Ron Somers, president of the U.S.-India Business Council, has followed the Indian economy closely for decades. Before joining the USIBC, which represents nearly 400 leading US companies doing business in India and global Indian firms, he led the India operations of two companies – Unocal Corporation and Cogentrix Energy. In a wide-ranging interview, he speaks about Indo-US business relations and the investment climate in India, among other issues. Here are the excerpts.
The recent Vodafone judgment is being hailed by the investment community in India and abroad. Does this show that the country’s judiciary is more forward-looking when it comes to global economy than its executive branch?
The Vodafone decision provides welcome clarity for investors in India. This judgment inspires confidence regarding the foreign investment climate in the country. The Indian judiciary’s high regard for rule of law is noteworthy. I recall the sweeping ruling of the Supreme Court in the late 90s to convert New Delhi’s public transport system to compressed natural gas (CNG). This bold stroke created the cleanest public transport system in the world, while protecting the environment and ensuring the health and welfare of Indian citizens. Only in a vibrant democracy like India such independent institutions as the Supreme Court can function purposefully to dispense justice and protect civil liberties. The Vodafone ruling is but one more example why India will shape the destiny of the 21st century.
Late last year, the Indian government decided to open up the retail sector before reversing the move and creating a lot of confusion. What is your take on that?
Let me put it in perspective at the outset. We are in the 20th year of economic reforms in India. And it’s been a thrilling ride – a positive one all the way. On this particular reversal (retail investment), clearly there is a concern within the business community. Just when the second phase of economic reforms was needed most, this reversal has taken place. And it has caused a worry as to whether or not there is enough political traction in India to continue with needed and necessary economic reforms which both the countries (India and the USA) want so badly. It isn’t the lack of will, though. We appreciate very much that the leadership wanted this reform to happen.
You have spent a lot of time in India. What do you think of the political situation in the country? Do you feel that the process of politics is primarily responsible for the bumps in reform or is it an attitudinal problem towards furthering the reform process?
Well, everything is political. When you are running for elections and when people have to maintain 271 MPs in order to maintain the PM’s position, everything is political. But having said that, let us take a look at the real issue. When you are having major inflation in commodities, when whatever is happening in Iran regarding sanctions is going to put pressure on the price of oil, when China continues to search for commodities around the world and thus puts inflationary pressures on commodities, the only way to tame the food price is to make the system more efficient and more productive. In other words, the ever green revolution, in my mind, only comes when we can make the farm-to-market supply chain more efficient. And that is only going to happen with major investment in the infrastructure of the farm-to-market supply chain, and that major investment is only going to take place with a foreign direct investment opening in the retail sector.
What about the small shopkeeper, the so-called kirana stores, which might be impacted by the entry of foreign retailers?
I totally understand the argument. We have the same argument in the USA about big box retail versus the small mom-and-pops stores in the small towns on the Main Streets. So I totally appreciate that. But when you consider the fact that 40 per cent of India’s harvest is going waste before it reaches the market place (India is No. 1 in the world in milk production and No. 2 in the world in fruit and vegetable production), it means that there is clearly a breakdown in the farm-to-market infrastructure. Therefore, investment is needed and that’s going to come by opening the retail sector in urban areas where there is a large population, where obviously there is going to be room for both kiranas and the mom-and-pops alongside the organised retail players. That’s the idea and in that sense, it’s a gradual opening. It’s a tempered opening when you are dealing with the urban centres, large populations, and then you watch it as it emerges to ensure that the displacement of kiranas and the mom-and-pops does not take place.
So you are saying the farmers will gain through better prices, efficiency will gain and consequently, the economy will gain…
The consumer will gain because inflation will be tamed.
You are known as a cheerleader for India in Washington. Is it difficult to cheerlead for India right now? Are investors getting more and more nervous? Do they think that the reform process itself has ground to a halt?
No, more than ever, organisations like the U.S.-India Business Council need to be outspoken in favour of a deeper commercial relationship with India. So our job is more important than ever at the council. Our colleagues and partners, whether it is the CII, FICCI or the ASSOCHAM, we all need to be heralding this extraordinary relationship between our countries. Because, as I look over to Europe, I don’t see that the problem in Europe will be solved easily or quickly. Therefore, it really is important that we continue to foster deeper commercial ties between our two countries.
Why does the European situation mean the India-US economic and business relationship must be strengthened?
Obviously, Europe is a lot closer to India. Europe has been in India much longer than the USA. With European banks needing to cover their positions, they have been withdrawing money from all emerging markets. I think that’s what we have been seeing in terms of the pressure on the rupee right now. You are seeing a lot of investments from Europe being withdrawn back to Europe. Accordingly, there is pressure, which is forcing the rupee higher than I have ever seen it in 20 years and weakening it.
With Europe right now trying to repair its own situation, the USA and India will be working closely together to create jobs in both economies. The two-way street is essential as we go forward.
In the global context, there is a competition for investment among China, India, Brazil and other emerging markets and also developed markets. Is India going to lose out in that competitive race for investment?
Money flows to the safest havens for the highest returns. If you are looking at India as a competitor for investors, that’s where predictability on issues of policy, policy formulation are so essential. We can’t have changing rules in the middle of the game; we can’t have any moving goalpost. And the corruption scandals in the recent years have not been helpful.
In the end, predictability, ease of doing business, reforms moving forward in a predictable manner where you can invest safely and where rule of law prevails, and a reasonable return that is coming your way – these factors remain the magnet for investment. Right now, I am worried about all the insecurities around the world. We don’t want to retreat, don’t want to be back into our protective shell and then we end up with this kind of protectionist measures. They erect barriers which hinder this extraordinary two-way street that we have tried to establish over the last five years.
What’s the impression among your member companies regarding the climate in India?
Well, the companies are doing well. There’s no doubt about it. The GE is doing $2.5 billion in revenues in India and that’s a record for General Electric. They have been there for 109 years. But we read in newspapers that John Flannery (president & CEO of GE India) was recently talking about predictability. For example, he mentioned, “Where’s that bid… that we have been waiting for on Indian Railways for procuring locomotives?” This was put on the table years ago. Companies have prepared bids and made proposals and all of a sudden, it’s withdrawn. How do you do business when you can’t predict those kinds of big outlays of expenditures when companies are truly trying to engage.
So you are saying that the predictability factor in the policy framework is currently very weak?
The predictability factor was obviously affected by politics, despite the will, and I have to give credit to the retail opening desire of the Indian government. In the first place, they have understood that we need to fix that efficiency or lack of efficiency in the farm-to-market supply chain. And this is the way to do it. It is extremely unfortunate that the government had to reverse that decision because it would have been in the interests of the farmers, in the interests of the traders, in the interests of the consumers of India – not necessarily in the interests of the investors alone.
(Asif Ismail is Editor-in-Chief of Global India Newswire).