Wilfried Aulbur: India has its Own Silver Linings Playbook

But the last two years have made it clear that we cannot go to sleep and still expect high growth

Published: Aug 14, 2013 06:38:32 AM IST
Updated: Aug 12, 2013 02:52:18 PM IST
Wilfried Aulbur: India has its Own Silver Linings Playbook
Image: Gautam Singh for Forbes India

Wilfried Aulbur
Profile:
Wilfried Aulbur is managing partner, Roland Berger Strategy Consultants, a  firm with expertise in diverse sectors, especially automobiles, power and energy. Previously, he was the CEO of Mercedes Benz India.

I have had the pleasure of being closely associated with India for the last 20 years. During this period, the country has undergone dramatic change, and largely for the better.

In 1994, at the time of my first visit, the Indian middle class was focussed on saving enough so that their children could go to school in the US and establish themselves overseas. A few years later, around 2000, India had re-invented itself and started to offer many bright engineers an opportunity to have a rewarding career without having to leave their homes and families behind. By 2005, the overall conviction was that India was bound to grow at least at 6 percent, even if it did not put any effort into managing the economy and driving growth.

This assessment seemed to be strengthened by the quick rebound of its economy after the ‘Great Financial Crisis’. Many of us thought that India’s inherent strength, solid banking system and internal consumption effectively allowed it to decouple from the travails of the West. Globally relevant launches such as the Nano suddenly drove engineering departments across the globe to look at ‘frugal Indian engineering’ and convinced the world that India could not only do software but also engineer and produce world-class products.

The progress that India has made as a country over the last two decades is indeed breathtaking. So why is this issue of Forbes India talking about the need for a third freedom struggle to complement the ones in 1947 and 1991?

The answer is simple. The last two years have made it clear that we cannot go to sleep and still expect the country to grow at 6 percent. We have seen quarterly GDP data decrease linearly and reach values around 5 percent, close to the infamous ‘Hindu rate of growth’. To ensure employment for the roughly 12 million young people joining the workforce every year, we need to grow at around 8 percent. Anything less is a recipe for trouble as events in Brazil, North Africa, and even here at home in India clearly demonstrate. Sustainable inclusive growth can only be built on a strong economy. We need to get the basics right not just once in a while, but consistently.

Areas of concern are many.

Government over-spending has increased from 2.8 percent to more than 5 percent of the GDP over the last four years. A growing current account deficit and a spending focus on entitlements and subsidies rather than capital outlays has fundamentally weakened the country and the currency. The volatility of the rupee that we have experienced over the last few months as a reaction to remarks by Ben Bernanke, chairman of the US Federal Reserve, on Quantitative Easing is a case in point.
 
The weakness of the rupee not only leads to imported inflation and correspondingly high interest rates, it also destroys the profits of companies which depend at least partially on imports and creates a volatile business environment.

Retrospective changes in legislation have highlighted the challenges of doing business in India and created concerns in the minds of international investors who have alternative investment options in other emerging markets. While foreign direct investment will bring in money and skills, and may force local players to up their game to benefit the Indian consumer, it is not the only answer to India’s challenges. Companies must be enabled consistently to compete on equal footing with global majors.

It is vital, for example, to have Indian-owned global automotive or aerospace and defence companies. Worldwide experience shows that the location of headquarters and ownership matters when it comes to job creation and research and development, both vital for India’s future.

Further, unresolved issues such as land acquisition and project approval delays forced some investors to cancel significant investment proposals in the country. For example, the typical time taken from tendering to the start of production of a coal mine in India is about six years versus about two in Canada and less than even that in Australia.

Wilfried Aulbur: India has its Own Silver Linings Playbook
Image: Danish Siddiqui / Reuters
GE Healthcare’s R&D centre in Bangalore. Experience shows the location of HQ and ownership matters when it comes to job creation and R&D