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What are the macro headwinds for India from the Ukraine-Russia war?
UDAY KOTAK: Business leaders, economists and the marketplace have dramatically understated the importance of geopolitics in our present and the future. We need to put that back on the table. Geopolitics is back at the centre stage of economic policy and financial markets. I have never seen it so significant, especially over the last 20-25 years. On inflation, we tend to refer to the US, but the fact is, the US is really behind the curve.
On paper, they were till a few days ago at 0% interest rate with inflation at 7.9%. India does have inflation, and I think the RBI may have to revise its inflation target higher for next year from 4.5%. But we are at a 4% repo rate, meaning we have to make smaller moves compared to some of the developed markets. That’s true for the Euro zone as well.
Having said that, I think we have a very disproportionately large impact of energy in our basket. And today, it is a fact that for every $10 price movement of oil, it’s about $17-18 billion of actual cash outflow for India.
Yes, we have a comfortable foreign exchange position but clearly, this geopolitical situation does have an impact on India.
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Could the possible weakness that the Indian economy is going to face be advanced as an argument against raising interest rates?
KOTAK: We may have to look at the inflation numbers for that. The RBI is projecting 4.5% for next year. Our internal research estimates are higher. How much higher the numbers might go would depend on what happens to the oil supply shortage as a result of Ukraine… so the inflation push is going to be significantly more than before, and that will have to reflect in interest rate increases. I think it will be more than what RBI may have thought in its February policy but significantly more measured compared to the developed markets.
"In terms of articulation of policy and intent, we have made lots of progress but the heart of the bureaucracy is still left of centre"
How will the Indian banking system react to the West’s move to isolate Russia from the world financial system?
KOTAK: The Indian banking system’s exposure to Russia is relatively low. The fact of the matter is Russia has a disproportionate presence in the Indian context on defence, oil and some commodities. But in terms of absolute size, it’s about half the size of the Indian economy. Therefore, there would be no dramatic impact on the rest of the economy. But on these three factors which are material for us, arms, oil, and commodities, the Russian issue has an impact on us not only directly with Russia, but also an indirect impact on the rest of the world.
Will the trends of de-globalisation, localisation of supply chains accelerate because of the Russia-Ukraine war?
NANDAN NILEKANI: Yes, in multiple ways. On supply chains, you will see “just in case” becoming more important than “just in time”. You will see more local supply chains in the region because you can’t really afford to have goods shipped from a long distance away. And similarly, on the Internet, you will see what’s called the “splinter net”, where you’ll have a Chinese internet and a Russian internet. In both goods and services, there will be splintering.
"3 major events working in favour of India: the millions backing startups, the growth of IT, and digital public goods like Aadhaar & UPI"
While supply chains will get deconstructed or reshuffled on goods, the services sector is going to play in India’s favour. With the dramatic explosion of global demand for digital transformation, the only place to go is India. Many companies that had a large footprint in Eastern Europe are suffering. This plays well for India. While there is going to be a de-globalisation of economies or splintering, I think, particularly for India’s technology sector, it will continue to do very well.
Not that one should wish to benefit from the crisis, but would it mean India stands to benefit from the war?
NILEKANI: The scales are very different. These are countries with much smaller populations. A large company in Ukraine would have 5,000 employees; here, it would be 300,000. But this is a part of India’s tech decade. I think three major events are converging and working in favour of India: the millions of dollars backing startups; the growth of the IT industry and the resultant jobs — $227 billion in exports and 4.5 million people set to double to 10 million in 10 years; and the digital public goods like Aadhaar and UPI or account aggregators etc. We are the only country with an advanced digital infrastructure. All this is coming together in a nice way for India.
So how could de-globalisation play out for India?
RISHAD PREMJI: I think this is a unique opportunity for us as a country. There is already a huge shortage between demand and supply in the technology world, and the Ukraine situation only enhances that in favour of India. I think the big challenge and big focus for us as a nation should be to become the talent hub of the world. To do that, we have to focus very systematically on reskilling, especially in the technology industry, and that’s a big focus for us as a company and for the industry holistically.
"The big challenge and focus for us should be to become the talent hub of the world. To do that, we got to focus very systematically on skilling and reskilling"
The industry is driving a very special programme around future skilling: 2-3 million of the 5 million people who are employed by the industry are participating.
The philosophy of unlearning, with how dramatically technologies are changing, becomes very, very important. But if we can get that right, there is a disproportionate opportunity, given how the world is accelerating towards a digitalfirst agenda.
Would a significantly de-globalised world hurt the Indian IT companies which have grown in an open-market environment in the last 30 years?
PREMJI: I think it’s an advantage. The world is familiar with the global sourcing model, so talent can be based anywhere. After Covid, it’s becoming more and more inclusive. With this hybrid model of working, we are moving away from big cities now to smaller cities, allowing us to include people in tier II and III towns, include women who want more flexibility, and also include people with disabilities. So it’s actually enhancing the talent base and allowing us to be more inclusive.
"I believe we are going to see more and more accountability demanded from boards whether it is in India or in the West"
There could be a concentration risk of having too many people based in India, but the reality is many Indian technology companies are diversifying their talent across the world. The other phenomenon of this disruption is crowdsourcing. How do you leverage a resource sitting somewhere in the middle of nowhere in their pyjamas? Today, you don’t have to have people sitting in front of you anymore. So it actually enhances the talent base as well.
The Atmanirbhar Bharat is one of the main agendas of this government, but there is also criticism that it is taking India back to the 1970s-80s. Are we going to see more of such programmes given the geopolitical situation in the rest of the world?
N VENKATRAM: We should look through this with the lens that the strength of India is its domestic market. So, it’s not a question of whether you only want to ‘Make in India’. It’s a question of how you make it in India, for India. First, let me talk about exports and the fact that we are looking at goods exports of $1 trillion, and more recently, we have been talking about the export of services to the extent of $1 trillion. All this is still predicated on the fact that it is a strong domestic market.
We surveyed about 1,300 investors and CXOs of companies overseas and 70% of them said they want to invest in India. But they want to invest for the domestic market. So it would probably be a fallacy to think that we would have to export only for the export market. A large part of the reason why people are interested in India is the size of our domestic market.
I, therefore, think that on one hand, it’s good to be optimistic about the one $1 trillion but the reality is we missed the “China Plus One” bus. It had not been missed forever, but certainly, we missed the first wave of it. And about $31 billion of business which moved from China for 56 companies, we got just about 10% of that. So I would say work to your advantage, which is still in the services sector. And there we have skills and cost and other competitive advantages. We have recognition of the innovative skills, the unicorns and everything else. We looked at FDI imports of over $80 billion and even this year is over $70 billion so far.
"India is an incredibly exciting market with an industry structure that is settled…can absorb three (pvt) players. That said, it will continue to be competitive"
There are 1,300 multinational global capability centres (GCC) working from India to deliver to the world. And one thing is the stability that India provided to the world during Covid has not been documented enough. Because of all the processes, R&D being run from India helped those multinationals to stabilise.
So I would say, concentrate on strengths, look at the emerging strength areas. One, I would certainly look at the export of services. Further, growing for domestic use cases is the medical services, how you can leverage technology in medical and also do medical services for the world? It also ties into education, it ties into the fact that you also want more doctors in India. So, look in terms of building India for India and in that sense, you will also build for the world. One interesting idea is India as a language hub.
We still talk about the fact that we have a young population and there’s about $41 billion that you can earn by having India as a language hub for other languages, whether it is Spanish, Arabic and a host of other languages. We are so good at doing such work within India for our own languages. Why don’t we think in terms of exporting those language skills as well? Believe me even in an area like media and entertainment. It’s a very big area where we would have a competitive advantage. I think the government has set up that platform for us. It’s a question of how we build trust and how we say that we invest. We’ve got bankers, industrialists, and investors in the room and there is an infrastructure in place. We all know what the problems of India are. Let’s just go ahead and get it done. And finally, the transformational areas whether it is Metaverse, 5G, the use of drones, these areas are driven by technology and these are again areas where India has a big play.
Would you like to elaborate on how we have missed the China bus and how can we get on it now?
VENKATRAM: Today, there is still money getting out of China but I don’t think that manufacturing is getting out of China. At that inflexion point, when things were happening and 56 companies moved, the reality was Vietnam got 46% of it. Even Malaysia got it. I think a lot of this is because people still have the impression that India is not an easy place to do business for a variety of reasons. I think the most important thing for us to understand is that multinationals look for stability. They want policies that last for a long period of time. The plans are longer-term plans. If we just get stability in policy. Today, we have a lot of good intent, it has to also translate into stability. And I think once you get that stability, companies will invest.
"I have been advocating for boosters and sooner the govt will open up boosters. This will help in protecting against future variants and building long-term immunity"
But we certainly didn’t lose in the first phase because PLI has been useful. It’s not that we have done everything wrong. It’s just that we have not done enough for people to take over and say that India is the place where I want to invest long term. A lot of people want to come in and we make the right noises, take the right steps. But as you know, for us, the problem is always in implementation and execution. And, I think, that’s where the Indian industry has to just keep pace, go ahead and do it. And the multinationals will follow. They want to come here as they are interested in your local market.
One of the themes of this decade has been volatility and much of that has been due to Covid. So Adar where are we in terms of Covid?
ADAR POONAWALLA: One thing is certain about this pandemic — nobody should just make predictions. A fourth wave is, of course, possible. One thing is very clear — the vaccines that were chosen and given to all Indians have done a phenomenal job. If you look at Germany, Europe, the United States, they have 200,000 daily new cases and hospitalisations, whereas we’re on a completely downward trend. We’ve done well in our vaccination programmes. I’ve been advocating for boosters and sooner rather than later, I think, the government will open up for whosoever wants to take boosters.
This will definitely help protect against future variants and build your long-term immunity. We have also seen that now these vaccines that have been given in India are giving you a T-cell longterm response as well. So it’s not just the antibodies that you have to look at. The other thing we need to get into doing, if we want schools to remain open, and children to be protected, is— Covid has not hit children that badly, but there were still a few deaths and also hospitalisations in children, which also can be avoided or reduced significantly — we now have to get on with the rollout of vaccinating our children as well, which is my mission for this year. If we look at our health systems, hospital infrastructure and so many other things, testing, genomic sequencing, we’re far better off than we were a year ago.
"Business leaders, economists and the marketplace have dramatically understated the importance of geopolitics in the present and our future"
So we will be very well prepared. We will not and should not have any major lockdowns and disruptions like we needed to have earlier on. So God forbid, a fourth wave comes, I don’t imagine any major disruptions to businesses and other things happening now. Don’t hold me to it, but if I was a betting man, I would say that we are very well prepared.
We have got a second line of treatment with drugs and pills and medications, you have got vaccines, a stronger health system. We know the virus a lot better through better testing. All of these things, which we didn’t have going into the pandemic in 2020 and 2021.
And if you call it endemic, then one could argue that every year, whomsoever feels appropriate, just like you have a flu shot in the West, can take a booster shot every year or every alternative year for a Covid vaccine as well, as a precaution. And I imagine that will become a practice at least for three or four years. I don’t mean it’ll happen forever because we’ll have to see how we reduce the transmission.
Certain diseases don’t even need a booster shot based on herd immunity and the virus transmission and, I hope, that happens with Covid because it is a terrible disease — the long Covid, and the long-term effects of getting Covid. So I imagine that it will transition into some kind of booster policy, and then maybe in three or four years, we might not even need that and only for the vulnerable category, we may recommend boosters, going forward.
What is your take on India’s booster programme which recommends taking the same vaccine? Is that an efficient way of doing things or should we do mixed vaccines and should that vaccine be mRNA vaccines?
POONAWALLA: The debate is on with the experts. You can mix and match vaccines; all of those policy decisions will be announced by the government very soon. I have been asking for a decision either way because there are a lot of people who want boosters and it’s very important also for opening up travel. If you don’t have the third shot or you’ve not been vaccinated in the last nine months, there are restrictions in certain countries and so forth, which is still causing some disruption to tourism and businessmen and women wanting to travel. So that’s why we have been pushing the government to do that. And I think they will announce something very soon on that as well.
The medical and hospital sector in India has witnessed unprecedented volatility. So what have been the learnings of the last two years in terms of the whole pandemic episode that we’ve gone through?
PREETHA REDDY: Trust-building has been a huge exercise. It started off with the private sector being totally negated and that the private sector was bad because they were profiteering. But now, everyone understands that between the public sector and the private sector, there’s a strong partnership.
"I think painting the entire startup industry with a broad brush of poor corporate governance will be wrong because I think there is a lot of creative energy in the startup ecosystem"
Our focus on more investment into healthcare infrastructure and skilling has been great learning. Skilling is not quite there and we need to get there a lot. We are seeing so much investment into healthcare simply because Covid has taught us those lessons.
The clear and present danger is the fact that people haven’t taken charge of their health and the growing burden of NCDs (non-communicable diseases) is something we will all have to come to terms with.
And for us as a group, we are very clear that the challenge is to keep people out of hospitals. Because even if we build 100 times more hospital beds, we are not going to be able to man them. Early intervention is much better and it’s much better for people to take care of their health.
How much has been the impact on medical tourism in India?
REDDY: I think it was completely affected. From a business perspective, the industry took a hit, but then everyone was just so busy grappling with the crisis and we did not have beds to spare. We were on the frontline. It’s the enemy in front of you that matters — it’s not really the whole war. However, medical tourism has now started, people have started coming back. So definitely there will be a steady stream which is good for the industry, but at that point, it didn’t matter.
"Multinationals look for stability, they want policies that last for a longer period of time, and their plans are longer term plans. Today, we have a lot of good intent...it has to translate into stability. And once you get that stability, companies will invest"
The first wave of the IT companies which came up in the early 90s had templates of corporate governance. So what is your view on corporate governance issues at some of the Indian startups that have emerged in the recent past?
NILEKANI: I think for the last 40 years of liberalisation, we have seen corporate governance failures in every sector, from steel to software, so I don’t think we should single out these poor startups for that. But there is no question that if they (startups) are going to build long term companies — sustainable, transformational, profitable — they will have to up the game in terms of corporate governance. And one of the things I worry about is that when you get too much money from funders at a young age, that has a distortionary impact on their behaviour. I have seen this time and again and they should now perhaps get back to more humility and focus on building long-term sustainable businesses.
SANJEEV BIKHCHANDANI: There are 40,000 startups out there, a few have been called out for their conduct and behaviour.
I do believe and I hope that the vast majority of them are not like that. I accept Nandan’s point, when companies get too much money too soon, they tend to spend it sub-optimally. So I think with the tightening of liquidity with the Fed raising rates in the next couple of years, some of that fund availability will be constrained and, I think, we’ll be alright.
Do you see a need for a global accord on internet governance when it comes to privacy concerns or cybersecurity?
NILEKANI: That ship has left the harbour. It’s impossible because geopolitics is so intertwined now with technology, I don’t think it will work.
PREMJI: I think it’s important not to broad-brush a whole group of companies with good and bad corporate governance.
"Trust-building has been a huge exercise…But now everyone understands that between the public sector and private sector there is strong partnership"
I just think organisations have to think with humility about how the race is long. You can have a few good years, a few bad years. Building institutions that can survive time takes a lot of structured thinking. And, governance is a core component if one wants to build an organisation for the long run.
How do you see the dynamics shaping up for the telecom sector going forward in terms of the brutal competition?
GOPAL VITTAL: This is an incredibly exciting market with an industry structure that is settled. That said, it will continue to be competitive. But, I think, the point that I do want to make is that we must leapfrog on technology. 5G is now on the anvil — the devices are beginning to come in. And my own view is that this is another opportunity for us to leapfrog with an ecosystem of innovation and applications that ride on the networks. I think a lot more businesses will get created on 5G networks.
Do you see more regulatory stability?
VITTAL: This is an intensely regulated market. And we have been through tremendous regulatory challenges, particularly over the last six, seven years for various reasons. The recent reforms package that the government announced back in late 2021 was very, very bold. Because not only was there a commitment to have three players in the market, which I think is important.
India can accommodate or absorb three players. But many things were done to actually ease and simplify business. There’s an auction of spectrum that is likely to happen very soon.
And we’re hoping that the government takes a position to lower spectrum prices because what India needs are really powerful networks and the capital to invest in those networks.
Falguni, I just wanted to ask you a somewhat different question. How has life changed after you went public?
FALGUNI NAYAR: There is more responsibility in trying to explain a quarterly performance. That’s clearly a big change that I see. We have always been a company from a longerterm sustainable perspective. And as a private company, one could look at the longer-term horizon not worrying about quarter-on-quarter comparisons. However, intrinsically not much has changed. We want to continue to invest for the long run and build a long-term sustainable company. Our journey from a startup to a long term sustainable company is a journey that Nykaa has embraced early on.
And along with what Gopal talked about the new technologies that are going to come in; riding the 5G [wave], whether it is the metaverse or whether it is blockchain, I think the company and the industry that we are in can easily leverage many of those. So, I think, to be at the forefront of technology and yet invest for the long term and yet to be a publicly listed company is going to be the biggest challenge for a company like us.
Any regrets about listing?
NAYAR: No regrets at all about listing because I think from that same long-term sustainability perspective, the listing is what gives you long term sustainability that is not dependent on any one set of investors when you may need to raise money in future.
So listing for me was always coming of age — growing from a startup to a mainline company that wants to be there for the longer term.
Your thoughts on corporate governance issues that are affecting some startups. Is it something to do with, say, younger companies such as yourself trying to grow at a breakneck speed? Is that something that puts pressure and needs to be addressed?
NAYAR: As far as we are concerned, we are extremely conscious about corporate governance and want to do things which are right from the corporate governance perspective. And, I think, from our experience at Sebi also, it was quite focused on trying to provide as much disclosure to the investors in an industry which is new in that sense; the technology companies are new to the Sebi ways of thinking.
They have put in lots of time and effort to ask for additional disclosures. Any corporate governance issue in the industry is a one-off thing that is characteristic of that company rather than an industry-wide phenomenon.
I think painting the entire startup industry with the broad brush of poor corporate governance would be wrong because I think there is a lot of creative energy in the startup ecosystem. and the whole bunch of investors who have invested in that cannot be seen as chasing something worthless.
CYRIL SHROFF: You can’t colour the whole sector with the same brush. If you look at the underlying cause for some of the recent incidents, it comes down to a lack of mentorship for these entrepreneurs. Building on Nandan’s point that a lot of young people (get) a very disproportionate amount of money very quickly, so who’s going to keep the ship steady?
"There are 40,000 startups out there, a few have been called out for their conduct and behaviour. I do hope that the vast majority of them are not like that"
I think for want of a better word without sounding extreme, a little bit of adult supervision (is required) to help them with how they will cope with the changing world and also the fast pace at which lots of opportunities are arising. I don’t think regulation is the solution because regulation has always been a different way of turning out … once something goes wrong, then the system comes at you with a very heavy hand and by that time, it’s too late and your reputation is gone. I think people, particularly startups, underestimate the value of reputation at the early stage, both in terms of how you are perceived by investors, the larger ecosystem and capital providers. This problem is not just in India, several iconic Silicon Valley startups just completely went down on account of governance as well. So I think there is a connection between the speed at which the money comes in and the kind of spiritual ecosystem around them — if I can call it — that makes all the difference.
Are Indian startups lacking adult supervision or at least some of them?
NIKESH ARORA: This is a small population of the large startup ecosystem, whether you take the Silicon Valley examples, or you take the examples in India. Money has been a lot more free-flowing in the last 24 months than it has ever been in India, or perhaps in Silicon Valley.
So there is that added factor. We haven’t seen companies flush with so much cash. I think there’s not just a governance issue, but also really building a profitable business issue with so much cash, since a lot of companies have gone ahead and burnt a lot of money trying to acquire customers.
The ‘Holy Grail’ was to use the (money) for expansion and drive more customers, and not have to focus on the profitability or the customers, because there’s so much money in the bank. So, you have a really good business problem. So a lot of money is not always the answer to building a great business.
That said, we can always do with better governance. I think it’s true for both larger and small companies. It really boils down to the individuals who drive these companies, boils down to governance they have in terms of the board. At the same time, I believe we are going to see more and more accountability demanded from boards whether it is in India or the West because of these examples.
You’ve worked in companies like Google and SoftBank, which are considered to be emblems of globalisation. They flourished in a certain economic and political world ecosystem. Do you see that concept of ‘globalisation’ changing with sanctions on Russia, or what is happening globally?
ARORA: Russia is a different instance. I don’t think this should become the blueprint for the future. What we are doing to Russia as a collective, as a sort of global society — we’re isolating them economically because that’s the best tool in our hands to act quickly, otherwise, we will end up in a World War situation.
Now, in the face of that, I don’t think it’s just the US companies (exiting Russia), I think it’s also European, French, German, or even Indian companies. This is because we live in such a ‘woke’ society, where the other 90% of my employees will revolt if you continue to do business in a country that has been doing such barbaric acts. I don’t think it’s against the citizens of the country but the leadership.
I think we’re all reacting to the circumstances of today, where we have lots of employees, we run businesses around the world, and we have to react to the situation on the ground. The longer the Russia issue proceeds, the more irreversible these actions are going to become, which is the trigger for all of us to go back and do business until there’s evidence that this is not going to repeat.
So I think we are irreversibly separating Russia from the global geopolitical system which is going to have its own ramifications. I don’t think it dents globalisation, as much as we expect. We rely on global access to global information and knowledge, which I think is not going to go away. We’re not going to shut down the gates of India or the gates of the US and say we’re not going to exchange information and things are not going to happen. Globalisation is here to stay.
Where do we stand when it comes to ease of doing business?
SHROFF: Certain things have sort of definitely got better. But there is still a lot of frustration and a lot of red tape because I don’t think the mindset has changed. So in terms of the articulation of policy and intent — I think we have made a lot of progress. But the heart of the bureaucracy is still left of centre.
I think they’re still sitting in the Licence Raj. So the political mind has moved to the right, if I can call it that, but the heart is still very much to the left. On a scale of 10, I would give it about three or four.There’s still a lot to be done. But the high-level political intent whether it is the prime minister or the finance minister — I think their heart is in the right place. But they have to move this juggernaut along and it’s not easy.
VENKATRAM: We all know that there are still thousands of Acts and 69,000 compliances. We should also look at the onerous tax regulation at times and also how tax is enforced. Overseas they still complain about restricted market access, delays in the judicial system, while they respect the fact that we have laws. It’s just the time — it takes over a decade to get justice. Perhaps the only other point that I would like to say on the discussions, especially about data and privacy and everything else. We didn’t talk about cyber, by the way, but that I think, again, is a great area of opportunity for India. I read the other day — there was this tiny article that stated Meta saying that one of the reasons why they had a huge drop in market capitalisation in billions of dollars, was because of the increase in tariffs in India. So I think we sometimes underestimate the amount of value the Indian business is giving the world and some of it is not reflected in our own stock markets for example.
Is India late on 5G?
VITTAL: Let me give you a few statistics. The entry-level 5G devices are about Rs 17,000, and there is distress in the mass market. We’ve seen an almost nine-month increase in the device lifecycle. Chipset prices have gone up, semiconductor shortages are there. So, device prices have gone up at the entry-level smartphone — from Rs 7,000 to now almost Rs 10,000. About 3% of consumer devices are 5G ones. Secondly, the excitement that is there on the B2B side, which is the enterprise use cases, what people call Industry 4.0, whether it’s drones, robotic surgery or driverless cars. These are still some time away. In 2023, the number of devices on the consumer side will be about 15%. So, they’re (handset brands) ready for a big rollout in 5G. But the reality is that more innovation needs to be created on this technology. It will happen over the years. So, I don’t think it’s (5G) too late (in India).
You mentioned stress in some parts of the market. Can you elaborate?
VITTAL: We are seeing (some stress) at the bottom end of the market … on feature phones. We’re seeing some slowdown in the upgradation cycle. The entry-level smartphone prices have now gone up by a few 1,000 rupees. But the long-term opportunity is massive because there are still 300-400 million users out there who don’t have a smartphone. So, they are going to upgrade at some point.
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