India is at the tipping point: Immelt

In the middle of a flying visit to India and a packed schedule, Jeff Immelt, chairman of General Electric, took time off to speak to Business Standard, and explain why he is so optimistic about the future of GE's business in India, and how he hopes to achieve exponential growth.

Mr Immelt, you've made a big announcement, that your business in India will grow from a billion dollars to $8 billion in four years. That's not the kind of growth you've seen so far. What has changed?

Three things for us. One is accelerating infrastructure development, which I think is poised to really expand. And we're focused on financial services. And the third thing is a re-focusing of products in India for India; it's an untapped market opportunity.

Some of that depends on policy changes by the government. Do you think that is going to happen?

On infrastructure, I don't know that it is policy change per se, just the implementation of the policy that the government has said it wants to do. For an economy to grow at 8 per cent, they can't get there without more power, more planes etc.

We're not counting on a big change in banking policy, but there is still a lot that we can do on commercial real estate, personal finance, commercial lending. So we're not looking for miracles from the government.

So you think the economy itself has changed?

I think it's a kind of tipping point. The accelerating rate of change in the local market is such that we think we can take advantage of. This is what I saw in China in 2000. We were less than a billion dollars there, and we thought we could hit $5 billion in five years, and we beat that goal. And we think we see similar opportunity here.

When you were here a few years ago, you said that whenever you bet on the Indian market, you went wrong; and whenever you bet on the Indian people, you turned out right. That seems to have changed, you are now betting on the Indian market...

I would say we could be wrong on the market, but I don't think so. What we see in India today is that the people have become the market, their willingness to tolerate bad infrastructure has gone.

Your figure of a billion dollars business in India does not count some of the stuff you do here. So is there a different way of accounting for that, to give a fuller reflection of your activities here?

Yes, if you look at our exports from India, it's several billion dollars.

And if you look at the earnings generated by doing things in India, in terms of costs saved, things like that, India is probably as important as China is, in its own way. But that short-changes what India could be. I don't think India is a good economy if it just remains a software exporting country.

From what you've said, it seems that you're not planning to put huge investments into the ground here...

I think we'll make more products here than we do today. We'll have more engineers here than we do today. A lot of the products we make will be very focused on the Indian market over the next five to ten years.

What should the government do, to make you double your investment here?

Infrastructure. Roads, ports. If things can happen to make India a better place for business, like they've done in telecom, then we could do much more here.

Can you compare India and China - as markets, as people in those markets, and as governments?

In China you have a very sophisticated, focused government structure; it's like a well-oiled machine. It's executing the 11th five-year plan, it knows exactly where it's going, knows exactly what it wants to happen, and will execute on that plan.

But the banking system, the privatisation of companies, the management structure, things like who's a private manager and who's a party boss, are really unclear in China.

India is almost the opposite. India has a great micro-economic structure. The banks are strong, the companies are great, some of the best companies in the world are headquartered in India, and the government is challenged.

There will be bumps on the road in both places, but we count on both places fixing those challenges, achieving their goals. The people in both places are great; the young engineers we hire are very good in both places.

You seem to be betting on the weakest link in India, which is the government. Whether it is aircraft purchases for which you will supply engines, the nuclear deal with the US, infrastructure changes, these are all very iffy issues.

Take private, low-cost airlines. I wouldn't count on all of them happening, but if half of them happen, that would mean half a billion dollars of business for us.

In energy, we are counting more on the private investment and not on what the government might be doing. Nuclear power would be a decade away, I certainly wouldn't count that in the $8 billion for 2010. So I don't think the government has to do anything more for us to accomplish what we think we can accomplish here.

You've been coming here for some time. What are the changes that you see?

Quiet sophistication of people. The tipping point that I sense here is broad-based consumerism that supersedes the government's role. People want roads, people want electricity at 4 pm, people want water in their homes. And are willing to live in a commercial state to do that. That's the change.

Which brings us to consumer finance, and how you see that growing.

That could be a massive business here. We're going to grow a lot organically. I think we could have a huge business here as time goes on.

The lack of a banking licence is not a constraint?

I think we can, we should get a banking licence as time goes on. Whatever the government wants us to do, we will do. We think the market is so strategic.

But even without a licence, I would be disappointed if we had only $8 billion in assets in 2010, from $2 billion today. The market is growing rapidly, it's massive, it's in businesses we know.

Is this a safer credit market than others?

I think it's a good credit market. It's a question of being able to price the risk; and you have a tax authority and legal system that you can trust and rely on.

What are the risks that you see in this whole business plan?

I think they're more geo-political and macro. India is not rich in natural resources, so if oil keeps going up, India is going to feel it. But 8 per cent GDP growth in India, consistently, is highly do-able.

And it gives me some encouragement to say that business has prospered even as coalition governments changed back and forth. It's very positive to me that the mood and the environment have maintained a steady state.

What about your India-for-India businesses? Can you elaborate on that?

Take health care. Our business here is about $200 million, and we've barely scratched the surface. We can take value products to parts of the market, that people haven't yet seen. We've got coll aboration going with Naresh Trehan for the Medicity project that will bring health care from a local standpoint, but also people coming to India.

You know, water is potentially a business that is more strategic; it's just $20 million today, and it can grow in two directions. One is people like Tata Steel, water is important for any process industry.

But there's a whole municipal water re-use, desalination stuff we haven't explored yet. Then some of the energy products, coal gasification.

These are technologies that you already have, or which you will develop for the Indian market?

We have the core technology, it's more the application that has to be localised. But then, we have 3,600 engineers here, so we are starting from a very strong core, and these are relatively easy things to do. The challenge is going to be more on the marketing side, not the technical stuff: how do we access the customer base, things like that.

When you look back on the Dabhol experience, what do you learn?

Staying power and patience. When you're a company like GE, you don't have to win everything every day. Nothing in Dabhol worked out the way we thought it would, when we first started.

In the end, I think it had a satisfactory outcome because we've been patient with it. Partly because we never lost sight of the fact that we wanted to stay in India. So we played not for the last dollar, or to screw anybody, but to be reasonable.

How much damage has it done to India as a place to do business?

Some, for sure. Particularly in parts of the energy industry. It's one of those projects that everybody in the world knew about.

Is it seen as a one-off episode?

That depends on whether or not it happens again. Situations like Dabhol are not unique to India. I can name almost every country in the world that has seen similar kinds of adventures. It's how these markets evolve. In the end, the government did the right thing and that makes me feel better.

When you look at countries like India and China, they're not the easiest to deal with on issues like corruption. What's your experience with that?

Markets mature at different rates. Both places have made great strides in terms of corruption. They're not perfect yet. We train our people everywhere in the world, including in these places, not to play that way. So it has meant that we have not gotten business that we wanted sometimes. But I'm convinced that as countries mature, corruption declines.

When you say great strides, what specifically do you mean?

Just more transparency. The rules on how to get things done have got more transparent.

One of the things that people talk about vis-à-vis India is the rising cost of hiring people. Is that a problem for you?

There is no doubt that labour inflation is growing rapidly here. And the turnover of talented people is very high. But it is still much cheaper than in other countries. It's comparable to China. We still like doing business here.

There was a time when one got the sense that GE saw more opportunity in the transition economies of Eastern Europe than in India. Has that changed?

We still like Eastern Europe a lot. I think the market here has gained momentum; the broad-based sense that everybody loses unless infrastructure gets fixed. That's what makes India so much more attractive.

But we still like Eastern Europe a lot. We look at the developing countries like India and China, South-east Asia, Eastern Europe and Russia, the Middle East and Africa, South America. So we're not just talking of India and China. In the Middle East we could go from $2 billion to $10 billion in the time frame we talk about.

What would your biggest businesses in India be, in 2010?

Energy. Aircraft engines. Health care. Consumer and commercial finance. Water. May be rail. Plastics could be big too.

Why 'may be' for rail? There is the rail corridor coming up.

It depends on the choice of technology: diesel or electric. If it's diesel, that's business for us. If it's electric, we have less of a presence there.

Is there anything else you would like to say?

No, you've asked the right questions. I think the momentum is so great that it's hard for the bureaucracy to stop it. And that's a great place for markets to be.