CII President, Uday Kotak Shares His Views Over Self-Reliant India And China

Self-reliant for me also means a competitive India engaged with the world. On the issue of China, which is foremost in people's minds, let's be clear that there is a significant geopolitical issue being played out in the world between China and the rest of the world. This is about excessive concentration and dependence on China as the factory of the world. Most global players are now looking for diversification beyond China. We have seen China flex its muscles, including in Hong Kong and Taiwan in recent weeks. Therefore, it is imperative to develop an alternative based on manufacturing. Here, I think the government's push to move local is a positive one. At the same time, I do believe that India needs to shed its risk aversion and think about this as an opportunity to build in India and make in India. The time is opportune now, when we are in the middle of a significant pandemic and a crisis. Opportunity never announces when it comes, but the way interest rates in the economy have gone down, the very open approach of the government to encourage private investment at this time when it is actually lagging other parameters of the Indian economy, I would actually strongly urge Indian business and industry to shed risk aversion and go boldly forward. The government is fully with Indian business, as has been said by the Prime Minister himself at the CII annual session a few days ago. Therefore, taking some of the share from the factory of the world, which is China, the time is opportune.

I think India was in a transition for the last few years. The cause of that transition was India moving to a different level of governance and having very different standards of what is expected of a business in India. A cleaner governance system, which was actually happening as we talked, is a part of the reason why there has been a little bit of shock in many parts of corporate India. I think that process is gradually coming to an end of the journey, with all the pain and issues with corporate India and some of the practices which were prevalent for a long time having been cleaned out in a sense by the stern steps of the past few years. In addition to that, I think the time for corporate India now is to look ahead and not look at the rearview mirror in the car. This is the time when, with high-quality governance, a spirit of entrepreneurship, and markets giving a great ability to raise capital, this is the time to be moving forward to take some of the bets in this otherwise gloomy environment created by COVID-19.

I take this position head-on. Yes, there are challenges, but the biggest opportunity is when the times are tough. As many of us are in the high seas with turbulence, we have to keep in mind two things: some of the boats will find it difficult to get to the other side of the shore, and the boats which do get to the other side of the shore will actually be stronger and in a better position. Therefore, COVID-19 will lead to some shakeout in different sectors, with weaker players who have had high fixed costs or high financial leverage finding it tough. We have to separate the noise from the strength of many people in corporate India who will see opportunity on the other side of the shore. As we move in that boat, it is time to navigate well but see the other shore as well.

First of all, taking a share of the factory of the world is not inconsistent with our positioning as being the office of the world. I want to reiterate, when I used the word 'office of the world,' I mean both the front office and the back office. If you look at some of the largest companies around the world, working from home thanks to the pandemic is the new reality. When working from home picks up momentum even further with global connectivity, we are now seeing a reality I call 'geography is history.' If geography is history, Google can hire somebody who sits in the suburbs of New York or in Mumbai, Delhi, Bangalore, Hyderabad, or in a little village in India, as long as there is connectivity. As long as the person is competent and capable and has the skills, he or she can get the best of jobs across the world. That is the new world which COVID-19 has fast-forwarded. I therefore believe India has a unique opportunity with its brains, its minds, to be out there and get those jobs. On purchasing power parity, the cost of being in India is a significant competitive advantage for every Indian. It is no coincidence that Satya Nadella and Sundar Pichai are engineers from India who made it globally. If they could do it in the U.S. in the virtual world, I don't see why an Indian sitting somewhere in India can't be a part of a global value chain and create disproportionate value for himself, the company, and for India.

First of all, August 2019 is the time we decided to reduce our corporate tax rate. The government has given out a signal that they are ready to do what it takes to attract manufacturing facilities in India. For any global manufacturer, a domestic consumption market is also very important. Therefore, what India offers is not only an ability to manufacture for the world but also for the domestic market and a significant demand opportunity within India. With competitive tax rates and a commitment by the government, especially even more so in recent times, that we have the industry by the side of industry and we are ready to walk shoulder-to-shoulder to do what it takes, I think there is a very different confidence being given to business and industry by the government in the last few months in particular.

Let me divide. Since we are talking about mythology, keep in mind that Abhimanyu's Chakravyuh was difficult to get out because Lord Krishna was on the other side and Krishna had all the answers he had not shared with Abhimanyu. I have a belief that first, it is complicated to get out, but finally, India has that last answer required to get out. But it will take time. We have started with 1.0. It will be a gradual process. There is an economic cost of getting out of this lockdown, but the fact of the matter is, lockdown in the Indian context has also got one reality in front of us: the number of deaths in India are still around 6,000. If we had not gone in for the lockdown, who knows what the number would have been. Therefore, I am a believer that lockdown was necessary at the point of time. Getting out of it is difficult, but the last word of it is something which I do believe India will be able to manage. I am hopeful that in the next 30 to 60 days, we could see a significant improvement in the scenario.

I frankly loved everyone struggling in an area where nobody has past experience of how to handle it well. Let's look at the example of Sweden. The death rates in Sweden are much higher than its neighbors. They did not go for any lockdown. So there is no easy answer, but we will have to find our way and navigate ourselves forward. The mindset is that India needs to take care not only of lives from the virus but prevent loss of livelihood.

I think first of all we need to have a strategy which is two parts: one is here and now, and second is medium-term. Here and now, we need to do whatever spending is required for some sort of a safety net for the bottom of the pyramid. The government has done some of it in the early part of the lockdown. I think more will be needed for the bottom of the pyramid, including people who have lost jobs, in terms of some direct benefits to the poor and the lower salary class who may be vulnerable for losing their jobs. So I am fully in favor of that short-term measure, a support package. But medium-term, we need to define our priorities. My view is our priorities have to have, amongst other things, five major components. First is healthcare and education. We need to invest in healthcare and education. There will be tough choices. India's investment in healthcare is only 1.3% of its GDP. I would do a medium-term commitment and put significant money in building healthcare infrastructure, sanitation, nutrition, a host of areas in the area of healthcare, make it sustainable in a long-term foundation for India. Education is even more long-term and I would build it more gradually, but healthcare is here and now. Second is Mother Nature. We have taken it for granted. We have now witnessed the virus, the locust attack, a cyclone on the East Coast, a cyclone on the West Coast. Sustainability has to be a core part of our investment thesis. Three, there is a massive transformation and rebalancing between physical and digital, and we really need to get our arms around the physical and the digital side of the economy. There will be more shift to digital, and consumers will decide. For example, whether to do online shopping or whether to go into a shop is a consumer decision, not a Government of India decision. If more and more consumers choose online, then shops and stores will face the risk of their economic model getting affected. The physical and digital is changing the way things are. Fourth is rural-urban rebalancing. In my life, I have never seen urban going back to rural. The entire period which we have seen is rural coming to urban, but that is a significant change. It's the change which tells us that the people who came from rural India into cities with aspiration, many of them ended up in slums, with jobs with employers, no job security, and now, with the virus much higher in cities, I fully empathize why a migrant wants to go back home. It is a sound economic and a health decision which the migrant is taking and has taken. So this is the time for us to get the rural-urban rebalance. I would strongly advocate big investment in rural India, in rural infrastructure, in rural medicine, in creating jobs and opportunities for people in villages, and do whatever it takes to spend and build medium-term investment in rural India. And it brings us the question: what happens to people who need migrants in their jobs or in their factories or construction sites in urban India? The fact of the matter is, Indian business has to get more responsible. It has taken some of these things for granted, that I will get migrants at low cost and I can hire and fire. I believe the future of jobs, thanks to digital, thanks to urban-rural rebalancing, the future of jobs has changed, and we are moving in a direction where social security and safety nets will become a core part of India's philosophy and economy.

I'm saying down the road, that's the direction which things seem to be moving at this point of time. But we've got to do it in a stepwise and calibrated manner because of our inability or affordability at this point of time. Therefore, creating some sort of a safety net, and I think the government has done some steps in that, like what it has done for farmers and agriculture, it will have to do more in that direction as we look at India's future. And this is inevitable. Taking people for granted, which is what in many cases urban India did, that where would rural workers go? They have nowhere else to go. They have nowhere to go. And I'm not sure how many of them come back. We are going in a direction where we are saying business will consolidate, the weaker ones will find it tougher, and they will do. Business will have to control and manage that cost. Therefore, the choice between e-commerce and physical shops, a choice between a virtual meeting with you versus taking a plane and coming to Delhi, are choices which consumers and people are making in the COVID world. That will change and lead to significant restructuring of jobs. Therefore, we need to retrain them, and at the same time, we have to accept that there is a responsibility of the state for every citizen, and that responsibility will have to be factored into our future.

First, let's look at land. I would love to see the ability for building rural and semi-rural India, with Indian manufacturing moving there, even if it means getting land and plant acquired. I think we must have a policy on that. We want to have the base of Indian manufacturing where a large number of people are, instead of a migrant having to come only to cities. We need to create more opportunities in rural and semi-rural India. I would be very supportive of that. On labor, I think we need flexible labor policy because that's what will keep businesses competitive in this current world. But along with that, we will have to have a policy of a fair safety net. So flexible labor policy means a fair safety net to the lives of Indians, and that is the balance we need to achieve for land and labor. These are the two areas where we can make a significant reform, and I would fully encourage that. In that context, I also bring about the other point. I'm glad that the Government of India has decided to offload non-strategic companies. My strong recommendation is: don't wait for the price to go up or the price to go down. You never know the future. If you have taken a decision to exit, please go ahead and don't worry about whether price is too low or too high, because in addition to the equity value in these companies, there is significant debt with these companies. As 100% owner of that debt, your liability is not just the equity value which you get, but the liability of the debt obligation with those companies. They will ultimately run the risk of sitting on the government's balance sheet. Please exit and get out of some of those long-strategic PSUs. At the same time, the Government of India, across states, is sitting on so much land. Why does it need to keep that idle land and remain as an owner just because we can't figure a way out of selling it transparently? We must do that and not necessarily bother whether the buyer has made a profit or not, as long as our sale process is transparent. It is important to do it sooner rather than later.

Thank you.