 Thanks for joining us on this special panel discussion of the India Economic Summit at 2014. Thank you all for joining us today. I've got a distinguished panel of experts to talk about India's economic growth outlook. To my extreme right is Ajay Sridham, President of CII, Chairman of MD of DCM Sridham. To my right is Anand Mahindra, Chairman and Manager Director of Mahindra Group, also the Co-Chair of the India Economic Summit this year. To my left is Geeta Gopinath, Professor of Economics at Harvard University. To my extreme left is William Danvers, Deputy Secretary General at the OECD. Without further ado, let me set the ball rolling by asking each of my panelists to give me a sense of how they see the economy progressing. It's been five months since the new government took over. There's been clearly a shift in business sentiment and confidence. But what's the impact on the ground? Are things moving? Is the economy set, is the state set for the economy to get back to that 7% GDP growth that the government has set itself for? Mr. Mahindra, may we start with you? It's close to a cold call as I've ever had with her, which we are familiar with at Harvard. Let me just try and give you a very compact view of my assessment of where the economy is. Things are moving. The Indian economy is like a giant flywheel. Forgive me for using an automotive metaphor, but it's not easy to get it going. You need a number of shoulders to the wheel and it takes some time or momentum to get things going. You don't try big bang reforms. I've never been a vote 3 of saying there are two or three big bangs which are going to get things moving. Usually, big bangs leave a big crater on the ground and then it gets hard to move by that. You do need steady, consistent reforms. You need a reform a day, which I think the Prime Minister has committed to doing. He's even said in the US that maybe one archaic law a day might be deleted. Let's say even if he does one a week, that's good. But the question is, that's the talk. Is it happening on the ground? And anecdotally, I can tell you, yes, my own particular experience in our business has been that things like licenses to produce which were stuck in the pipeline have been opened up. I've invested in a personal capacity in a smaller business and there too, the license which was held up has been cleared. So essentially a shift metaphors for a bid. I think the job in India is about plumbing. You basically need to clean the pipes. I don't think the pipes are wrong. We inherited a wonderful system in the British, a very vast pipeline to manage this chaotic and large country. The pipelines were clogged. The question is, there was no water flowing through them. I think that job is being done admirably. It needs to be done consistently. And the final point I'll make is that we have talked a lot about make in India. There's been a big focus on getting multinationals back in, on getting global investment flows. Let's keep in mind that the large share of investment that gets the Indian economy going 80% and more is by small entrepreneurs and businesses. Frankly, they're the ones who need single windows. They're the ones who want the pipes to be cleaned. They're our equivalent of Germany's middle stand. If they're not healthy, I don't care how much investment comes from overseas. Nothing's going to work here. So it's more than the PNGs, it's the Patels that we have to focus on right now. They're the ones who are important. And I hope that if we get that focus right, things will move. Gita, do you think the government is moving in the right direction to revive the investment cycle, to get the economy back on track? I feel very strongly that India is at a turning point right now. The macroeconomy is in better shape than it's been in the past few years. Inflation has come down. It's been trending down, thanks to a very strong RBI. The fiscal deficit is being paid much closer attention. The rupee is stable. The second piece, which is about having consistent ongoing reforms, has finally come of age. We finally have a stable political government that is undertaking reforms. I'm particularly excited with what I've seen over the last one month in terms of the reforms that have happened, in terms of improving labor market compliance, in terms of deregulating diesel prices. And so these are important fundamental steps that had to be taken and are being taken. So I am optimistic about what we can expect in India. What I'm still waiting to see, which would give me then a lot more confidence about the health of the Indian economy, is the revival of investment. We haven't seen that yet. In 2011 was the year when India started slowing down. When investment rates came down, it was about 38% of GDP. It came down to 32%. We haven't seen that turn. Now, it's still early. The numbers haven't come yet. But I think if we see two to three quarters of a steady investment growth in India, I think that's when we can step back and say, OK, the reforms are working. At this point, you in the past spoken about how India continues to pay poorly on the ease of business indicators. Since the new government has taken board, are you seeing any change in the way things are moving, not just from government policy, from the way corporates make their decisions? I think there is definitely a change. On this issue of ease of doing business, in CII, we did a detailed study. And we said, instead of reinventing the wheel, why don't we look at what are the best practices in the states in India based on the World Bank ranking, which last year was 134, which unfortunately now is 142, which has gone worse. I would like to mention that last year and about April, we had gone to Gujarat and met Mr. Modi as that time chief minister who talked about this issue. And the study has been done to the extent that after this study, we've had two discussions at the PMO with the minister, secretaries, et cetera. I think the government is genuinely serious. I think they want to bring about change aggressively, but it's such a monolith system that to implement it, to percolate it down is a very big challenge. But at the same time, I think the direction are moving on a digital platform, the direction of the prime minister personally getting involved with secretaries, personally getting involved in implementation. The PMO itself is following up very aggressively on where things are going. Sure. Either doing business is a big challenge for India, because if you want to percolate it down to the state level and the village level and the district level, it's a tough task. But I think the prime minister has seen on it. He has shown his performance in Gujarat. So it will take time. But I don't think we should even expect that, because they have been there five months, that, OK, everything will start changing tomorrow. Look, it will take time. Sure. If I may put it honestly, I feel, they may be, all the ministers are keen for change. There may be 10%, 15% of the bureaucrats and systems who are keen for change, but a lot of others who still have to make up their mind how they're going to follow the new system. And I think that's where the challenge of the prime minister, the finance minister, and the other team members is going to come in as how to actually ensure that the change percolates down so that, if I may put it, the biggest stumbling block which comes in this is by giving the system or bureaucrats a politician the power to say no. Sure. If they can reduce the power to say no, I think automatically systems start falling in place. And I think the government has seen on it. They are working on it. We are seeing results. Right. We are seeing the right direction. And I'm sure there'll be a positive change. Well, your own view or growth outlook, are you seeing the kind of change since the government has taken over? What I'd like to do at least initially, if I may, is I'd like to take a step back. And I'd like to make three sort of connected points. And the first point relates to the Indian economic profile and what's happened and what's happening. And the second and third points have to do with governance, which pivots off your points. Specifically, the need to communicate policies to the electorate and to counsel patients. So change can take hold. And it can be sustained. Not only taking hold, but it can be sustained. So India experienced great growth between 2003 and 2011. I think it was around 8%. And the incidence of poverty was cut by half. That's significant. That's a big deal. Unfortunately, the growth faltered in 2012. But the good news is, and I think everybody's mentioned that today, is the economy has recently shown signs of a turnaround. And India is poised to take growth to a new level. But to do so, it'll have to implement a reform agenda. Some of the reforms that you've been talking about, cleaning the pipes, as it were. I think it's a wonderful analogy. Now, in a few weeks, the OECD is going to release an economic survey to talk about some of the areas we're looking at for potential reform. And that includes labor regulations, education and training, land acquisition, taxation, reg reform, investment. And there'll be three specific chapters in the survey on manufacturing, gender issues, and health. And the government, as everyone has mentioned, is beginning to address some of these issues. I think the Make in India program is a good example of this. The OECD economic survey is going to provide detailed analysis, which we hope will be very useful for policymakers. But the second point I want to make, and it's a point I'm probably more familiar with, because I've been in government for much of my life, is that there's got to be a clear and consistent communication between the government and the electorate of the kind of policy, on the kind of policy changes that I just mentioned. People need to know. They've got to really know what the government is up to. You've got to be able to tell the electorate what you're doing, why you're doing it, and why it's important to them. Now, that doesn't mean government by polls or focus groups. But it does mean that people need to understand why they should have trust in the government and why the government is looking out for them. Now, the prime minister has done a pretty good job. In his campaign, he really was a master of getting his message out. That's right. And he's shown that even after the election, in reaching out to the Indian diaspora, something I'm a bit more familiar with, the New York Madison Square Garden event is a very good example of this. It was a big deal. It wasn't only a big deal here. It was a big deal in the United States. And I think that's important, getting that message out. But the final related point that is necessary for making the kinds of changes we're discussing is the need for patience. Not only in the part of the people but the part of the government. The need for patience for policy reforms to be able to take hold. Because in some ways, the biggest threat to a government that has a clear mandate just after a big election is the sometimes unrealistic expectations that come with a big victory. In some ways, that's really what the government is fighting against, unrealistic expectations. Sure, that's an interesting point. It's basically on the issue of communication. I suppose the government has done enough in communicating its agenda and its thoughts. Mr. Mahendra, this is one point that I want to pick on on reforms. You spoke about unclogging the pipes. Everybody's talking about how these smaller steps are far more significant. But Prime Minister Modi has to be extremely lucky because he's taken over at a time when the macroeconomic environment is also looking fairly good. Look at where oil prices are today. Six months ago, that was not the case. No one predicted all is going to be below $80. If things turn around, don't you expect or do you think that the big bank reforms are needed, too? Yeah, there is no silver bullet. Both are going to be needed. Talking about luck, you're right. Fortune favors the brave of the old adage. And he's had his good share. Clearly, one should look closely at his horoscope. He's clearly got some good stuff. Oil, I was just looking today. I think Brent is down to 82 this morning. I cannot imagine a bigger stroke of good fortune. So yes, I think that increases his capacity to make bigger moves. I'm in his camp in terms of patience. And ironically, I found when I was in the US during the Prime Minister's visit that overseas investors have more patience than us. We seem to be more concerned. I talked to somebody on my right at the Council on Foreign Relations while the Prime Minister was speaking. And I said, how much time would you give him to really start showing progress? And he said, maybe 18 months. And I said, what, 18 months? Are you serious? I thought honeymoons are supposed to be 100 days and then maybe six months. So people are willing to give him time. So I don't think he needs to jump into anything. But having said that, yes, you're right. He has gotten tremendous wins in his sales because of commodity prices coming down. It is time for some big banks, but also levers like interest rate reduction, admirable job done by our Reserve Bank governor. But I think time now to be a little more courageous. It doesn't mean one or two big bank reforms, but I think just pressing our foot in the accelerator right now. He has the room to do that. Sure. Geetha, your best position to answer this. Do you think Governor Rajan should play ball and cut interest rates a bit? I think it is completely up to Governor Rajan to decide. I don't think it's for a lack of courage. I think it's a matter of prudence. What Governor Rajan is trying to accomplish is to bring down inflation, bring down trend inflation. If you were to sit back and cut interest rates too soon and had to go back and reverse that, that would generate a complete loss of confidence in the RBI, which you really can't afford. That said, if I were to give my opinion about what should happen to interest rates, I guess I would agree that the environment is set for interest rates to come down. So if I look at the factors, inflation has come down in a consistent manner. It's not just one-off thing, it's come down consistently. The second variable is inflation expectations, which is a very important factor. And inflation expectations have come down and that is important. It's moderated. The fact that oil prices have come down give you the sense that the feedback into inflation is going to be weak. The currency has been stable. You have a government that's trying to undertake supply-side reforms. So there are several factors that would make this a fairly decent environment to bring down interest rates. But again, I just want to reiterate, that is entirely the RBI's policy and not the Ministry of Finance. I get that, but you know, Mr. Srinath, perhaps the industry has been asking for lower interest rates for a while now. The governor has in a sense set himself a glide path. He said, 6% by 2016, you are seeing factors globally that might help the case. You had the finance minister going on record to say, you know, he expects or he hopes there's a cut in interest rates. At what point do you think the finance minister is going to, you know, call up the RBI and say, you know, why not? Got a little bit. I think the finance minister himself talked about 6% as something where inflation is under control. If I'm not mistaken, the RBI governor has said the same thing. In our system, what we've seen for the last many years, the RBI works fairly independently. They might, you know, the FM might pick up and speak to the governor. That doesn't mean it's going to happen. I think that's just an indicator of the way things are. I didn't agree with otherwise. But I think from the point of view of seeing the economic growth happening, the buoyancy in the system, the positiveness in the system, the change of sentiments the way it's moving. And you're right. I mean, we've been helped by food prices, vegetable prices and commodity prices coming down. That's good for India. At the same time, it is going to be a challenge also to address how do we make sure that our farmers are adequately paid? How do you make sure that the money flows into the rural economy, which is 65% of India's population? Sure. Does get the income to actually, you know, meet their needs and go forward. Sure. So I think it's a balancing act somewhere. But I've got a feeling that, you know, the sentiment for investment is more important than half percent interest rate. I think the important point is, these are doing business, the simplicity on the rule side, the attractiveness of investment, decision making, infrastructure. I think these are more important, which actually will bring an investment faster. Sure. So either on the cost of capital fees, you've seen even the Reserve Bank of India's Technical Advisory Committee saying, you know, there is a case for lower costs, lower rates. Do you think the time is now? Yeah. I just wanted to add there that, in fact, I did meet the governor earlier at the start of the year, and I was talking to him about the need for a kind of way to kickstart the economy. Interest rates would be a good way. And he gave me a good lesson in economics and talked to me about core inflation being high in India. I backed off, and I buy Geetha's point about him doing an admirable job of sending out signals to the world that our boat was stable, that we were not a banana republic, which was his first job to prove. But core inflation was eight at that time. Core inflation, Geetha, correct me if I'm wrong, is 5.9, okay, and head it down. And then at that time, beginning of the year, you didn't have commodity prices going south as far as they do right now, which means that overall inflation is going to be very benign as far as the outlook is concerned. So yes, there is no silver bullet, Ajay. I think you're right. It's a lot of things. But Geetha mentioned expectations. Psychology is important. What I need as a seller in the market today is I still see consumers holding back. They bought, like there was no tomorrow on Dhanteras, and then it went down again. So we are seeing spike behavior on part of consumers. We are not seeing them graduate to a level of higher spending. And I think it's psychological. A signal-like interest rate is not about math. It's about expectations also. It's about a signal of confidence, which is why I'm totally in favor of a reduction right now. Sure, let me also shift this conversation to budget deficit. Geetha, we were talking about the big challenge that this government, or India faced about a year ago, was current account deficit, budget deficit. This government, and its first budget, has said it's going to stick to that 4.1% target. Given the fact that oil prices have tapered off, do you think this government will be able to meet that target? Is that a headache at all? I mean, the factors are in its favor. What you mentioned about prices, well, prices for oil coming down, it certainly helps. The other measure that they took, which was to deregulate diesel prices, certainly helps. There is a lot of talk of divestments, which, if that happens, that will certainly help. And if growth comes back up to 6%, that will certainly help. Now, the budget itself did not provide a very clear path on how they were actually going to bring the fiscal deficit down. But there are many factors in their favor to keep the fiscal deficit kept. Would it be tough to argue with that? It's a complicated process. Fiscal responsibility is key, but it's also key in terms of the psychological piece that was just discussed. You've got to have confidence in your government, and if it looks like your government is handling the budget, which is really suited to the core of what a government does, then I think you're in a good place. But there are a lot of different levers that a government can use in order to be able to have, to ensure that fiscal responsibility takes hold, and I think you can mention many of them, and there are probably others as well. I want to shift this conversation to what's happening globally. Gita, you're seeing global monetary policy sending out extremely confusing signals. On one hand, you've got the Federal Reserve shutting the liquidity tap. On the other hand, you've got the ECB infusing money. Bank of Japan is infusing money. China is infusing money. What does that do to liquidity flows into India and impact of global growth on India? Right, I mean this difference in central bank policies is obviously a reflection of differences in the growth in these different parts of the world. I mean the US economy is an upcycle. It's experiencing a three and a half percent growth. The eurozone, on the other hand, is bouncing at the bottom and it's been bouncing for a long time at the bottom. Japan is being weak for a very long time now. So that explains why these policies are very different. And the question is what does that imply for a country like India, right? As you saw, monetary tapering came to an end, nothing much happened most recently because all of this was very well predicted. It was very clear that the tap was gonna be turned off at some point, very clear timeline. What's going to matter is what happens when the Fed starts raising interest rates. I think that's going to be an interesting event. That will happen sometime by the middle of next year, most likely. Now, the factors that make this less sinister than it might seem, one is that the Fed is in no hurry to raise interest rates back up to four or five percent. It's going to be very gradual. So maybe we'd have about 25 basis points, RAPMOS 50 basis points over the next year, but it's not going to be much more than that. Sure. Secondly, the reason that they're raising interest rates is because the US economy is becoming healthier. And for India, which exports a lot to the US, that's a good sign because there's increasing demand coming out of the US market. Now that said, I feel fairly sure that there will be market volatility when the interest rates go up, just because that's how markets work. Any change, any news about the liquidity changing in the market is going to cause some turmoil. I would be very surprised if it was the same level of turmoil that happened with the TAPA tantrum that happened last year. So I don't expect to see such big negative reaction, but there will certainly be some more. Do you expect capital flows that's coming into the markets to sustain? As long as the pull factors in India are good, as long as this particular government delivers on opening up the ease of doing business, or providing a more predictable, more certain investment environment in the country, in terms of not having retroactive taxation and things of that kind. I mean, India looks very much like an Oasis right now in otherwise fairly dry international landscape of growth. So investors are very optimistic. They want to put their money in India. And if this government continues its reforms, and one thing we can be certainly sure is that bad stuff will happen. Right now we have good things happening, oil prices are coming down, but there will be bad things that will happen. If oil prices go up, people will watch to see whether this government sticks with its policy of keeping diesel prices deregulated. Politics will get in the way, elections will come in the way, things will go wrong. And so the question is- We don't score up very well. Yes, exactly. The question is if we keep the reform agenda going, then I think India would be a very promising destination. Mr. Mahendra, one of the pull factors is about domestic growth. One area of concern has been the investment cycle revival. What can get corporates to start investing? What should the government be doing to get corporates to start investing? Couple of, here there are some very focused things which I think most companies would look at, and Ajay would like to hear his view too, is two things. One is stalled projects, whether they relate to power and infrastructure. There has to be visible signs of them opening up. Right now, what we see is a scorecard, and by the way, they do communicate here. They do have a kind of chart they give you of number of projects stalled, what the ones that have been restarted and what are the balance left. That's on paper. You know you have to go out there and see backhoe loaders and earth moving equipment, moving earth. When you see that happening, when there's real revival on the ground, I think that's when people will start to get confidence that things are going to turn around. That's still a while away, you think? I don't know, I don't think it is. The government doesn't think it is. We do make backhoe loaders, by the way. So no, there hasn't been an uptick in backhoe loader sales yet. So that's my closest sensor to telling you whether or not they started. But on the other hand, some really highly visible infrastructure projects rather than being announced, again, you've got to see some earth moving equipment out there. If that happens, I think everybody, including domestic businessmen, that's my view, Ajay, we'll move in. We might have been outliers, we never stopped investing. So I can't really comment from that point of view as if I've been waiting to excel and haven't, we've been investing, we've been in India long term. But yes, overseas investors and others who've been held up, I think they want to see some action on the ground. Ajay, same question for you. What can the government do to bring backhoe loaders? I absolutely agree with what Anand said. I think there are so many, there's such a large backlog. I believe it's almost six and a half lakh crores worth of project spending. I think once they pick up and take off, I think automatically the sentiment will change. But I think one more factor for a country like India is what is the change which is happening at the state level? Ultimately, if you look at it, Delhi as a city or as a UT, unit territory, is maybe a thousand square kilometers or whatever, the action happens at the state. I think what's going to determine the investment cycle to a large degree is what are the changes are happening at the state level to attract investment. There are two Harvard stalwarts here. I remember doing a course, reading a case study called factory in factory. It was case study on factory within a factory concept. I think in India we need to look at it as a country within country. We are so many states, each state, and it's a good thing now what is happening are competing with each other to attract investment. I think that is the only way they are going to become more investor friendly. They're going to become a more attractive destination. And I think the social side which has been now taken up, the Prime Minister, if I may just mention, the first time in any election that I can ever remember that we had a Prime Minister who campaigned only on development, growth, and governance. Otherwise we've always had people campaigning on free power and free distance and free that. I think that sets the tone of what the government wants to do. So I think the state level reforms, that is very important to actually start attracting more investments. Some states are moving faster than others and that's a great direction. A little more competition there will actually create a more conducive environment and those states will take care of their people better. So I think it's a great direction. Gita, are you seeing any evidence of the corporate sector investment coming back, any evidence around the economy that you're seeing perhaps those green shoots of the company? Yeah, so I see those numbers with a lag and I haven't seen that yet. No, I mean, that's what I said earlier on which is that I think we can be sure that the reforms are working once I see investment coming back up. If you look at most of the measures, if you look at measures of industrial production, consumer durable purchases, investments otherwise, those numbers haven't come back up fully. We haven't recovered from the slack that was there previously. So, no, it's not there yet. Mr. Bhaitra, one area of concern that several people pointed out, I think that India's become less productive. Would you agree? And what can be done to increase the productivity? What a hazardous question. We attributed with the statement that India is less productive. No, I'll be hounded out of this country if I say so. No, I think that's too sweeping a statement. We're too large a country to make any sweeping statements. I'm sure. We've always thrived under adversity, however much we appreciate that sound. Indian businessmen are almost like mutants. They learn how to survive with the most adverse circumstances. And I've seen pockets of innovation, frankly, that has thrived through this poor environment. The question is, how can you make that viral? How can you make these pockets of innovation get more widespread? And just as I said right in my opening statement, make life easier for the small entrepreneur who may not be a Silicon Valley innovator, just wants to do an honest business, wants to run an honest Kirana store, doesn't want to jump over hurdles to get there. That, to me, is the essence. We focus a lot on innovation and so on and productivity, but we are so far behind in productivity, not because India in its indigenous nature is unproductive. We almost seem to have created a system. What should have been a 100 meter race has turned into a hurdle race. And this is the role of the government, right? Absolutely, absolutely. Of state governments, not just one central government, but as Ajay said, of the state government. Just wanted to add again, Jigita was saying about investment, your question. I think, in fact, if I'm not wrong, the IIP in July, August, in fact, has been negative. So it's gone down. It was 3.8 earlier in Q1. It's now negative. Consumer non-durables, in fact, are pretty low. Nadev Godridge is in the audience here. Other consumer goods, I believe, are doing well, but the consumer non-durables are doing okay, but consumer durables haven't picked up at all. So we still, the indicators are not flashing green yet. Sure, I'll get to solutions in just a bit. Well, what are investors looking at? We spoke about what corporate India wants and so on. What are global investors? What do they want from this government that can change sentiment, that can change things on the ground? They want the ease of doing business. They want red tape to be cut. They want clarity. They want transparency. They want predictability. They want an educated workforce where the skills match the job requirements. They want to be able to, if they're a foreign investor, they want to be able to have a majority if that's what they choose to do. Lifting the ceiling on defense industry was a good step in that direction. They want an economy that they can depend on. They don't want a miracle. I don't think investors want a miracle, but I think that they do want some dependability. They want clarity and they want to know that the way they're doing business today, they can do a year from now. If you were to look at this economy, let's say six months from now, perhaps after the budget, would you say that the government should perhaps incentivize manufacturing? Is this the time to go and announce the stimulus? What should the government be doing to move this forward? I mean, there's no ifs and buts that manufacturing requires a lot of attention, and the government has at least advertised that by saying, talking about the Make in India campaign. They've spoken about it. The question is, what does that translate to into actual facts? And that's why I think that this government can't escape the big bang reforms for too long. What would the big bang reforms be? Well, I mean, among the big ones would be firstly, the land acquisition. You know, to make it easier to be able to work by land. I mean, that's the first part of doing any kind of infrastructure investment or manufacturing. The second aspect is going to be with labor, labor regulation. They've done certain steps. They've made kind of labor compliance with labor laws easier, but then there are the bigger questions about how to hire and fire workers. They have to build, you know, better infrastructure in just in terms of building capacity to help manufacturing. They've got to invest in human capital. So those things are potential bottlenecks. And this is very important to keep in mind because as India takes off and tries to regenerate growth and through investment, these capacity constraints can come and choke the economy and then that can feed into inflation and then we can hit another spot where you need to keep interest rates high. And so the big decisions will have to be taken sooner than later. I completely agree that patience is important to have, but I just think that they will hit those constraints fairly soon. The big decisions, the big bang reforms on land labor capital, Mr. Mahendra, do you think at least post the budget you're gonna see the government move all this? And do you expect this government to incentivize investments in manufacturing and so on? Whether we'll see them right after the budget, I do not claim any inside knowledge of what the government is going to do, but if you put yourself in that situation, the heat is really rising right now on them. I mean, panels like this raise the heat. When we talk about the need to move will talks, Gita will say something, there'll be other people. There is enormous pressure on them now to turn the talk into deeds. Walk the talk is frankly the subtitle of this conference, if you ask me. Public-private partnership is the ostensible title, but people are coming here to see that talk turned into action. So there's going to be enormous pressure. And frankly, I don't see an unwillingness to do that. It's not that you have to be an astrologer anymore to figure out whether they're going to do it. It's all about a matter of timing because their professed philosophy and ideology is that. I've said this ad nauseam again, but I remember in Washington, you were there at the US-IBC conference when he said, you know, I'm a Gujarati, so business runs in my blood. I can't remember when a Prime Minister of India ever said that. I had the courage to say something like that. So that is a statement of intent. It's not just hyperbole. He is talking about saying, I understand you. I empathize with you. I know what hurdles you're jumping over. So they're going to do all this, Harsha. We just want a greater speed. We want pressing the foot on the accelerator a little bit. And as we talked right earlier on, happily, Kismet is on their side, and there are a very great number of convergent factors from a macroeconomic point of view that are giving them the fuel to act faster than they might otherwise have been able to do. So from now to the budget, Ajay, do you think the government is going to move on reforms concerning land, labor, capital? I think so. I think it's going to be a continuous process. The pace may vary depending on the issue concern, but as a statement, as Anand said, what the Prime Minister made, I can't again remember any senior government official making a statement. Publicly, we are pro-business and we are pro-poor. I think that itself is a very positive direction and it indicates the government's thinking where they're saying that unless you get business, you won't get more jobs. Unless you get jobs, you won't get more income in the hands of people. You won't get rising income. You won't get more taxes. You know, the whole chain reaction is what they're talking about. So I think from day one, since the government came in, they're looking at changes positively. The pace may vary. We are going to have a budget session now coming up. There are a couple of challenging bills which require support from the opposition also. The government, I'm sure, is moving on that. I'm sure they're trying to see how to get things going. We have the FM this morning. He talked about the land issues also. He talked about changing some of the, whether it's insurance, FTI, et cetera, he talked about that. I think this government's policy is to continuously keep making changes, regardless of whether there's a budget, whether it's Christmas, whether it's New Year. They just want to continue making changes, continuously, regularly, in all areas. I mean, I think another important point, besides business, but it's very important for India, is the social sector. Just look at the work this Prime Minister and his team have taken up on the social front. Who's talked about cleaning the country? I mean, you know, from the ramparts of the Red Fort, he's set off a drive, which is driving everyone. I'm saying they're looking at various aspects. And he's, I think, carrying people with him. Yes, the pace we can debate on, but I think changes will happen, consistently happen. It'll continue moving. And we, I think, should wait for a year, two years to see a much more larger impact of what's happening. But changes are happening, which are very important. Will, do you see India removing restrictions on capital? What could be the red flags? While we're not talking about extremely optimistic about growth, what could be the red flags? Well, I mean, lack of growth could be the red flag. Inflation going up could be the red flag. Another point I want to make that doesn't relate directly to that, is that there's a lot that's going on in terms of capital flows and in terms of market volatility that have absolutely nothing to do with economics. Just take a look at Syria. Take a look at Iraq. Take a look at Ebola in Africa. There are a lot of factors out there that need to be considered. So when you're looking at the overall picture, there are things that are really beyond the control of the government of India and the prime minister. So he can do a million of these things or all of these things or some of these things that it may not make the kind of dramatic impact that people are looking for, which gets me back to my point and the point that others have made in terms of being patient. And that's why incremental change is really key. And that's why change over time, as opposed to Big Bang, is probably essential. If, what could be the rate of lags again, Gita? Same question to you. The reason I'm asking this is we are expecting this government to deliver in the next three to six months. What if it doesn't? What happens then? Well, I hope we will give the government a little longer than that. Okay, eight months. 56 months is a relatively short amount of time. I think the problem that can arise is what I said that things wouldn't go wrong. So a lot of things that look good, even in terms of the macro fundamentals, are fairly on edge. So for instance, let me take one statistic, which is the current account. The current account deficit right now is about 1.7% of GDP, which looks great. That's a very comfortable low number. But if you look at the most recent numbers for imports of gold, those have gone up quite a bit. I would not be surprised that in the next set of numbers that come out, it's not anywhere near 1.7%, but it's a much higher number than that. So you're saying the problem of the current account deficit can resurface? Yes, it can resurface. This is not like it's a permanently solved problem. The other thing is in terms of inflation, I mean, food inflation is about 50% of the CPI. Things can go wrong. You can have bad monsoons, weather can change. Those things can go bad. So the global environment has issues. Growth is weak in the global environment. So there can be negative effects. So what can go wrong? What would be disappointed to see if this government starts kind of slowing down reform in response to things going wrong? Because right now the environment is great. Everything looks fantastic. It's easy to push through reforms. The question is whether it will keep the momentum and will stick with it. Elections will come. There will be a temptation to have expenditure that gets votes. And the hope is that reforms will stick. The diesel price deregulation will stick and these tough reforms will be undertaken. Sure. We've been talking about reform measures like GST and DTT for a while now, Mr. Mahendra. If these things are not implemented, what could the consequence be? What could be the red flag? Well, the consequence would be that we just have to live with what we've lived with for a long period of time, which frankly is not something that I'm sanguine about. It's highly dismaying. I mean, what could be more of a no-brainer than saying you're a large country and you are preventing yourself from being a common market? You've got Europe creating a common market, breaking heads to do it. We are a unified country and we've broken ourselves up into a pre-European Union kind of Europe. It's ridiculous that trucks have to stop. I've heard figures that tell me that if you just didn't have those kinds of impediments at the borders, our logistics costs would improve by 3% to 4%. For every company, by the way, on its P&L, 3% to 4%. That comes back to are we unproductive? No, we are not unproductive by nature or congenitally unproductive. It's just that we are constantly finding that regulators or that an infrastructure is putting impediments in front of us. So I think that certainly is a no-brainer to me and has to happen. GST must become a priority. It's such an obvious thing. So yes, that would be a red flag to me. You were asking Gita earlier about red flags. If you see a flagging of commitment in that direction, suddenly you hear noises saying, you know what, GST is not important. We'll defer it. You know what, DTC is not that important. We'll do it later. Suddenly that old word that was bandied about a lot in the last decade or the last five years of paralysis, right now the mood in India is anything but parallel. I travel a lot and I remember in the mid-90s when things were moving here, I'd travel abroad and I couldn't wait to come back because the energy here was so intense. Pick up the papers and something new was going on. And then for the last five, seven years, it was no hurry to come back because nothing was going on. And suddenly you find that you come back here, every other place, I mean, New York seems placid compared to India right now. The pace of change here is so rapid. That starts slowing down. So I know this is a kind of abstract, impressionistic view I'm giving you, but to me that's important. That's why the world's attracted. It's attracted to the energy of this new prime minister, the new government. If that energy seems to go out, if we seem to be flagging again, getting paralysed again, to me enormous red flag. Vashriya? I think the pace of change which is happening, the government is definitely keen and the prime minister pushing it really hard. I mean, I can't remember a time to be serious with you when I wanted a time with the Secretary in the government of India and he said, please come at nine o'clock tomorrow morning. I mean, I don't think it's ever happened before that they are in office at that time. So I think these are the sort of things which are showing a commitment of a different nature altogether. Again, to be honest with you, I mentioned to a person in government working there, I said, I feel sorry for you because today the prime minister has no family, no children, no wife, no hobbies. There's only hobbies work. So you just have to take the bait in by the raw end and work on that direction. And he's pushing his people. So I think, frankly, we are positive things are going to happen. The pace may vary, but I don't think we should look at, you know, something going so drastically wrong that we're going to go back. I don't think that's gonna happen. Well, last round of questioning before I open this out to the audience. Geetha, you know, one year ago, we were talking about a possible race ratings downgrade. We have seen the S&P reset in its view on India. What do you think needs to change in the environment for a ratings upgrade? Are we anywhere near that scenario? I think it's the same things that we've been talking about, which is that if the reform pace continues, if the numbers, it starts showing up in numbers in terms of investments, in terms of consumer durable purchases, if the government is able to stick to its fiscal deficit target, which it seems to have every intention of sticking to, then that will certainly call for a rating upgrade. On that note, I'll throw this open to the audience. Please raise your hand, we'll pass a mic to you and ask you a question. Mr. Gaudiraj here, please. Can someone pass a mic to him, right at the first row? My question is to Anand and Geetha about inflation. You said that it was important to keep interest rates high to fight inflation, but recently Jim Walker mentioned that consumer prices in India have nothing to do with inflation in the classical sense. That's because a consumer price index is largely made up of items that are commodities or manufactured goods where the commodity component is 70 to 80%. We had a huge commodity boom because of Chinese demand. High interest rates in China can bring down Indian inflation. Not high interest rates in India. Indian prices equilibrate to global prices. You were right that keeping a strong currency is a way to fight inflation, but interest rates have no impact. The monsoon has no impact because in spite of low production in India, Indian prices of cereals, pulses, vegetable oils, even fruits and, not fruits, but vegetables, onions and potatoes have been imported into India this year. So the interest rate has no impact whatsoever and it's killing industry. We should fight inflation with the exchange rate. What do you feel? So I guess I partly disagree with you. The facts are in the numbers. We've had high interest rates for a while now and inflation has come down. Because global commodities prices have come down. Yes, let me finish. So I agree with you that the pieces that are feeding into inflation are in terms of commodity prices, in terms of food prices, are out of the control of direct monetary policy. But there still is a very good reason to use interest rates and here's the argument, which is that in India, there's a very high pass-through of commodity prices and food prices into other prices, which means that if you find people asking for higher wages because they live in an environment with high prices, higher wages are going to feed into high inflation, that's going to feed into higher inflation expectations and that's going to set off an inflation spiral. It's in that environment that keeping interest rates high is very helpful. Now there sits on my board and on my compensation committee so I'm nervous about giving the right answer here. If I disagree with them, my salary is going to be reduced immediately. I can see that. But now that the argument you gave, that's exactly what I talked to Raghurajan about in the beginning of the year and I referred to the lesson he gave me in economics is exactly what he told me just now. What he said was, look Anand, that's fine but core inflation is high and he's saying core inflation shows that long-term inflation therefore has a kind of sinister trend to it and that has to be controlled. He didn't disagree with what you were saying but he said I would be more sanguine when core inflation comes down, which is why I say to him now, if I had breakfast with him again, I'd say core inflation is 5.9, Raghur, down from 8, what do you think now? And commodities are on your side. Do you think you have a little room to give a small signal to the market that things are easy? I'm more concerned right now about the signal. I want consumers to get confident and start buying. Then you get into a virtuous circle. Anyone else? The gentleman in the third row please. Hi, good afternoon. Chetan Gupta from Samina Capital. We deploy a large amount of money, overseas money into India and honestly our biggest challenge is the rupee. We spoke about red flags. We love the entrepreneurs. We've partnered with Mr. Maindra and one of his ventures overseas but we just don't know how to make sense of the rupee and would love to hear everybody's views on how the government should be able to tackle it because it's partly reactionary to what's happening globally and partly in their control. We've seen the rupee stabilized considerably since the near crisis situation one year ago, largely due to the current account deficit. Is that behind us? What do you think? I think the stability level is much better. There's no doubt. We've seen it fairly stable between 60 and 62. I think it will stay in that level unless there is something dramatic which happened, let's say in the Middle East or some international crisis which can create a major turmoil. But I think the way the economy is going, I would feel it will be in this band. I don't think it's gonna change very much. You all right? It's quite impossible to predict exchange rates. And so to actually say where in exchange the rupee is going to be, it's just a hard thing to do. I think I will agree with what was just said which is that the RBI obviously steps in when the rupee was crashing. So the RBI has signaled that it doesn't really want the rupee to be very far off and where it is now. So that kind of monetary policy intervention is effective and that exists. There will be times when the rupee will jump around and I think when US interest rates go up there will certainly be some turbulence with the rupee market and you just have to hedge your exposure. Yes sir, the gentleman in the row right here, the central, just a moment so everyone can hear you. Here are the mic here. My question is on employment generation. We spoke a lot about economy, about industrial production, but if you just look at the rate of employment generation in the last five to seven years and if you look at the amount of young people we have in the 15 to 30 age group, so not just for the next couple of years but for the next decade and above, we need very high employment generation every year. You know, beyond just attracting more investment, what specifically needs to be done on that count? Do we need to reduce capital intensity of production? What else do we need to do to change that mix beyond just growth? You already did. Either anyone will have this problem. Labor regulation is one way. Education and training is absolutely key to employment. Making sure that skills match the jobs that are being created and if you don't have those sorts of education and training programs in place, it's gonna be very, very tough in terms of dealing with unemployment problems. It's a big push through many of the OECD countries to make sure that skills match jobs and it's not only for the young, it's also for those who are middle age. As old jobs go away and new jobs are created, you wanna make sure that your labor force is connected with these new jobs that are being created and that's one way of dealing with the whole issue of unemployment before I'd like to put it in point. And just to add to that, look on here. I think it's a very relevant question. I think for a country like India, we require 10 million jobs a year for the next 10 years. And just to share again the demographic profile, out of our 1.25 billion people, 65% are below the age of 35. 52% are below the age of 25. Between the age of 15 and 35, we had 425 million people. Our median age today is 27 years. And we have 47% of our population below the age of 24. So the job needs coming down the line are so dramatic. And I think this is where the government's approach towards increasing economic activity and accelerating growth rate. I think it's the only way we can create more jobs across the board. And unless we come back to 8% to 10% GDP growth rate, we will not add adequate jobs into the economy, which we are already seeing it to a degree. But I think it'll have a much more major impact on the social front, which is a big concern area too. So I think for higher and faster economic growth and more investments, more opportunities for jobs is going to be the only way to create more employment. And I would 100% agree with the issue of skilling. I think India has got a big challenge on that. I believe less than 3% of our population goes through skill training. Unlike Europe and I believe Germany, France and 70, 80% train. Unless we have adequately skilled people to fill in those slots, it's going to be a mismatch. So the government is giving focus on both. I mean, they put up a separate skilling and entrepreneurship division, department now, a ministry, they've set that up separately under the secretary. So I think they are serious on this. They have to move on it much more. Sure. You know, I remember when Bill Gates first came to India sometime in the 90s. And one of his engagements was at the Infosys campus where he was doing some kind of live broadcast. And it was interesting. At that time, India was caught up in this euphoria of how we were going to be an IT superpower. And the biggest misconception of the time was that we were going to somehow leapfrog over the manufacturing phase of an economy's growth. And suddenly we'd be in this wonderful valley where everyone would be an IT programmer and we'd all be happy. And he was the first person who threw cold water in that argument and he, very tentatively, because he's speaking at the Infosys campus, said that, you know, excuse me, I'm sorry. That's not what happens in a growing economy. And he took the example of China. And of all people, it was Bill Gates who first said, you cannot leapfrog the manufacturing sector. You have to make it more productive. You cannot ignore it. And at that time, I remember there was a number of just about two or three million people employed in the IT sector. And he said, look, that's all you're talking about. And as he said, even in those days, it was about seven, eight million jobs a year you needed. And coming from him, I think we should have listened earlier, listened harder. What is needed? Labor regulation. I think we should take that squarely, take that challenge up. We cannot shy away from it. If we've got a prime minister who's brave enough to talk about toilets, you should talk about labor regulation as well and say, we cannot shy away from this. Education, skilling, certainly. And I think ease of doing business, because finally, it's small-scale manufacturing that provides most of the jobs. Just make it easier. At the risk of sounding overly repetitive, let's focus on the small guy. Let's make it easier for those businesses to be set up. Can I just add one more point? Sorry, just very quickly. You're absolutely right. It's the small firms where the jobs are created. But it's not just the small firms. It's the young firms. We have found at the OACD that young firms is really where the jobs are being generated. So you've really got to be able to help those firms by cutting red tape, by getting capital infusion, so that they can be created. And the new firms will create new jobs. I've got time for it. Sure. I think today that on our GDP, manufacturing is about 15% of our GDP. Government's policy or desire is that by 2022, we should come to 25% of our GDP. I think that is needed. That is where we actually need to give a tremendous push to create jobs. I've got time for perhaps one more question. The lady behind. Thank you very much. My name is Malani Mehra. I'm Chief Executive of Globe International, Global Legislators. I'd like to talk about the fact that we haven't talked about yet. And it refers to the risks in the external environment. It's about climate change. And I'm going to pick on something that your boss has been talking about, Mr. Danvers. Anja Khureya, who has talked about the risk to business posed by not managing climate risk. Climate risk is not just an energy issue. It's a food and water issue. Critical aspects of constraints for this country. The Prime Minister, our new Prime Minister, hugely energetic. Many warm things have been said about him. But he made the strategic decision not to attend the World Climate Summit in New York, at which many world leaders did attend. And significantly, many business leaders attended. More than 1,000 CEOs of the world's leading companies agreed to a carbon price and carbon tax in their spheres of influence in their jurisdictions. I'd like to ask you, Mr. Mehendra, I've been snapping at your heels on this. And I see you as an ally on corporate leadership on climate change. I'd like to ask you what you would wish to do in the coming year as we move towards a global agreement on climate change to encourage climate-resilient decision-making in India? Can you repeat the last sentence? I lost you the last sentence. Ja, what would you do in the coming year to increase decision-making decisiveness on climate-resilient growth for India? For my position, what I have to do is walk the talk, frankly. There's no point getting up into a pulpit and sermonizing about it and paying lip service to it or making it like the old-day CSR, a box to take. I'm proud to say that we have consistently produced the GRI report. We have been listed on the Dow Jones Sustainability Index. We have one of the companies listed in that in the world. So we're walking the talk. But I'll be honest, we're walking the talk not because we see ourselves as messiahs. It's good for business. It's good for business for a couple of reasons. One is that just as going into overseas markets challenges you and forces you to innovate or competition forces you to innovate, environmental pressures and being more efficient in your use of resources forces you to innovate. So to me, I'm not doing good. I'm simply forcing the pace of innovation in my company. And if I can disseminate that view in the company, I know I'll get more believers. Not simply by saying, we must do this because hallowed be thy name. That's not how we look at climate change. And so my only message to everybody else will be, there's profit in this. There's profit in this not only through carbon credits, but by forcing the pace of innovation in your company. And the second profit in it is there is a widespread movement from consumers to buy from environmentally ethical companies. And people who are missing this movement are just going to see their market share erode very gradually over time. So one of the biggest projects we are working on, not in terms of size, but in terms of bets, is an electric two-wheeler we've designed in California and are making in Michigan. People are saying, why would Americans buy this? I'm betting they will. Not because they've always spent their whole lives wanting to ride an electric scooter, but because they feel that's the right thing to do. That's what mobility of the future means. So there's profit all around climate change. And the way to appeal to a businessman's heart frankly still is through profits. Can I bottle what he just said and send that globally? That was very well put. It's coming from an accomplished businessman. And that's the kind of thing that we need in order to be able to get climate change really to stick. Because climate knows no borders. This isn't an Indian problem. It's not a Chinese problem. It's not an American problem or an Indonesian problem. It's a global problem. And if we don't begin to deal with it, we will pay the penalty for it. And it will hurt us economically. It will hurt us socially. It hurts in terms of health care. And this is the kind of tough sell that I was talking about earlier in my presentation there. You've got to communicate the need to make these changes. And that's why I think what you just said is so important, because it's coming from a businessman. All right. I'm running out of time. Thank you all for joining us in this panel discussion. I thank all my panelists as well for joining us today. But please stay on. Coming up next is an award ceremony. It's the Forum's Global Growth Companies Awards. I'm handing it over to David Eichmann, Madden director and head of new champions at the World Economic Forum. Thank you all. Thank you once again. Thank you, Harsha.