Reforms in India: The pace of reforms in India must be maintained on many fronts: Gautam Kumra

“I would say that India is just beginning to really capture the imagination. The potential is much bigger than reality and that’s one of the things that’s keeping investors at bay, but interest is growing,” said Gautam Kumra, Chairman, McKinsey Asia.

So as you left India and repositioned in Singapore and now what are the big observations you see in India?
I think it’s fair to say that enthusiasm for India has certainly increased dramatically over the past two years. Well, part of that is a reflection of some other parts of the world that don’t look as good. I think everyone is talking about an impending recession in the US. I think Europe is in structural trouble and China has been a different ball game in the last two years. So Asia gets a lot of attention and I think markets like India, Indonesia and Vietnam are honestly getting a lot more interest and attention right now from global investors and everyone.

What are your thoughts on the recession? Do you think it will be a soft landing or a hard landing? The markets are afraid. You deal with many companies around the world, what do you think about that?
Yes, as you said, obviously even the best economists didn’t predict when and if we’d have a recession, and I wouldn’t hazard a guess. The reality of what is happening is that it is not just about the economic recession. I think we are in a scenario where discontinuous change is taking place on multiple fronts. We’ve seen the power of technology and I think AI will power the next decade. I think we’re seeing a sea change in geopolitics.

We’ve talked so much about deglobalization. In fact, the reality is quite different. The fact remains that trade has now stabilised, non-trade activities such as services, intellectual property are growing quite rapidly even now. But there are still many debates about de-globalization and so on. Finally, the reality is that corporate balance sheets have been pretty strong. We’ve seen that in India, we’ve seen that elsewhere in the world and honestly the payroll market remains very tight, which we wouldn’t expect when you’re headed straight for a recession. So there are a lot of mixed signals, and it’s not just an economic discussion, it’s a discussion that now spans economics, geopolitics, supply chain, resilience and technology. And I think that’s what business leaders need to think through and analyze what it means to them.

Does India come up in talks abroad, be it investors or big companies you work with?
I think it certainly is, and sometimes our view of India’s position on the world stage is a little different when you’re sitting here than when you’re sitting outside. I think you certainly feel a lot of excitement when you are here and when you have foreign visitors here. It will certainly be discussed more worldwide. But I would also say that we are still in the early days of India where it really captures the imagination. The potential is way bigger than reality, and that’s one of the things that’s keeping investors at bay, but interest is rising.

Yes you can see that. What about policy making? How do you observe policy making here? Can we attract high-quality global companies much faster in the coming years?
That’s the idea. I think the reality is if you look at India certainly as we know we’re going to keep growing and if it’s the third largest five trillion whatever you want to call it I think manufacturing as an example must increase from 15-16 to 20-25% of GDP.

We can’t create enough jobs just by remaining a service-based economy, so sectors like manufacturing and construction need to take off. And frankly, we need to be able to attract investors. And I think the pace of reform needs to be maintained, be it in the labor and property markets. I think investors want lower costs of doing business, better infrastructure and more predictable policies. Those are all things that can be done. And when you look at some of the early signs coming out of the PLI program in India, that’s very encouraging. I think we seem to have made some good first steps and now it’s a matter of moving on.

Actually in this budget too we’ve seen a pretty big focus on increasing capital spending, railroad investment, putting more money into rural and Tier 2, Tier 3 countries, you see that’s a big part too in achieving the idea we talked about?
We all know that one of the things that hasn’t happened in India in recent years is the level of capital spending. And I think government certainly has a key role to play and I think we spend better here than anywhere else. So I think infrastructure is a big force multiplier in terms of generating income and I think those are all positive moves.

What are some of the risks on the global side that people, investors and large global companies working in should be keeping an eye on going forward?
I don’t just mean India worldwide. I think one of the biggest things is geopolitics. Today every CEO is wondering how do I build resilience in the model, what if I have to exit a certain market, what if the world collapses, what is this doing to my supply chain, what is this doing to my market, how do I do it Bring predictability into my business model. The one big thing that wasn’t on people’s agenda when you think about geopolitical power was no power that CEOs have grown with. Supply chain resilience alike, how do I feel about it.

In the past it was always a question of costs, today it is no longer. Reliability, robustness, it’s all the new language for CEOs to think about. Everyone is talking about the energy turnaround, every board member, every company, every investor is thinking about it today. So when you’re navigating the world as a CEO today, it’s not what it looked like five years ago.

One of McKinsey’s reports that got attention was that this is India’s century, even Prime Minister Modi alluded to this report, your global CEO mentioned that. How convinced are you, because when you meet companies around the world and say that we still have to make our mark entirely the way we want it, why does the McKinsey team think it could actually be India’s century?
There are many underlying demographic factors that speak in our favour. By 2050, one in five people in the world will be working in India, and we are the only country outside of Africa that will have a growing labor force by 2075. China is in decline. I think a lot of the big countries in the world are in decline, so that’s one. Consumption comes second. In the next 10 years alone we will add 100 million households to consumption.

This will increase India’s share of private consumption from 3% to 10%. Every tenth dollar is used here, every fifth will work here. Look at the energy transition, I think that plays in India’s favor because a lot of the investment, a lot of the capacity still has to be built up, unlike other markets where you have to convert it. And finally all about digital. India is the world leader. I think in the digital economy it is the second fastest digitized country in the world that opens up new opportunities. So when I add all that and finally the entrepreneurial spirit and ambition and confidence of young, up and coming India, I think we have a lot in our favor that could make this India a century.