Blanket rewards during polls not a good sign for economy: Neeraj Aggarwal

I think public sector banks have come out of the highs of NPAs, says Aggarwal

Neeraj Aggarwal, the Asia-Pacific chairman for The Boston Consulting Group, talks to Subhomoy Bhattacharjee on a range of issues facing this country. Edited excerpts:

How do you read the renewed confrontation between India and Pakistan? 

It does hurt our image abroad. But, in a democracy, there is a dilemma for leaders of how to capture the narrative. Of far more concern is whether our economic policies hurt or help the enterprising ones within the economy. India should promote hard work and merit. When the narrative in election times turns towards blanket reward (meaning the proposal on a basic income for all) that is never a good sign for an economy. I recognise there is the stress of trying to do justice between the rich and the poor but a subsidy or income support can only be short-term support. 

Could the rising income divide or non-fulfilment of aspirations trip India?

Will it be an agenda item? Yes. Inequality and job losses are going to dominate discourse in a thickly populated country like India. But, there is no groundswell of asking for a return to a state-led model. The problem we face is that manufacturing jobs are shrinking globally. Industry 4.0 needs to be understood. We need to be a pioneer in defining jobs for the future.

On another issue, how is India Inc shaping? There is plenty of negative perception that this is a phase of value destruction. 

Is value destruction happening in enterprises? I wouldn't say (this). Sector by sector, there are standout examples of value creation instead. Not just in information technology with TCS, but also in the troubled telecom sector. My colleagues around the world perceive Indian telecom as most innovative, with thin pricing; Airtel is an example. The pharma model is under squeeze but there is Zydus. Yes, there can be a little more coordinated effort between the state and the sector, where the state recognises that those are worth supporting.

Neeraj Aggarwal

When I compare the top Indian 100 companies against those of Japan, an interesting trend comes up. The companies with top market capitalisation on the Tokyo stock exchange are approximately $100 billion; so is TCS at the National Stock Exchange. And, the spread down from there is fairly similar. I feel our top companies will be competing with the top Japanese companies in about five years. And, remember, those Japanese companies are today considered top global citizens. 

What pushes us, I believe, is a fit-for-size model. Indian companies have got their costing right. Second, we are leapfrogging on technology. ERP has come faster to India than in the US. Third, the talent pool is getting deeper.  

Where does the banking sector fit in this? 

I think public sector banks have come out of the highs of NPAs (the issue of non-performing assets). They have gone through a hard period but those like PNB (Punjab National Bank) have really done well to get back in shape. Credit from banks is (again) taking off. Some of the reason for recovery is the implementation of the IBC (Insolvency and Bankruptcy Code). One feels scared to use the word but credit from banks should operate as a perpetual machine. That natural movement had got disrupted. IBC has worked as a sort of fundamental shift in the market. It has administered a painful dose and asked everyone to get along. 

Is India recovering just when the world is again facing a downturn?

The answer is that we are always falling short of our potential. Our potential is 12 per cent (annual growth) but we have got only up to 7 per cent. The rest of the world is envious, though, dragging along at less than 3 per cent, except for the US which is close to 4 per cent, which I feel is a temporary jump. China, one feels, will settle around 6 per cent. 

Also, what we heard at Davos was that 75 per cent of business leaders feel the downturn, going ahead, will be less steep than the previous one. I think we in India shall be a silver lining and when the world is in a downturn, that would attract more capital. There is no shortage of capital; PE (private equity) funds are sitting on more capital than ever before. So, we should not belittle what we have; I suspect India will be an attractive destination for capital for a long time. 

So, you expect the cost of capital to remain low in India? 

If we have reached a sustained low level of inflation, yes. The past few years have been interesting -- despite the on-off oil shock, prices have not scaled up. Though our energy requirement will ascend steeply, I don't think there will be an oil shock for the economy. On coal, our requirement is so high that some of my people believe we could soon have a shortage of coal-fired power plants.

In this environment, it is difficult to expect investment in the energy sector to become bad debt; unless, of course, there are mistakes in the pricing of energy.