Jeff Immelt, Chairman & CEO, GE in discussion with Anand Mahindra, Chairman, Mahindra Group and Finance Minister Arun Jaitley on India – The Big League. Where India lies right now and whether we are ready to take the next leap forward

Edited excerpts:



Jeff Immelt: GE today is about a $130 billion global company and about 70% of our revenues come out of outside of the United States. I have had the opportunity to see India first hand, see the development and watch the country over a long period of time. So it is always great to be back in a country where I have so many friends, people like Anand and others. I think we look at India at a time of real strength.



The first thing I would say is thinking about India for India, you know, how is the market doing, how do I see it evolving and I see good steady economic progress. When I look at our businesses here both from a revenue standpoint and from an expert standpoint, both are growing at a rate of substantially more than 20%. There are lots of opportunities in the markets but more importantly we are able to add new capability when it comes to India. Two years ago we opened up our first really large scale manufacturing facility in Pune. Already in its second year, it has $500 million of contributed value. So in just two years we have been able to establish a world class manufacturing facility. We see good potential in new areas like rail investment, defence investment, expand our power sector and other sectors across the company.



For the first time, we see the capability to really drive great digital context in the country in the industrial internet and continue to expand our work. As a market, India is emerging, never in a straight line but as a stable dynamic grower on the world stage. That is only half the story. The story is how India fits with the world and I have the opportunity because we do business in almost a 190 countries around the world and can compare relative economic progress and I see India on the rise.



For the first time I see the ability to be both a manufacturer and an exporter. I think we live in a digital era. India will be one of the most substantial if not the most substantial digital country in the future, both from the standpoint of the consumer internet but also the industrial internet. So when I look at the big pillars of productivity in the 21st century India has a chance to lead.



I also see an unstable world, not a terrible place but a slow growth and volatile world and on a relative basis I think India can rise up both geo-politically and economically to have more influence on the rest of the world.



In our healthcare business we now have all of the developing markets are run out of India so no longer do we just do things in India for India but we do things in India for the world. So as an outsider I would say that the perspectives are quite positive, both in terms of economic growth in the country but more importantly how India fits with the world. But we have the opportunity tonight to really interview each other and we have a chance to have our own kind of fireside chat up here.



Maybe two weeks ago I am sitting in the United States and I read a little story in Wall Street Journal on demonetisation in India, a very small kind of hidden story and I thought it was interesting and then I land in India two days ago and I found out how seismic and how far reaching this policy really is. I thought I would turn to the minister and just ask you to give us an update on demonetisation and how important it is and the impact it is going to have on the country which I think most people outside India have no idea of the context and the importance of such a bold and dramatic move.



Arun Jaitley: Well before I just answer that specific question I will just add to what you said in your opening comment. You see India’s relevance and the India’s roadmap can be judged from two, three other basic parameters; the first being that when the world does well almost everybody in the world does well. But I think the real challenge comes for any country to defy the global trend when the world is finding it difficult to move, India is one of the few nations which has defied that trend. Secondly, India has displayed its capacity to take decisions. While the world has moved more towards protectionism, including the developed world, India as a developing economy has increasingly moved away from it. You do not have single protectionist voice being raised as far as the country is concerned. It has become increasingly more aspirational, making it possible for us to take difficult decisions. A very large constituency of people are supporting difficult decisions.

The new normal



I used to hear a phrase where are the big bang ideas? So you had the Aadhaar platform, one of the largest platforms in the world being actually legislated and implemented. You had the insolvency, bankruptcy provisions by a unanimous vote, you have a GST by a unanimous vote and now you had the demonetisation decision. We have moved away from a problem which developing countries normally have that decisions are questioned as being colourable, corruption, has been left behind and now you have an agenda where serious economic issues occupy the space.



Now coming to this the currency issue, so far formally the high denominational currency has ceased to be a legal tender, some more legal steps will be required later on if one is to extinguish that. I think it is important to realise as to what was the Indian normal for the last 70 years. It had almost become the Indian normal to have a parallel economy, a shadow economy. It was almost a way of life and therefore when you had a very large chunk of currency outside the banking system you had a narrow taxation base because the shadow economy itself would bypass the taxes itself.



Banks were becoming somewhat a challenge if not a vulnerable positions. I think that is the normal in which were functioning. This one decision now redefines the Indian normal. There is a new Indian normal. Now 15 years ag,o the same parliament where some of my friends from some of the parties said are we close to a digitalised economy or are we close to being a credit card economy or a plastic economy, the leftists would normally oppose any reform are making fun of the idea itself. Now 15 years ago if somebody had suggested that every poor man in India will have a mobile phone people would have laughed at him. I think it is the same psyche. Once you start moving, you will move to a situation where the farmer will receive his money from the trader by the electronic mode, he can buy his seeds and fertilisers by that, he can pay his children’s fees by that. Today you have people in the plantation sector or in some industry say well I always pay my workmen in cash. Why should your workmen not have a bank account itself and you should automatically transfer it to them?



Just as the telecom revolution took place, I have not the least doubt that five or eight years down the road probably the new Indian normal is going to be different. We are going to live in an entirely different kind of an economy. Now if you would have asked me let us say a month ago as to what were the areas we were doing well, we had a lot of public spending going on, we were firing on that engine, we had a lot of foreign direct investment, we had some urban demand, we had some rural demand likely because of a good monsoon. And then you said what are the big challenges?



Well the banks’ ability to support growth itself was limited because of the NPAs, their lending ability was a little suspect, the private sector was not bringing in the kind of investment which was required and of course the global situation is somewhat slow.



Now let us see the impact of this decision in the medium term and the long term. It suddenly has pushed up the ability of the banks to lend and lend at a cheaper rate. So the ability of the Indian banking system to support growth, to support the economy which itself had become extremely doubtful suddenly finds the banks are now flush with funds coming into the banking system. There may be an element of compulsion in it, and these are low cost funds, so these low cost funds are going to be lent to Indian businesses, to Indian trade, to Indian agriculture, for India’s infrastructure at a much lower rate today.



And of course, the private sector, which was feeling stressed, gets directly impacted. Overnight you have two powerful engines being added to whatever the existing engines were and then of course in the long run, it is going to change the way the traders will trade. It is going to change the way that we will manage our household budgets, it is going to change how farmers will manage their systems, it will bring more transactions into the banking system, you will have a cleaner economy, bigger economy, a bigger taxation system. And I think this one decision as I said in short redefines the Indian new normal.



Jeff Immelt: And Anand, what do you think?



Anand Mahindra: Let me not try to give any incremental value. It is hard to that because he has defined it with a phrase I think that is going to stick now in peoples’ minds; the new normal. But since you asked the question, let me just add a perspective that might give you some corporate context. I have been looking or hearing the public discourse on this for the last few days, one of the things was why did you this? Could not you have done this as well and is not this risky? And I am thinking to myself wherein the business that you and I are in as leaders are in fact expected sometimes to take very bold decisions and we laud them. I dare say you and I would have lost our jobs a long time ago if we had not taken some really bold calls where we did not know what the answer was.



We idolise Elon Musk and Richard Branson for stepping into the unknown. Elon is doing space exploration, some of his crafts have not taken off, Branson’s exploded. We never question that but the discourse following this I think was not appreciative enough of the boldness of the decision and then there has been an incredible of questioning on execution rightly, but then on this went wrong, that went wrong, I think you and I know and our friend at HBS who talks about entrepreneurship tells you that in today’s world you do not plan business according to a budget and then go out and make it happen to the budget, according to budget.



The way you work today is you have a plan, you have an aspiration which has to be bold enough and correct enough and nobody is arguing about the correctness here, but then you do what they call learning loops.



A series of small concentric learning loops is what makes you succeed. Now I would have faulted this if there was not a war room in place which there seems to be in government, everyday learning what is going wrong and trying to fix it, acknowledging that this may not work. Rather than indicting them for this, this needs to be lauded. So that is one context.

The other thing people have been talking about is that yes it is bold because the prime minister’s risks alienating his constituency, I think the traditional constituency has been one of the traders, the businessmen, the small businessmen and is he really alienating it and arguably they have been praising him. I have a very intriguing possibility that I am thinking of and may be this will take it back to you. President elect Trump has apparently succeeded by tapping into a vein of angst in the public, the working class public, that was really angry with the establishment, that felt they were too cosy, there were vested interests and he tapped into that vein. I am beginning to wonder if the prime minister may actually have tapped into a vein in this country that was angry with this establishment that felt there was too cosy a circle of vested interests, of corrupt interests that were thriving on black money and I dare say that is why we are not hearing about very significant unrest.



An American private equity banker who came in and saw me day before and was asking me about this and he said you know it is interesting, I do not see unrest on the streets, if this was Paris people would have been on the streets by now. If it was really something that was causing an incredibly hard and critical amount of inconvenience, people would have been on the streets. Now I know I am not in a win-win situation here because the moment you say this I will get loads of tweets back that have you ever stood in a queue in your life? Do you know what inconvenience is? I am willing to withstand that but the fact is this has been a very bold move which we should respect. And secondly, it is going to be interesting, time will tell, I think he has tapped into a public sense and a public sentiment there that may in fact work in his favour.



Arun Jaitley: I think I will just supplement what you said for two good reasons. You see at the end of the day Indian traders, shopkeepers, retailers will also realise that formal, official trade is certainly a superior way of doing business than just the shadow economy. It has its own pitfalls and therefore by this shock therapy bringing everybody into a cleaner system of economy is in the long run going to be welcomed by all.

Secondly, I cannot recollect another decision taken in recent Indian history in the last several decades which was ethically and morally so correct. Every honest man felt I have no reason to be worried. I think that is the reason why there was a popular support behind this. Now just one issue I would like to join issue with some comments which I have been publicly hearing on the execution part. I do not think this could have been better executed than what it is being executed now.



Let us first try and understand how a decision of this kind is taken; you are replacing 86% of India’s currency and you have to replace this without any social unrest, without any significant economic disruption in a matter of couple of weeks.



Now while you do this, when you take this decision, a substantial part of this currency has to be printed in advance. A currency printing is an exercise which can take years in some cases because of the security features and the speciality which is involved, it is not a month or a two-month exercise. So you have to take decision, you have to actually have the printing ready, you have to have 4000 currency chests, the currency to reach there, you then have to make bundles so that it reaches 125000 banks, 200000 ATM machines, 86000 banking correspondents, 130000 post offices so about five to six lakh distribution points.



You have to keep this a secret and then suddenly the RBI board recommends, the cabinet accepts and within 24 hours the implementation begins. Now obviously when a currency replacement takes place, there is bound to be initial inconvenience but you do not have a single major incident in the whole country. It is moving smoothly as everyday passes by, today I went and saw the banks myself, the queues have become extremely small, and this is all over the country and in the next one or two weeks we particularly will have to make sure that more and more currency reaches the rural areas because that is where it is required.



Now in recent memory, this is the largest currency replacement that has taken place anywhere in the world. There have not been a bigger one and to achieve this without even a small incident in a matter of couple of weeks, eventually when the history of this period will be written it will be commented on, oh why should people stand in a queue and so on. Well you have to decide whether a few days’ inconvenience you can bring about a significant change in the way people live, in the way people spend and in the way the country then manages its own economic affairs.



The government of India gets about Rs 8.5 lakh crore on direct taxes, let us say this year, we get about Rs 8 lakh crore in indirect taxes. If everybody honestly paid his taxes, what should this figure have been? Would we at all have deficit budgets? Would we at all have inadequate money to invest into the rural areas? The answer is very obvious and therefore if the GST comes which is a more efficient tax system where evasion becomes more difficult, if you have a much wider taxation base on direct taxes our ability to reduce the level taxes itself in terms of percentage itself will increase and then you can widen the base. And then it is much better to have a much bigger GDP and a cleaner GDP as far as India is concerned, that is the whole object of this exercise. Now to say well there is a queue, an old lady was standing in a queue and therefore we should never go in for a reform of this kind, I think eventually we will have to take a long term vision of the comparative advantages.



Jeff Immelt: Minister what I learned, maybe when really you are in the middle of a big change process like this, do not read the newspaper or watch TV. That is what I have always tried to do, just stay in the moment and I always figured that when you are the news, you do not have to read the news.



Anand Mahindra: But we do want people to watch this programme.