Most CEOs in India, save for a handful, are struggling to resolve a major tension between their experience and their ability to imagine the International Monetary Fund (IMF) forecasts of the growth in the Indian economy. Why is this?
To my mind, the reason the reset is taking time to sink in is that the earlier balance in the global economy lasted for an entire century and the reversal has just begun in this century. I did a calculation some years ago which was very simple but very telling — if you compare the average per capita Gross Domestic Product (GDP) of the top five countries and the bottom five countries in the world, in 1700, it was 3:1; in 1820, it was 4:1; and in 1900, it had become 6:1. But, by 2000, it had become 60:1. So the 60 commanded all the attention and, the only way to grow in the world was to cater to the 60. Essentially, the G7. By 2020, the reversal in the ratio is evident, at 16:1, but the mind is taking time to internalise it for any country other than China. China’s remarkable rise from a $1 trillion economy to $18 trillion in just over two decades captured the attention it deserved and largely crowded out others, especially India.
In his book The Sun Also Rises, Ernest Hemingway describes a conversation between two characters Bill and Mike, where Bill asks Mike “How did you go bankrupt?” and Mike responds “Two ways — gradually and then suddenly.” In some ways, when people ask me “How did India happen?” I say the same thing, “Gradually and then suddenly.” India has grown well over 30 years at around 6.5% per annum. However, the Indian market had been small in global terms. In 2000, India was less than 1.5% of nominal global dollar GDP. Today, it has inched up to 3.4%, but by 2030, it is likely to be over 5%. The key point is that in this decade, India is starting to drive global GDP growth. In the next six years, it will add as much to global GDP as all of Europe, and half as much as the United States (US). All this is happening when the other major player, China, is having two very serious problems — its economy is slowing and, geopolitically, it has managed to get quite isolated, with its muscular foreign policy. The US and western companies want to reduce their strategic dependence on China.
Logically, this has created opportunities for both global and domestic companies in India. In fact, all of them are seriously evaluating the commercial opportunity India offers. MNCs are assessing whether India can be a large market for them, whether they can diversify their supply chains out of China, or even whether they can augment their global capability centres based in India. But as they do so, I find their assessments fall into five different CEO mindsets: “I don’t know India and must learn”, “India has disappointed in the past so what has really changed”, “My business in India is fine but not very consequential at less than 3-5% of my total revenues”, “I need to learn how to make India work to cut my over-dependence on China”, and the few who have dominant positions and are doing very well in India saying, “I am doing well and intend to continue to do so”. Within this group, I find the fourth category making meaningful bets in India, but the others are not yet convinced to act differently.
Indian CEOs are facing a different set of issues. Most lack sufficient free cash flow. Many of them have just come out of high levels of leverage, and are not ready to take on too much leverage again to really be bold. They are also finding demand growth post-Covid to be skewed and yet to settle. The upper-income segments are doing well, so high-priced real estate, upper-end cars and the equity markets are booming, but the FMCG and FMEG segments have not seen a similar surge in demand. Financial regulators are clamping down on the fast build-up of personal loans for consumption. Therefore, many companies are unable to relate the global forecasts with the demand for their goods in the market. The uncertainty in the global environment with wars in Europe and West Asia, and the possibility of spikes in commodity prices when interest rates continue at elevated levels, dampens animal spirits and restrains them from taking the plunge with big capex bets. Every forecast predicts the global economy slowing down, coming along with a policy mindset turning away from free trade and towards self-reliance.
What advice can one offer global and Indian CEOs in this context? How do they start acting in a scenario where all the multitudes in India are forecasted to double in the next six years — from $3.5 trillion to $7.3 trillion. Global company CEOs need to recognise that taking advantage of India will require their (CEOs’) time, with India reporting to them, together with India-specific customisation to win in the market. Indian family businesses, especially if the CEOs are in their 50s, need to recognise that to stay relevant, they need to act. They need to augment their teams to be future-ready and push their organisations to become high-performing and champions at execution.
Peter Drucker once famously said, “The only way to predict the future is to create it”. This is the needed unlock in the minds of CEOs to make 2020-2030 the decade for their companies in India. It is hard but required to win in the most exciting market in the world today.
Janmejaya Sinha is chairman, BCG India. The views expressed are personal
Making the most of the India opportunity
14
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30.03.2024
Most CEOs in India, save for a handful, are struggling to resolve a major tension between their experience and their ability to imagine the International Monetary Fund (IMF) forecasts of the growth in the Indian economy. Why is this?
To my mind, the reason the reset is taking time to sink in is that the earlier balance in the global economy lasted for an entire century and the reversal has just begun in this century. I did a calculation some years ago which was very simple but very telling — if you compare the average per capita Gross Domestic Product (GDP) of the top five countries and the bottom five countries in the world, in 1700, it was 3:1; in 1820, it was 4:1; and in 1900, it had become 6:1. But, by 2000, it had become 60:1. So the 60 commanded all the attention and, the only way to grow in the world was to cater to the 60. Essentially, the G7. By 2020, the reversal in the ratio is evident, at 16:1, but the mind is taking time to internalise it for any country other than China. China’s remarkable rise from a $1 trillion economy to $18 trillion in just over two decades captured the attention it deserved and largely crowded out others, especially India.
In his book The Sun Also Rises, Ernest Hemingway describes a conversation between two characters Bill and Mike, where Bill asks Mike “How did you go bankrupt?” and Mike........
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