Hello and welcome to this very special show on NDTV Profit. In just over a week’s time the largest economy in the world will have a new President. The United States election is being watched all across the world with great interest of course in India and for India Inc. What will it really mean for India and how will Indian companies position itself as we try to engage with a new American president? Remember both John McCain and Barack Obama for obvious reasons want to be very different from what George W Bush’s 8 years has been. But at the same time India seems to have benefitted immensely from the 8 years of Bush administration. Look at the nuclear treaty, or look at the heightening business relationships. Obviously lots of gains for India Inc, but from hereon, what will it look like?
Over the next five days or so we will tell you what India should expect and what India should try and do. We kick off the show today with two very special guests but first to tell you what’s really on the show that we are discussing; first, of course, how should India deal with the new US president? Will the rules of engagement change in a recession hit world and how should India Inc position its demands when it comes to the new American president? It could be John McCain or it could be Barack Obama. Of course if you were to believe the opinion polls- it is all about Barack Obama. But just to introduce my two special guests- Dr Tarun Das, Chief Mentor of CII, to tell us what India Inc has been doing for so many years and the track to diplomacy that he plays very well. Also Professor C K Prahalad, a very distinguished professor in the US to tell us his consulting with the American companies, what kind of thoughts actually have come through in their minds.
NDTV: Just to give a perspective, it is so close yet so far; the Indo-US trade in the year 2008 is expected to touch about $50 billion, whereas the China-US trade is expected to touch $400 billion in 2008. So are we really looking at something which we can compare when it comes to our competitors, when it comes to Indo-US relationship? Also, how long could it take- what will India need to do to step up business with the US, which sectors could take the lead? Those are some of the questions we are posing to our two special guests. Dr Tarun Das, first to you - will the rules of engagement change as we go along because there is lots happening across the world it looks like - recession hitting the US, financial markets in crisis…obviously India Inc cannot talk the same language as it has in the past few years.
Dr Tarun Das: Shivnath, I don’t think the rules of engagement will change just because the President changes. I think the rules of engagement may change a little bit because of the global financial crisis and the implications of that. But even there, my sense is that, the relationship will continue to be reinforced rather than weakened, trade will continue to grow, investment will continue to grow - both ways by the way because we are also investing in the US today over the last few years. So I’m not concerned that the rules of engagement will change, but Professor Prahalad probably knows much more on this than I do, and I would love to hear what he has to say.
NDTV: Right, let me pose that question to Professor Prahalad, in the context of China as I read out - look at the difference in the trade quantum, yet in India we talk about so much hype, we all know China is a communist country…but Professor Prahalad we are in two different races almost it seems running parallel and we may never be able to crisscross China’s path when it comes to dealing with the new US administration.
C K Prahalad: I think we need to recognize that China started 10-15 years before India started in this game; but I think what India’s advantage is likely to be is not necessarily outsourcing. We have to do some outsourcing but allow India to become the innovation arbitrage for large US companies. Because if we think about what the recession is going to force companies to do, it is not only reduce cost but continuously search for new sources of market growth and opportunity. So I believe in the next six months, innovation is going to be very high on the agenda of almost every American company. And I think India has a tremendous opportunity to become the innovation partner for US companies – and that may strengthen the relationship because it’s R&D, it’s product development, it is more than manufacturing, and more than outsourcing of IT services. So I think it will strengthen the relationship lot better and it’s also more difficult for either Indian companies or the American companies to disengage from each other because they will be continuously joined at the hip. So I see something positive coming out of this relationship.
NDTV: But Professor Prahalad, given that you have spoken with so many companies in the past and both the leaders right now, Barack Obama and John McCain, seem to have a slightly different take on the way they would handle the recession hit US economy- in that backdrop, do you see American companies actually also pulling their hands a little bit back- because of course innovation should be the key and should be the way out, but it looks like politics might start affecting business just a bit in the US, specially in the light of the US financial crisis?
C K Prahalad: I think the financial crisis is going to dampen enthusiasm for new investments and new businesses in the short term, but it’s very clear and I think if you already look at the financial crisis on the one hand and if you look at the quality of earnings and certainly the quality of operations of global companies coming out of United States – they are in two different places. So the fundamentals of operations of global companies from the United States outside the financial services- the manufacturing companies, the product companies and certainly retail- people still have to eat, still have to buy goods and services- so I think they are going to be fairly strong and I believe that globalization is going to continue. It’s almost like gravity- we cannot deny gravity. But there might be some show stoppers in the short term, but if you look at the two year three year period, I believe that the relationship will strengthen.
NDTV: Alright, Dr Tarun Das, in your assessment and you’ve dealt with so many American leaders as well- what’s the fine line of difference that does comes across? Of course nobody denies that India is on top of the agenda and India should position itself better, but let me just ask you, how long will it take us to really achieve the potential and which kind of sectors do you see taking lead because at the end of the day IT was the big talking factor for the longest time but now from hereon where all do you see the huge cooperation coming in- whether it’s McCain or Obama?
Dr Tarun Das: Shivnath, I see it right across the board frankly. One new factor, is this relationship, this trust, this mutual confidence, which has evolved over the last few years- this is a huge factor. US companies are increasingly comfortable with Indian companies and vice versa and to use Professor Prahalad’s words, joining at the hip has actually happened already and will grow. So, look at manufacturing, look at contract research, look at life sciences, hospitality, Indian companies investing there, their hotels expanding here like the hired group and others- so, services, manufacturing, infrastructure, all of these will grow, and of course, you’ll come to that probably later, new opportunities open with nuclear power and that whole area. So, to me across the board, not just services, not just IT, lots of others- let’s take healthcare; I mean in India today, we have a huge demand of world class healthcare. We need investment, we need standard setting, we need training, we need accreditation, investment opportunities of all kinds for US industry.
NDTV: But Dr Das you cannot deny that at a time of recession obviously such capex, such investments are held back- so the question that we are asking is about the rules of engagement- the reason why I asked you the question is of course, recession could redefine a lot of those investment plans not just for the companies, but the way a political establishment looks at things. Also India, will of course be an ally, but India Inc could be seen as somewhat of a threat. Wouldn’t it? Because when Indian companies go and buy companies there, there are questions of shipping jobs back here- and I am talking of manufacturing, I am also talking about IT companies buying American companies. Do you see that difference between ally and a threat becoming a bit accentuated under either Obama or McCain because they have to protect American jobs?
Dr Tarun Das: Well of course, we are not an ally, because an ‘ally’, in the traditional sense is subservient in some ways, but we are a partner and a growing partner. As Professor Prahalad said we came into the game 10-15 years after China, and we are growing; but $50 billion dollars today, Shivnath, is like double of what it was a few years ago. So that’s the kind of growth which has taken place. I don’t see this business of threat – because when we are doing business in the US we are adding value to them, we are adding employment- we are not taking away jobs. Indian companies are engaging the US in a very positive sense and what I feel is that US is more and more comfortable with our business strategy, our model of doing business, which is a completely different model from many other countries. I’ll ask Professor Prahalad to add to that.
NDTV: Professor Prahalad, between the two candidates, (just to take off on Dr Das’s point)- between Obama or McCain, what kind of differences do you think are there in their handling the exact situation that Dr Das said? Yes, India is best suited for American businesses but between the two candidates do you there could be a difference in approach or style?
C K Prahalad: I think there is going to be more stylistic differences than fundamental differences in what they will do. Because if you really look at it- the American industry is so complex, there is no one prescription that will fit all kinds of industries and businesses. And many of them already have significant assets in India. Take for example a company like IBM- they employ approximately 75,000 people in India- that’s the largest single employment of IBM outside the United States. You cannot just dismantle that infrastructure, because qualitatively that infrastructure is becoming more high-tech, more innovation driven, more globally connected with the rest of the IBM system. So, if you think about what I think is likely to happen, in either case, India may be more integrated into the global network of American companies than it has been. And that I think is a very positive thing that you’re not a stand alone entity on which you can do bilateral relationships but you’re part of a network in the global system. And I think that’s going to happen increasingly because the search for talent, the search for low cost, speed and quality, is going to drive us, and the political process may have minor influence but not a significant influence. So the difference is going to be mostly stylistic.
NDTV: Right, I like the use of the word ‘stylistic differences’, not really differences in principle.
As a run up to the US elections, how will India Inc, Indian businesses and Indian companies benefit under the new administration- whether it’s Barack Obama or John McCain. A lot of people are saying that Barack Obama should actually get voted in but should follow John McCain’s economic policies. Well, both of them has this one big huge task to take the US economy out of recession and to manage this global financial crisis that has struck the entire world. It’s the biggest US export- that’s what people are calling it. But first off- what would be their take and how will they approach-John McCain and Barack Obama on the financial crisis?
Alright, the big question is- again we go back to the same point to Professor Prahalad and Dr Tarun Das about the extreme steps- let’s just try and look at the details of what a recession does bring about. And Professor Prahalad, let me just ask you, if I look at some of the past record of Barack Obama, on immigration, he’s taken a bit of a tough stand in the past. Farm subsidies is another bit of a touchy issue. Also in terms of protecting jobs, if you look at the way a new president might want to come across saying that, look, I want to protect jobs of Americans right now; let me ask you this, in a recession struck economy like the US what kind of extremities do you expect in your experience?
C K Prahalad: Irrespective of who is going to be the president, and certainly if Mr Obama becomes the President- there is going to be one big change that is going to take place, and that is going to be some regulation of the free markets. And I think we may go and get something like Sarbanes-Oxley which ended up after ENRON; you may find that there is going to be a fair amount of regulation of financial markets and I think some regulation is probably a welcome thing and it is going to happen under either president.
But with Barack Obama it may be a little bit stronger and more immediate. There is also going to be deep discussion and concern over executive compensation on the dysfunctional consequences of excessive compensation. So that I think is the debate that has already started not necessarily in the government but in the private sector itself. So that is going to get played out; especially when a public tax payer’s money is being used to bailout institutions, there is going to be fairly strict conditions imposed on what the executive compensation can be. Now it may not be definite for a long period of time but one thing that is clear is there’s going to be a national debate on the compensation, the levels of compensation, and the variation in compensation that different jobs should have. So I think those two will certainly take place. Whether immediately they will be able to reverse course on globalization of American companies through the minor incentives, that’s an open question. I think that may be as much political rhetoric during a campaign rather than reality of what’s likely to happen.
NDTV: Dr Das, in terms of your understanding of whenever you’ve talked to democrat policy makers and you’re in touch with a spectrum of people, I know that- both on immigration and I will in fact take it as an outsourcing of jobs or in terms of farm subsidies, and I know that the democrats are not so much in favour of free flow of labour coming and trying to take away American jobs- tell me, what is the worst case scenario that you foresee, whether it’s McCain or Obama- in a recession led economy?
Dr Tarun Das: The worst case scenario, Shivnath, is that US companies and the US government for the US companies wants to regain competitiveness. So they will want partnerships that will help them to regain competitiveness and to keep their heads above water. Indian companies will therefore be needed in the interest of US companies and also in our mutual interest to be partners, to provide all kinds of goods and services even in a recession situation. Because we are now competitive, both in products and services. Ten years ago if you’d asked me, that will we be able to be partners to the US in manufacturing, I would have said no. We were running scared of competition. It is Professor C K Prahalad who gave this vision that we could be globally competitive in manufacturing. And that’s actually happened after years and years of restructuring and pain. Today we are able to be a true partner on manufacturing- not only in services. So my sense is going forward recession will create new opportunities, not less. And this is because the share holder in US, the management in the US, the CEO, has to deliver results, has to keep going and not to die.
NDTV: Now, you’re a die-hard optimist- I know that; I know you were coming to that, that you hope that they will look at opportunities in recession. Let me focus a bit on the nuclear lovefest- we’ve been talking about this whole civilian nuclear capabilities that India will get- the question is will Indian capabilities get a boost? Will there really be a huge exchange of technology triggering a jump in Indo-US trade? Professor Prahalad, lots been written about it, now it’s history, the deal is through- when do we see the tangible benefits, and how are American companies bracing themselves for such huge opening up of possibilities?
C K Prahalad: I think the first thing I like to say is, yes, it is Indo-US deal in terms of nuclear agreement, but that’s a very restrictive way of saying it. Because where US is the key player who chaperoned this whole process, it is really India connecting with the entire supply base in nuclear technology. What it does is, it legitimizes India, and therefore I expect not just the nuclear power to come here, nuclear technology to come here, but opening up India to be able to access a wide range of technologies, much more openly. So this deal has allowed us access to more technology options. It may be as simple as going from solar cells at one extreme to technologies that are required in order for India to become a major player in ICTE manufacturing . So there is a whole range of opportunities that are opened up and I think what this deal has done is, opened it and legitimized it and therefore we should be able to capture not just only the nuclear part but the range of technologies that we would be able to access much more openly than we did five years ago.
NDTV: You don’t see any of the new presidents taking a go slow line on that – you see further momentum on that?
C K Prahalad: I think either of the two when they become the president, they will totally endorse what has happened and they would continue to increase their quality of engagement with India. So I don’t see any reversal in this engagement at all.
NDTV: Dr Das- your quick take on the nuclear bit- I know you’ve really really pushed it very hard- in terms of tangible benefits, the huge opposition in India was that there will not be any tangible benefits in the near short term; now, either Obama or McCain, do you think one of them could be the big trigger? I mean, irrespective of the administration, post the 4th of November, do you see a big push and a benefit for Indian companies?
Dr Tarun Das: I think there is going to be a huge program of nuclear power development in this country- it will be led by our Atomic Energy Commission supported by the Nuclear Power Corporation of India. Private sector in India will have a role to play- a much larger role because public sector capabilities and capacities will not be sufficient. Public sector will also have a new opportunity – companies like BHEL. Plus foreign companies will come in because our program will be too much for indigenous capability to manage all of it. The collaborations are being discussed now, negotiations are on between companies and you will see, not only US (and my American friends may not like to hear this) but there companies around the world who will offer technology and will be in the room with us in this nuclear power development. It is a deal between India and the world; US was the gatekeeper, US was closing the gates at one point of time, they’ve opened it now- this is great. They will also be in the room with our development but they will not be the only ones in the room and not the only ones to gain.
NDTV: Alright, Dr Das, Professor Prahalad, one quick final answer – 30 seconds for the two of you- we might have a new government back in India as well; Dr Das are you a bit worried as to how the new government in India will want to deal given the political permutations and combinations- clearly it’s not throwing up one clear majority?
Dr Tarun Das: I believe that any government in India will think of national interest, national development, national growth and the well being of everybody. We need development and growth more and more because we still have to bring 600 million people out of poverty. Therefore we will engage the world increasingly to make that happen. I’m not worried.
NDTV: Professor Prahalad, our left friends didn’t really take kindly to the nuclear deal; they could still be the dark horse or Mayawati could be the dark horse- do you the Americans, whether it’s Obama or McCain under their administration will have some bit of a nervous pang looking at the Indian elections in February?
C K Prahalad: I think yes, like we are nervous about what is likely to happen in the US, legitimately they should be nervous about what will happen here. But I think Americans respect democracy and the democratic process. So whoever becomes the leader here they will have adjustments to make but they will figure out how to deal with a new leadership. I don’t expect the broad direction to change dramatically but both sides may have to adjust a little bit.
NDTV: Alright, lots of adjustments being talked about. Dr Tarun Das and Professor Prahalad, thank you so much for joining us. Just a recap of what you both said – Professor Prahalad, the new president will have only stylistic differences so we don’t need to get too worried, and India Inc and US is now joined at the hips. So that’s a key comment coming in. Dr Tarun Das- across the board all sectors will benefit, irrespective of whether it’s Obama or McCain and of course India’s rule of engagement will not change. Thank you for joining us on this special show, India and the New President.