From Tata to Birla to Godrej, many Indian companies have been household names on the subcontinent for decades. Over the last several years, however, the landscape of industrials has begun to change. Economic reforms have spurred growth, consumer spending has increased and new firms have entered to compete with existing players in several fields. To help analyze this industrial “revolution,” the Wharton India Economic Forum brought together key players in several sectors at its annual conference in Philadelphia. The panelists praised the progress made in industry to date and outlined ways to ensure that the pace is maintained in the future.
More Reforms, Faster
Adi Godrej, chairman of privately held conglomerate The Godrej Group, noted that Indian industry had been freed up over the last 15 years by government policy liberalization and globalization. “Industry has been very successfully capitalized and several new avenues have opened up,” he said. “I think innovation has taken root strongly. Productivity has improved and industry is very capital efficient.” He noted that India had already become a net exporter of capital. “We’re leveraging our size and capabilities, and manufacturing in areas with intellectual content. That will lead to our acquiring outside companies.”
Reforms, however, aren’t proceeding quite fast enough, according to Godrej. “The growth potential is much stronger,” he noted. “One area that needs work is the indirect tax system, which is antiquated. The finance minister has announced that there will be just one goods and services tax by 2010. That, in itself, can add 1% to 2% to the GDP growth rate. Evasion of indirect taxes will end, and government revenues will increase. A virtuous cycle will be built.”
Another area crying out for reform, of course, is the education sector. Rajendra Pawar, chairman and co-founder of NIIT Group, an IT education corporation, noted that the aspirational level of Indian youth is scaling up at a phenomenal pace. “In 2020, the U.S., China and other countries will fall short in their working population numbers. India is projected to have a surplus working population of 47 million. This is a huge number of young people with aspirations — and we have to convert those into people with skills and education.”
If these young people are not trained, Pawar warned, the country could head for a catastrophe. “We have to have jobs for them; otherwise, we’re looking at social unrest.” Pawar said that entrepreneurs and innovators could fuel job creation for this group. “It’s impossible to predict or plan where these sectors are, but there are several opportunities for unusual entrepreneurship plays” — all of which could lead to employment for young people.
The good news, according to Pawar, is that India’s economic growth now stems from a broader base than it did in the past. “The basic engine of India’s 8% growth rate was first in the IT sector. But now a half-dozen sectors are growing,” he noted. “In Manipal, the average salary of a civil engineer is about equal to that of someone in IT because of the amount of money being raised for infrastructure.”
Courting New Consumers
This huge pool of youthful talent, of course, will not only work but also buy products — and, if consumer goods companies have their way — lots of them. Harish Manwani, president, Asia Africa, Unilever, and non-executive chairman of Hindustan Lever, said that he was extremely excited about the consumer product opportunities in India. “The largest footprint of consumer goods is in emerging markets,” said Manwani. “In 2010, consumer spending in emerging markets will overtake that in the developed world. India and China are at the center of this change. About 1.2 billion consumers will buy packaged goods for the first time between now and 2010. That’s a big opportunity.”
The battle playing out in India, Manwani explained, isn’t for existing consumers but rather for non-consumers — that is, first-time buyers. “Passenger car growth is high, but still penetration is not yet there. The per capita expenditure on skin care in India is one twenty-fifth that of a Thai consumer. So there’s a lot of head room, and the demographics are working in our favor.”
What does a consumer goods business have to do to be successful in such a market? “You must have the ability to straddle every part of the pyramid — with a portfolio of products that have the right price points,” said Manwani. “In India there are maybe 50 million consumers with purchasing power comparable to people in the West. The base of the pyramid is made up of people who survive on about one dollar a day. So you have to use sophisticated technology and R&D to offer products that are affordable while having the right features.”
Another challenge is the sheer difficulty presented by the market’s size and location. “How do you reach remote parts of India? How do you create the models? You have to know how to manage your product in mom-and-pop stores as well as large supermarkets,” Manwani noted. In addition, companies have to create strong brands: “You can’t get into India without solid brands that you believe will endure. You must have the ability to create points of difference — to create value through branding and marketing,” he said. The most important thing to remember is to be neither hopelessly local nor mindlessly global: “You can’t be everything to everyone. You must have strategic clarity, scale and focus.”
At the end of the session, members of the audience asked the panelists about the role that Nasscom, an association of Indian software firms, had played in supporting the industry’s growth. Pawar’s response was that “”Nasscom was a bit unusual in that we didn’t have a bureaucratic setup. We took a vow that we would not go to the government with problems, and that we would try to find what we needed to do individually and collectively.” Indian IT firms chose to “let the world know that there is this industry in India,” Pawar added. “The government at the time didn’t understand the software business very well so it didn’t get too involved.”
Manwani was asked how Indian industry is helping rural areas. His response: “We need the government to focus on primary education. The sheer act of doing business
allows us to create an impact in rural India. Hindustan Lever always went further than the media — it’s not just about making products, but building brands. With our project Shakthi, we empower rural women to carry messages about hygiene but we also sell soap. This effectively promotes the message of diarrhea prevention through hand-washing. Now we have also started to put PCs in rural communities with information about hygiene, weather, and so on.”