India At 75: Ram Charan On Making India The #1 FDI Destination

India is the most vibrant nation on the planet today. It is constructing superior and strong foundations for economic growth, innovation, and technological excellence. While it has a long way to go, a robust runway is being put in place by focused leadership of the nation. Leaders inspire and leaders act. They build trust not only internally but also with other stakeholders across the world. They set priorities, execute, and are masters of overcoming hurdles. The Narendra Modi government has been leading in this way within the framework of democracy.

Despite the current uncertainties, the world will have unparalleled economic opportunities. World GDP will rise by a minimum of $30 trillion over the next 7-8 years, and India will have, under this leadership, a disproportionate share of that growth. As the prime minister has announced in his Independence Day address, in 25 years India should be an advanced country. This is doable because the juice of being ‘advanced’ lies in innovation, and the talent that drives it. Indian talent is unparalleled and will make it happen.

People should not get bogged down with the current situation—the persistence of the coronavirus pandemic, shortage in supply chains, possible recession and stagflation, increases in interest rates and quantitative tightening by the U.S. Federal Reserve to counter inflation. The world will get through all of this and will find some silver lining. This is the time to become nimble and flexible, and sharply focused for a post-inflation scenario. Build India in an unparalleled way to capture the enormous economic opportunities at hand and those that emerge.

Looking from outside, the Modi government is, in my view, doing a remarkable job to build goodwill and commercial connections for the flow of further foreign direct investment. Despite continued progress, what India gets is roughly $80 billion, totally insufficient for India’s ambitious goals of reaching $5 trillion in GDP. The annual FDI into China is nearing $200 billion and has risen despite the pandemic. India deserves similar investment, if not more. Because the world is now weaning off China and would love to come to democratic countries like India. Japan and others have made India a strategic partner for investment. They want to come, India needs to make it easier for them to come.

Top Indian business executives in America and elsewhere are running companies whose market value taken together is more than India’s annual GDP and they are growing at a faster pace than the Indian economy. Many of these are people who were born, educated, and trained in India. We have such talent residing in India. In making decisions for FDI into a country, it’s a combination of three things: profitable opportunity, talent pool, and government policy. Talent is a big magnet for FDI. We have so many Indian CEOs outside India. It is my belief that there is much more such talent within the country.

In every company, people like me find these stars buried at the lower levels. Lift them to leadership and large-scale entrepreneurship. Nadella and Pichai rapidly reached leadership at a young age. Why don’t we find them more frequently in India? We must.

No country can become number one in every industry. Even the United States of America is not the global leader in automotive (Japan), semiconductors (Taiwan), and telecom infrastructure equipment (China). A principle of winning is concentration of resources, mindset, and tenacity to stay the course.

To be number one in the world, FDI becomes a central ingredient. India’s outsourcing industry did rise to the top with very little FDI, if at all, but there are others where the country will have ample opportunities. India is already on course to be the global number one in renewable energy—especially in solar power and green hydrogen. This initiative has already received very significant FDI, and more is committed. My recommendation, subject to debate, is that India should focus on six more areas. Here are examples for consideration.

1. Digital and artificial intelligence related industries, including outsourcing and data centres. Business groups like Adani have begun developing scale in this. This is an opportunity to market to advanced countries like the U.S. and Europe as well as countries that need these tools more urgently. No country can survive without the use of digitsation and AI. The largest talent pool in the field of AI is Indian, but they are scattered all over the world. Currently, our schools in Bangalore and elsewhere train them, then they go overseas and shine. In Google and Microsoft almost all the engineers working on these dominant projects are Indians. Reset this by building that capacity in India, facilitate such business here making the country a hub for this innovation, its future growth and service to all industries in the world. This is, at a minimum, a trillion-dollar opportunity. Such a hub will require more research educational institutions, in collaboration with the advanced labs in the U.S. For ready entrepreneurial talent, encourage and back the sharpest minds currently professionally employed in large companies and second- and third-stage startups. Offer funding for them to become entrepreneurs on a large scale and take these industries to a leadership spot in very limited time. Think of this in the way Jeff Bezos stepped out of DE Shaw to launch Amazon and build it out to a $1.5 trillion-sized giant with $500 billion in annual revenue, a quarter century later.

2. India was the world-leader in textiles and needs to get back there. There are policy efforts underway on this front, and much more needs to be done. Some innovation is needed to compete and win in large markets like America. Have two approaches toward capturing this opportunity. The first is innovation, use of digital technology, and productivity. A huge campaign to build the Indian textile brand, particularly in the U.S. and Europe needs to be launched. The second action is to fight off any competitor that is playing a currency and subsidy advantage game. Such players look cheaper to the buyer, when in fact, they are not, devoid of those subsidies and currency advantages. Do proper analysis at a policy level, get a professional analytics firm to find facts and confront reality. The government ministry accountable for this must be on its feet to respond as these foreign competitors violate the level playing field. Once a target is set, get four or five industrialists in this field together. With them, put up a blueprint of what needs to be done. Get them to build this industry as the number one in the world.

3. India still imports a large share of its active pharmaceutical ingredients requirement from China. We know one Indian company that has been able to reduce this dependence to less than 10%. More such initiatives need to wean off this dependency that currently exists for things like even antibiotics. There is no technology that we cannot get, through say a joint venture. China’s strategy is explicit that other countries depend on it for such critical industries. Acknowledge its existence and prepare India to become independent and then an exporter. We do have the talent to do it.

4. Defence manufacturing capabilities. National security is paramount for every country. India has been dependent heavily for defence equipment from overseas. While this is changing, so is the global geopolitical landscape in a radical way. India’s legacy defence suppliers may not be its future strategic partners and may become adversaries in the global reset. India must aggressively create collaborations with these companies because they bring dual use technologies along with the FDI. The government should have a focused program to have mid-sized Indian companies (billion dollars or more in revenues) to collaborate with mid-sized American and Israeli companies. They want to come to India because of the talent and the market.

5. Give the full range of India’s services sector a fresh push. India’s National Export Promotion Council is moving ahead with its plans. The private sector needs to have aggressive initiatives to take it to a trillion dollars. What may appear like a mundane activity like transcribing a doctor’s narration to a nurse or patient, gets converted into medically correct language which is used in the resolution of claims and measuring the efficacy of a drug. There are such companies growing at 40% per annum, their cost structure is Indian, their revenue structure is in foreign exchange. In the medical field alone, that opportunity is at a minimum of $50 billion dollars. There are a number of similar opportunities in other fields of human endeavour like legal and education. It is the best pillar for employing India’s graduates.

6. Understand China’s existing practices and announced intentions, that it must be the world’s captive supplier of critical ingredients for any economy. The Chinese Communist Party uses the surplus foreign exchange the country earns to enhance its own economy by buying technologies or subsidising exports and capturing favours by offering loans to 50 or more countries. India is highly dependent on China for some critical imports that it can become self-sufficient – either on its own or in collaboration with companies in the West. In the 2021-22 financial year, India’s imports from China were worth $94.5 billion and exports to China a paltry $21 billion. In the last 20 years, India has imported roughly a trillion dollars’ worth of goods and services from China. That must stop. A focused effort requires a government-led fast response mechanism to counter the impact of currency parity issues as well as subsidy issues which distort real price of imported items. Indian tariffs on Chinese items will not work. Such a practice is a lost cause, we have seen it done elsewhere. The way to win is creating internal capability as well as blocking in a planned way imports from China. A good deal of these imports are from Chinese mid-sized companies. India’s mid-sized business leaders are very capable of manufacturing such items. What they need is low-cost finance and skills for go-to-market and scaling up. These are the pillars for employment and rural prosperity. We are not doing enough.

Here's how to go about attracting all that foreign capital. It is a big step forward that Union Commerce Minister Piyush Goyal takes the time to visit executives in places like Davos, and attracting their attention to what India can do and the government can support. But that is not enough.

Marketing means focus, where industry executives and ministers go together to target specific companies and other sources of FDI. Repeatedly go knock on their doors, find what is their pain-point and how to solve it. Offer total visibility to the Indian public about this and also ensure a social media splash in markets like the U.S. on how India is making progress.

I have sat, and still sit, on a number of boards across the globe, for companies in Brazil, China, India, the United States, and Canada. They want to come to India because they see opportunities. They want to come to India because they see a positive government. They want to come to India as they know that there is talent. Now, let’s understand what’s coming in the way.

India is a great country that understands business. But there are industries in India that do not earn a cost of capital. India has a record of some very important industries where capital has been destroyed, return has been very poor for a long period of time and investors don’t see any sign that things are improving. Think airlines, or telephonic infrastructure. These are fundamental areas of doing business, and have been first government-controlled, then government-regulated. In the spirit of unrestricted competition, justifying it as being able to then offer the lowest price across the globe for the Indian consumer, we have destroyed these two industries, and companies in those industries. You can have the cheapest telephone service and still do good business. In its early days, Airtel did that and earned cost of capital.

Look at each industry that is foundational for India’s growth and figure out a way that it must earn its cost of capital. If companies are unable to get this return, money will not follow. They need to be able to see a viable future, that is the greatest incentive to get FDI. Identify a competitive advantage against most other countries, particularly China. Focus on the FDI that builds something in India and not the FDI like private capital coming in to buy or invest in existing enterprises.

When India will get to $200 billion of annual FDI inflows, the capital will also bring talent, technology, and business confidence. In turn, the rupee will begin to appreciate. That will help with increased imports like technological equipment and if needed, oil.

India needs to draw up a focused agenda and strategy for attracting far more durable FDI. We have begun on this path, let us accelerate.

Ram Charan is a veteran business consultant on leadership, strategy, and management; advisor to boards and CEOs; serving on seven boards across the globe. He is the author of 33 business books, including the best-seller ‘Execution. The Discipline of Getting Things Done’.

The views expressed here are those of the author’s and do not necessarily represent the views of BQ Prime or its editorial team.