India Is The Place We Wanted To Be In The 21st Century

Q: You have been here for some years now. How has GE's perception of the Indian environment changed since inception of GE India?

A: From GE's perspective, we recognised that India was a large growing market with lot of opportunities. We did not spend lot of time with growth rates, but our focus was on getting started. This is the place we wanted to be in the 21st century. We know it will be better than in the developed countries like the US and Europe, where we have our manufacturing bases.

Whether it (growth rates) will be more or less than some of the emerging markets is not of particular importance. In the long term, our shareholders will be glad we made the decision to come here.

 

Q: How does India fit in with GE's global plans?

A: As India goes ahead with its liberalisation process and globalisation becomes a reality, any company that wants to be a global player will not ignore India.

We are fortunate we got an early start. I think two and a half years back, there was a lot of euphoria, those who were not here decided to flock in here to take a look, you couldn't get seats on planes, there were no hotel rooms, and it looked like things were going to boom.

But this did not happen. You had some unsettling in the government as the Congress party was voted out. The change of government has not changed the direction of liberalisation, but it has slowed down the process. You had a very difficult period with the liquidity crunch and the high interest rates that was a strain on corporates.

But, I think things are returning to some sort of reality now. It is far more difficult than what we had anticipated, but the bottomline is consumers continue to win. The quality is up, prices are down, service levels are higher, and the consumer has more choice.

But, I do think there is lack of progress in infrastructure and we have started to see some effects of that. Power has not moved ahead, civil aviation has not developed as it could have, telecom has not got going.

Q: Let us go back to the point you made on interest rates and liquidity crunch. You have access to international capital markets. Did the Indian situation affect you?

A: Of course. We tend to borrow in local currencies wherever we do business, we want to be local players. In most of our businesses, we borrow locally. We managed here because our reaction to the crunch was very quick, we got our inventories in line and cut down costs. I think the finance secretary's comment corporates should learn to manage during downturns is very pertinent.

Q: It is surprising to hear that you borrow mainly domestically? Why? Isn't international cost of funds lower?

A: Yes, our foreign loan component is very, very small. In general, offshore borrowings have currency risks. If you hedge this currency risk and if you have this on top of the foreign borrowings, you do not save much. You should learn to do business in conditions that exist locally.

Q: How do you look at your Indian businesses in different sectors?

A. We wish there were more power projects, as we are a major supplier of equipment.

But, our aim is to be the number one player in each of the businesses we are in. We have 12 of them, most of which are here and the focus now is to develop these businesses faster than the market.

Q: What share of global revenues and business does GE target in India?

A: We do not have targets. We look at emerging markets - they are places we know we want to be. Whether that growth will be 10% or 15% or 20% is very difficult to plan. There isnt lot of data and it is dependent on lot of variables. We are more concerned with operating our businesses - getting the right products and technology.

People find hard to believe we have not set any profit targets. We thought three years ago that we might see a couple of billion dollars out of India by year 2000. I think probably we are not going to make it, mainly because some of the infrastructure has not developed. So, we are not going to have as much power business. We are not going to be able to sell as many aircraft engines.

We are a little disappointed things have not moved as quickly as we had hoped. But, we know that it (revenues) is there. If it does not happen by 2000, it will happen by 2005.

Q: What are the parameters to rate GE Indias performance?

A: We are growing nicely. I am not going to tell you what the numbers are, these are confidential. You can compare with the growth rates of GE globally. India has higher growth rates. US is growing at only 3 per cent.

Q: What is the growth rate of GE's overall operations in India?

A: Probably at 20-25%. But is India more important than US? Of course not. US is our huge base, our business is there. You have to keep these things in context, whether we are talking about emerging markets or mature markets. How you go about these things are extremely different in the two.

In emerging markets, we tend to be focused on building businesses and hiring the right people, training them, getting the right products, making sure that we are starting to becoming insiders, so that we understand how things work. We are very happy where we are in India. We remain convinced that 10 years from now, we will look back, those of us who were here as the pioneers, and say the we are glad we got there early.

Q: What is the thrust area?

A: On all our businesses. You get opportunities at any given point of time in one area that you take advantage of. We have been very fortunate with financial services. We have the SRF Finance acquisition, which position us in stock-leasing -- an important part of our business globally. It gets us on the stock-leasing map in India.

Then, we have the Countrywide consumer service joint venture. We are beginning our credit card business here with the State Bank of India. We have reached some agreements in principle to do some things together in the issuance of credit cards. GE Capital is the largest issuer of private label credit cards probably in the world. We do backward processing, collections, etc.

Q: What else interests you in finance in India?

A: Countrywide is a major thrust. We will make some strategic investments in some of the companies that are looking for finances. GE Cap will be a passive investor. We will take some equity in these, but we do not necessarily insist on board seats. We do this around the world.

Q: Would these be established brand names or established projects?

A: Yes, Yes to both. There isn't any selection criteria. We look at the inherent underpinnings of the company, the management team, what markets they are in, the risks against potential returns.

Some of these companies may be suppliers to GE businesses, others may well be potential customers of ours. It is a significant business for us around the world. A group of GE Capital also invests in infrastructure, strategic investments again. We are interested in the evolution of telecom sector here from that standpoint.

Q: What is the total investment you would have to bring in with your SRF acquisition under the NBFC norms in India?

A: GE Cap will have to bring in $50 million into the country as investment. We will not necessarily go up to $50 million in SRF Finance, if we do not need to. We could invest in other projects. There is a balance left over (after SRF acquisition). We will have to look for investing our funds at other places or other companies.

Q: What are the other finance sectors you have an interest in?

A: We have airplanes on lease to Jet Airways, about six - four are there and two more are coming up. Hopefully, the civil aviation sector will get opened up...this is a big area for us. GE Cap is the largest leasor of aircraft. I think we own more airplanes than any airline. We own nearly 400 planes.

Q: How do you rate India's finance sector reforms?

A: I think everyone can move faster...from the outside I would say that it is moving prudently. It is a complex issue, but it is settled it needs to be developed. There are opportunities to provide funding through the financial sector, particularly insurance. Insurance companies all around the world provide a lot of funding for infrastructure. It is a big source of funds. I think there is some tendency to apply the same regulations across the board. Big financial institutions are treated the same as the small ones and so until there is a shakeout, it will not move much faster. But, certainly the intentions are in the right place.

Q: As a member of the American Business Council (ABC), what is the GE standpoint on the discussions of the broadcast bill?

A: Frankly, I am not very closely associated with this. Someone else is sitting on the ABC committee on broadcasting for us. But, there are many broad questions - how do you define cross-media holdings: is it newspaper and television or terrestrial and cable? I think there are probably more questions than there is a reaction.

There is a concern among those who have large investment already made in India - questions whether the bill will restrict technology, common delivery systems between telecom and broadcasters, ownership restrictions, are there going to be any requirements to do things in India that will say India will have to be treated differently than rest of the region.

But, my guess is, out of all this, the consumer is going to win. Look at the number of channels five years ago and as a consumer now you have so many choices. When the consumer wins typically, the country is going to do Ok.

Q: How do you see the GE evolution in India?

A: I think our evolution is going to be continuous growth in all our businesses. In general, we are going to see pretty attractive growth. As some of our global customers entering start to indigenise, there are a lot of opportunities.

As the automobile industry starts to indigenise, our plastics business will benefit. We supply a lot of plastic to manufacturers in all the three parts of the world. So, that's an opportunity for us to grow. Similarly, as the electronics industry starts growing, manufacturers will need more plastic.

Q: How much percentage of your original agenda have you completed in the country?

A: You can look at it in two ways. One was to try and get off our businesses here; we are 90-plus per cent done. Second, in terms of how big we were going to be, we would probably end up at 75 per cent of our target.

Q: From your head office perspective, how much do political developments and environment in India affect you?

A: We rarely even discuss the political scene here. We are convinced the direction of liberalisation is not going to be reversed. It is here to stay. As we assess the political climate here, our only concern is how it is going to affect the economy, whether government will be stable or not to effectively manage it.

I think the predictability of the currency is almost as important as stability. We have seen a somewhat slow steady decline of the rupee. I think it is somewhat predictable. When we talk about an unstable currency, that bobs around up and down unpredictably, then it is hard to plan ...like the peso - that is what you would worry about. It is the ability of whatever government that is in, to effectively manage the economy as a whole - bank rates, interest rates, inflation, foreign exchange, the reserves - so that you can have a steady growth without a lot of surprise.

Q: How would you rate India on the above parameters?

A: I think India has done Ok on most fronts. I would not give high marks on interest rates. Real interest rates are far too high, remain too high. Prime rate is over 16%.

You need to look at the spread between savings and lending rates. Interest costs can kill.

Q: Since you said you borrow mostly in rupee loans, how much has been your interest burden?

A: It is high enough, we are not overly leveraged. But, that is not an issue for us. At the end of the day, we have got money. If we need to bring in more money, we will. But lot of others do not have that. It (high interest rates) is a big issue, a very big issue.

Three years ago we thought we might see a couple of billion dollars out of India by 2000. I think probably we are not going to make it, mainly because some of the infrastructure has not developed. So, we are not going to have as much power business

Scott R Bayman CEO, GE India