India GIP immerses students in five-star hotels and noisy democracy
Mohit Mittal, Mani Venkataraman, Mazen Haffar & Tim Viles, WG'06 & WG'07
Issue date: 9/25/06 Section: Insider
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While we may be expected to respond by extolling the virtues of India GIP, we would like to share the voice of experience with you. We present excerpts from an article by Mazen Haffer (WG'06) & Tim Viles (WG'06) which captures their reflections on last year's India GIP.
History is not always a perfect predictor of the future but it does provide a decent indication. We hope these reflections evoke curiosity and intrigue you enough to embark upon a journey to this fascinating country of contrasts, to this booming economy in the world's largest democracy, and to the sun-kissed beaches of Goa - a new addition to the program!
In young, growing India, MBAs see opportunity (Mazen Haffer (WG'06) & Tim Viles (WG '06))
We both had our doubts about signing up for a GIP. How can cruising around in a tour bus and staying in five star hotels "immerse" you in a developing country's culture? Why spend the best part of $5,000 for a two week vacation you could arrange yourself anyway?
Yet the India GIP has been our most memorable experience so far at Wharton. Where else could you question the elected Prime Minister of over one billion people, dance in turbans, kurta pyjamas (think of Aladdin), and saris in a 200 year old palace, fly by private jet to "the largest greenfield oil refinery in the world" (one half the size of Manhattan), or deepen friendships with your classmates over such quantities of Kingfisher beer and curry? A little knowledge is a dangerous thing, but we wanted to share with you our thoughts about what we learned from the India GIP.
Welcome to India
Every GIP participant learnt at least two things about India: 1) India has the world's youngest population and 2) India's GDP is growing at about 7%, but they think they can reach 10%. While the former factoid is not actually true (try Niger), this young demographic has led McKinsey to predict that India will be the world's largest economy in 2050.
India matters geopolitically too. Acting US Ambassador, Robert Blake, explained that the US State Department sees a band of countries stretching from Morocco to North Korea that are volatile yet strategically important. Right in the middle is India, a democracy of 1.1bn people. India has a diplomatic credibility with developing countries, especially in promoting democracy, that the US does not and probably cannot have.
Bounds and Leaps
India emerged into the land of the economically living in 1991. Forty-five years of socialist sclerosis precipitated a currency crisis. With days of foreign currency reserves to spare, and in order to secure an IMF bail out, the then Prime Minister appointed university professor Manmohan Singh as Finance Minister. (Singh is now Prime Minister.)
Singh reduced tariffs and subsidies, lifted restrictions on foreign ownership, broadened the tax base and introduced greater fiscal and monetary discipline. As a result of the lagged effect of this burst of reform and the catalyzing effect of the internet, India has broken out of its low 3.5% growth rate.
The internet complemented India's English language skill-base and overcame the barriers of its atrocious transportation infrastructure: Indians have a phrase "internationally competitive in India" - meaning that an Indian plant may be the world's lowest cost manufacturer at the factory gate but after transportation costs it is only cost competitive in India! The enormous Reliance refinery that we flew to is world class. But it built its own port, roads and utility infrastructure on a greenfield site...ten minutes flight-time from Pakistan.
Leaps and Bounds
The importance of technological innovation was highlighted by three situations.
We visited the Infosys campus in Bangalore, where founder and Chairman Narayana Murthy addressed us. While living in America, Murthy was struck by how much more access to information Americans had when compared to Indians. If knowledge is power, the internet and the mobile phone are the greatest equalizers since the printing press.
At the Narayana Hrudayalaya Heart Hospital in Bangalore, physicians in their thirties gain more heart surgery experience than American heart surgeons have at retirement. They sweat their human and physical assets, driving down the cost of a heart bypass to $10,000, one eighth of the cost in the US. The Fortune at the Bottom of the Pyramid activity system is difficult for "bells and whistles" westerners to copy. The Tata Group is working towards a $2,000 car and Novatium is working towards a $100 PC. It is hard to imagine GM or Dell doing the same. But western producers will need to adapt - Hrudayalaya bought more heart valves than any hospital in the world last year and has used its buying power to negotiate directly with manufacturers.
Yet most impressive was the hospital's telemedicine wing. Here heart experts electronically receive electrocardiograms from machines Hrudayalaya has installed in rural village general practitioners' offices. Hrudayalaya has negotiated down the price of each machine from $2,000 to $200. Now an Indian manufacturer is promising machines for $40 each. Hrudayalaya analyzes these data and, as we observed, their expert consultants advise patients and GPs in villages via video conference. We can only imagine the power of such information to transform villagers' lives for the better.
As a final example, we met Ravi Narain, WG '79, CEO of the National Stock Exchange. A former Citibank banker, he was asked in 1993 by the government to establish a modern stock exchange to eclipse the 23 small, illiquid and insider-controlled regional exchanges. He agreed, on condition that he could experiment! The result is an anonymous all-electronic exchange that provides and monitors margin credit and provides open access to brokers and sub-brokers. The NSE is now the third largest exchange in the world by turnover, is the largest exchange globally for single stock futures and its top three deciles of actively stocks have tighter bid/offers than the NYSE.
India's "Noisy" Democracy
The highlight of our trip was our meeting with India's Prime Minister Manmohan Singh. While politicians are held in low esteem among the business community, Singh is admired as a beacon of incorruptibility and for his keen mind.
Singh described India as a "noisy" democracy. This is a code for saying that vested interests shout loudly and prevent liberalization, corrupt officials are hard to purge and that this is all, unfortunately, part of "the price of democracy." As mentioned above, India desperately needs to invest about $200bn (30% of GDP) in its infrastructure to sustain its growth and attract investment. But India is living on credit. Federal and state debts are 82% of GDP and their fiscal deficit is 8%, so to raise funds India needs to privatize. However, it cannot do that because the Prime Minister's leftist coalition partners need the public sector unions' "vote banks."
As another example, about 40% of Indian food rots before it reaches the consumer because around 99% of the retail industry is "unorganized," i.e. the stores are "no bigger than a table," in the words of one speaker. But liberalization to foreign and domestic competition has been stalled because those shopkeepers are much better organized as voting blocks than as retailers.
Ironically, a currency crisis was suggested to us by Ridham Desai, Chief Indian Economist for Morgan Stanley, as a potential catalyst for reform. It certainly enabled heads to be banged last time. Like certain other large but richer democracies, India consumes more than it can afford - the Rupee is kept stable by remittances, large foreign currency reserves and the global hunger for the 7% yield on its government paper. This is unstable because world liquidity is being withdrawn as the Fed raises US rates further and India's short term rate of 5.25% is kept artificially low by a politicized central bank in order to win votes and reduce the government interest payments.
Singh's Long Game
However, Prime Minister Singh appears to be playing a longer game. For instance, the state owned Bank of India may be too big a vote bank to be privatized, but liberalizing financial services at least forces it to become more efficient. If it fails to compete, then privatization, though less lucrative, is more politically palatable. The government is taking a similar cautious approach with liberalization of the retail sector.
Or take India's 28 politically diverse and linguistically distinct states: having seen what being more investor friendly has done for Bangalore and Hyderabad, even Communist West Bengal is trying to limit the number of bureaucratic hoops businesses must jump through. Similarly, while indirect taxes are state prerogatives, recent attempts to simplify these taxes through the introduction of VAT caught on when states observed the revenues generated by their neighbors.
Finally, and more gradually, prosperity should create further prosperity. Combined with increased popular involvement with successful private businesses, it will become harder to buy rural votes and "bank" union and government labor forces.
While we expect wobbles on the way, we were excited about India's sustainable growth and long-term potential for investment. India's common law institutions are built around the ideas of contract and private property (even if courts are currently a little slow). There are plenty of opportunities to get more things right and far fewer to make things worse.
Come to India
As we sat in our turbans at the 200 year old Samode Palace after our final party, we reflected on how fortunate we had been to taste this pivotal stage in India's history.
To learn more about India GIP and how to enroll, please visit the MBA Forum on Spike. You can pick up a copy of the registration brochure at the MBA Program office.
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