is the ability to make products that are world-class, and the second is the ability to make them more competitively than anyone else in the world.
In the last 10 years or 11 years, we have built more roads in India than are in Germany. You know, we have built more houses in India than are in Spain. We have created 75 new airports. You know, so there's been a massive push on creating infrastructure.
If a German company can make in India cheaper than they can make in Germany, they will make in India and export to the rest of the world.
The one thing India doesn't understand is Chinese-level scale. They operate at a different level of scale. We have to discover it.
Think big, do less, execute flawlessly.
Hello and welcome to India for the World, a leadership series brought to you by the Mint and BCG. Joining us today are Dr. Anish Shah, Group CEO and MD, Mahindra Group, and Dr. Janmejaya Sinha, Chairman, BCG India. Welcome to this conversation.
I'm just going to set a context to this chat. Earlier, the connotation for "Make in India for the world" always seemed aspirational and it always meant exports. Be it in the '90s when Sundram Fasteners exported radiator caps to GM or Moser Baer made compact discs to the world, people were very happy about exporting from India. I'm sure the context has changed very much because we have companies like Apple and Samsung who have made making in the US or in Korea for the world a great deal of innovation and great business sense, too. And also, we have in the last at least 10 years a lot of strategic shifts in how companies and countries deal with geopolitics, therefore making global trade very, very important. You just can't be importing; you have to be exporting, too, and therefore governments have also intervened in that. So how does "Make in India for the world" make sense now than what it was before?
So Sundar, first, thanks for having me here. This is clearly very topical right now, and I would dissect "Make in India for the world" into two parts. First is the ability to make products that are world-class, and the second is the ability to make them more competitively than anyone else in the world. If you can do that, we would then attract various foreign manufacturers to come to India and manufacture in India for the world as well. And let's look at what has changed over the last 10, 20, 30 years. Today, with the R&D investments that have been made by various companies, we have manufacturing products in India that are truly world-class. I'll give Mahindra as a classic example. The vehicles that we have today are ones that stand up to any global manufacturer—in many cases are better than many global manufacturers. And we're seeing that in markets around the world that we're exporting to. We are seeing the level of demand in India that frankly doesn't allow us to export more right now because we've quadrupled capacity and we still cannot meet the demand that exists out there. And that comes from the R&D investments made, the improvements in quality, the talent level that we have in India, and the ability to make world-class products. The second is around being competitive, and there are aspects around India being able to generate competitiveness from the talent it has, which is significant. We benchmarked ourselves with many of the global players and we've come out ahead very significantly in many cases—not against China as yet, but we're not too far behind there. And that's one—it's a game of scale, where the scale in India today is far lower than it is in China or the EU or the US, of course. And as we get further scale, we are confident we can get a much higher level of competitiveness. Competitiveness is not dependent only on the manufacturer. The government is making a lot of effort to put in the reforms that are required to make industries competitive. Logistics, for example, our direct cost in logistics today are equal to that anywhere in the world, in the developed world. Indirect costs are higher, but there are specific actions being taken to address those as well. Infrastructure as it comes up is a huge plus—both physical and digital infrastructure. So with all of these things coming together, we are much better placed. It is one that we feel is a critical need for India as well, because it positions India very well on the global stage, and one that will help our economy grow significantly over the next 15 or 20 years.
How would you see that, Dr. Sinha?
See, if we take a historical perspective and you go back to, say, 1995–96, even after the reforms, India had not spent any money on infrastructure. We used to grow at 3, 3.5%, and so we used to use our infrastructure and allow people to deal with it; there wasn't that biting problem of infrastructure. Only around 2000, after about six, seven years of the reforms, had growth really started to pick up and the infrastructure constraints started becoming palpable. At that time, Vajpayee talked about the Golden Quadrilateral and stuff, really starting to address the infrastructure. In around 2006–2007, a big bet was taken on building infrastructure with public-private partnerships, which didn't go so well. And due to a variety of clearances, etc., India got into this famously called "twin balance sheet" problem. The clearances weren't given in time, so the banking system started to develop a big NPA balance sheet, and all the infrastructure companies, which in 2007 used to have a debt-equity of less than one, were having debt-equities of four, five, and 60–70% of the bad loans of the banking system were from infra, power, telecom—the sectors of the future. So one of the things that happened in 2014, which has changed the landscape, is that for 10 years flat the government said, "This public-private partnership is not really working. We're just going to build it." So if you really look at it, in the last 10 years or 11 years, we have built more roads in India than are in Germany. We have built more houses in India than are in Spain. We have created 75 new airports. So there's been a massive push on creating infrastructure. Without this infrastructure, really becoming competitive was not really possible, because the Indian industry had to create everything for their industry; the public goods were not provided. But over the last 10, 11 years, a fair degree has been done.
Now these 20 years were important, though, because at that stage the US started offshoring its manufacturing, first to China, then to Vietnam, and in the early phase India was not ready. So it's only past 2018, '19, '20 has India started to attract some of this. And you know, when you attract this, as Anish said, we have to produce at the highest quality competitively. This "Make in India for the world" and all is an outcome if you are creating quality products competitively. That's it; you don't then have to worry about the other things, they will follow. So now we are getting to a position—I mean, there are still constraints, but we are getting to a position where we have created a single market with GST, we have improved creditor rights, and we have really built a massive amount of infrastructure, which is still unfolding right now. Recently we did labor reforms. These are big reforms. They haven't actually got the coverage that they might require. And we have brought 230 million people out of poverty, which is great because it has created aspiration. And this aspiration is now driving companies to produce more, the government to deliver more, because the whole electoral politics is demanding more performance. So the underlying is there. In the 15th August speech, the Prime Minister made some signal announcements. One very big one was on non-financial regulatory reform, because he said, "Let's open it up. Let's have big reforms." So if you look at it with GST, with aspiration for a Viksit Bharat in 20, 22 years—it is not so close that it makes people nervous, but it's close enough that you can aspire. So this structure has started to get created, and with this structure, Indian industry is starting to react. Now the one thing that I wish Indian industry did a lot more of was R&D. We are not innovating enough. We are innovating—they have done a great job, Mahindras have done a great job with their car. You can see it. If you sit in it, you will feel you are on Mars, actually. It's really a forward-looking, future-looking car. But overall, we are underspending in R&D, and now the US administration has created a great opportunity for us because what does R&D need? It needs capital and it needs talent. And talent—if you don't allow talent to flow, and a lot of that talent is ours—if we can just attract it and keep it, it really unfolds and gives a big opportunity. But we can pick that up as we go along.
Sure. Maybe 10 years back, or say in 2007–'08, India wanted to sort of globalize and went on to acquire companies. So when you say now "Make in India," are we talking of Indian companies largely focusing on the local abilities to manufacture, and therefore "Make in India" has a different connotation than what globalization was earlier?
I feel it does, because we have been able to show that we can make world-class products in India. The Indian economy is starting to grow at a very rapid clip now, and given that, a lot more companies will invest in India. And this is not just Indian companies; a lot of foreign companies are looking at coming into India and investing here, and that should be the goal for us. Even at Mahindra, there's often conversation around "Do we need protection?" Our clear stance is we do not need protection, because we want foreign companies to come and invest in India. We want to create a larger scale in India that will make us competitive as an industry overall, because that scale is essential for us being able to manufacture in India for the world. And therefore, the policies that the government is putting in place is to enable that—is to enable us to attract investments not just from companies that are based in India, but from companies that are global.
Sure. At BCG, do you see that shift? Because when companies wanted to globalize, you know, that strategy also looked good at that time because they had a limited Indian market and they wanted to globalize. And today—
Again, I'll go back to history. My first degree was in history, so I keep going back to history, so you must forgive me. India for 30 years has been growing at 6.5%, which is pretty awesome. In this century, India is the second, third, fourth top performer depending on which years you take. So other than China, India has done very well in these last 25 years. So why are we suddenly talking about India? Because India might have been growing, but it was not significant for the world; we were less than 1.5% of global GDP. There are only two countries in human history that have added $5 trillion to their GDP in 10 years. US did it a few times, and then China has done it two times in the last 20 years. In this decade, India will add $5 trillion to its GDP. So suddenly, from a $2.3 trillion economy in 2020, we'll end up at 7.2, 7.3, or 6.8—who the hell cares? It will be a massive growth. So suddenly from being less than 2% of global GDP, we'll become 6% of global GDP. So in a world like this, everyone has to see you then, because there is the Indian consumer. It's like a megatrend.
The Indian consumer—till 2020 or 2015–'20, every company in every country that grew, grew on the back of the American consumer. We are now starting to add consumers, and that is a big deal because people are not coming to make India great, they're coming to sell their products. And the Indian consumer is going to become real because you've suddenly added $5 trillion in 10 years. This is significant. So that's what I'm saying, that the whole underlying fundamentals are changing. Now, this is a period of great uncertainty in the world, right? Geopolitically, technologically, demographically, in terms of climate—these are big changes. But changes are always creating big opportunities. When there are no changes, the status quo tends to hold. When there is a lot of upheaval, there is a lot of opportunity. It's not easy opportunity, but there is opportunity.
Right. So would you say that now this "Make in India for the world" will get embedded into companies and they would certainly look at it with a strategic intent?
So as Janmejaya said, it is going to be based on what is beneficial for the company. They're not going to come here to make in India for the world, or Indian companies will look at investments in India and outside based on what's beneficial for them as well. We've started to see a lot of things align to create a greater need for companies to come here, because that's going to benefit them—because of consumers here, because India is more competitive. If a German company can make in India cheaper than they can make in Germany, they will make in India and export to the rest of the world. Similarly, if an Indian company can make in India cheaper than they can make in Thailand or Germany or anywhere else, then we will set up more plants in India to be able to do that, and that is what we're doing right now. So I think that those are the set of things. It again starts with policies and reforms. It starts with making India less expensive, making India easier to do business with. It also depends on companies putting in the investments for R&D. And as all of these things come together, now we're starting to see a much greater pull into India because that's beneficial for each of the parties involved.
Right. I'm going to direct this question to you and then ask the same question to you. How do boards and CXOs usually look at opportunities like "Make in India for the world," especially when a domestic market is growing very hard and nice?
So it depends on which CXOs and boards you talk about. If you look at foreign companies, I will do a caricature. There are five types of foreign boards: those who don't know India, and they are honest, they just don't know India—that's good. Then there are those who have been disappointed by India. Then there are those who make money in India, they wash their face, but it's not significant; they may have less than 2% of their global sales here. Then there are those who have been very successful in India—the Suzukis, the Samsungs, etc. And then there are those who have said, "We will make it work because it's really important, we have a problem," like an Apple. It said that, "We have to de-risk ourselves," and now they're going to be doing something like 40% of their Apple sales in the US of iPhones being produced in India. I mean, just imagine in seven years, eight years, something like that. So these are the five different stereotypes. Those who don't know India, they are fine, and I always add that they better not deal with an Indian who's in their company who went 25 years ago. They are the most dangerous. They know nothing about India; they just have a brown color. It's very dangerous.
But the others who are actually open to learn, they are interesting.
