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The perception of India has not yet changed dramatically: Johan C Aurik

The perception of India has not yet changed dramatically: Johan C Aurik

The markets continue to recover from the global economic crisis, but progress has been uneven. Growth has been moderate and uneven and is forecasted to remain so over the next years,  says Johan C. Aurik, Managing Partner and Chairman of the Board of AT Kearney.

PB Jayakumar
  • Updated Oct 7, 2015 4:06 PM IST
The perception of India has not yet changed dramatically: Johan C AurikJohan C. Aurik, Managing Partner and Chairman of the Board of AT Kearney

The US-based AT Kearney is among the top four management consultancies around the world with 61 offices in 40 countries and revenues of $1.1 billion in 2014. With a history dating back to 1926, the firm serves more than two-thirds of the Fortune Global 500, the world's largest companies by revenues, as well as with the most influential governmental and non-profit organizations. Johan C. Aurik, Managing Partner and Chairman of the Board of AT Kearney was in India and conducted an exclusive interview with PB Jayakumar of Business Today on topics from the global economic situation to investments in India:

Q. The global markets and most economies are still in a volatile situation. How do you assess it and when can we see more stability and recovery?

A. The markets continue to recover from the global economic crisis, but progress has been uneven. Growth has been moderate and uneven and is forecasted to remain so over the next years. Looking back a few years, most BRIC markets were growing in the 5-10 per cent range or more, but that is not the case now. China has slowed and Russia and Brazil are in decline, with India the only one progressing. The US shows robust growth, and Europe is stabilising. Still, global growth will remain unstable for the near- and mid-term outlook.

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One of the biggest obstacles to a strong recovery has been high government debt, which inhibits public-sector investment. The solution lies in aggressive reforms, which many countries, including Japan, China, Europe and India-are undertaking or have begun to undertake. However, progress is mixed-and success will take time. In the meantime, global trade has slowed down and is now less than GDP growth.

On the private-sector side, many companies are still uneasy and sitting on significant cash reserves rather than making investments, which does not help the recovery, although we are seeing a recent uptick in acquisitions.

Q. We have been hearing about the US Federal interest rate revision for some time. If that happens soon, what will be its impact on the global economy?

Most economists agree that the US cannot go on like this for ever-and there are some new indications that the Fed will raise interest rates before the end of year. Still, the US Government will move cautiously, and markets and companies are already beginning to adjust for the expected shift. At the same time, the ECB has started injections into the economy and the Bank of Japan is continuing. Reversing these massive stimuli remains a risk for the global economy for some time to come.

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Q. In this scenario, which are the countries you think are doing well or bad?

Looking ahead, there are areas of concern and optimism. Of course, Russia and Brazil are very weak, with few positive indicators. Latin America also continues to struggle, as countries such as Argentina and Venezuela grapple with deep structural issues. On the other hand, there are more reasons to be optimistic than pessimistic. Africa, for example, has incredible potential, as civil wars and internal conflicts come to an end and give way to a growing population, improving government stability, and increasing healthy economic activity. While Japan continues to sit on significant debt, it has also started to show signs of slow recovery with its ongoing reforms. Europe is beginning to return to (low) growth and has made reforms. Finally, I am bullish on India and remain positive on China.

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Overall, however, I would say that the US will continue to be the main growth engine for the global economy: It has the world's most powerful companies, low-cost energy, a growing population, and leading-edge technology and innovation, which combined, will help keep it on top.

Q. After the Lehman Brothers, many countries, including India, were emphasising on infrastructure development to rejuvenate their economies. Has it backfired? Which sectors will thrive?

A. Mobility and infrastructure sectors require strong and ongoing investments-but due to very high debt levels, post Lehman infrastructure investment levels have been (too) low. India has a significant need for infrastructure investments and I know you are trying many public-private partnerships. Also IT, health care will continue to grow.

Q. Crash in oil prices is also impacting global economies. What is the way out, since you predict volatile situation will remain for another 4-5 years, which is a long term?

Most countries have benefitted from lower crude prices: and those that haven't are keenly aware of the need to diversify their economies. Going forward, the digital revolution is fundamentally changing the world and innovation will be a key differentiator. Consider the technological developments and innovation happening at Silicon Valley, from driverless cars to drone delivery systems. These are game-changing innovations that will drive strong economic growth. India and China are also emphasising high-tech, while Europe is still lagging behind in having a 'Silicon Valley'-like development zone. China is already working hard to adapt its low labour cost focus to become a technology consumption-driven economy.

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Q. India has had a new government for the last 15 months and the Prime Minister is visiting many countries to attract investments. Do global companies consider India a good destination for investment?

A. Frankly, the perception of India has not yet changed dramatically. Companies outside India are still somewhat cynical and think India is a difficult country to invest in and do business with. But, I think there are promising signs. There is certainly much to build on: India already has globally known companies, such as the Tata Group. You have the manpower, an English-speaking population, and good engineers. The biggest challenges are in implementing more reforms and ending bureaucracy; this is daunting task and may take at least 10 years to fully overcome. In the long term, however, I am bullish about India and its growth story.

Q. With Chinese economy slowing down, will it be beneficial for India?

A. I think the outlook for both China and India is good in the long term, but they are not inherently linked. China's slower growth, although still strong at plus/minus 5 per cent, will not have a significant impact on India, despite the common preoccupation with the Chinese comparison.

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China is focused shifting from a labour-intensive, low-cost manufacturing model to a high-technology, innovation-focused approach. India has a service-industry driven economy, but I certainly expect an increase in manufacturing jobs in the years ahead. With your large population and good education system, India can also evolve into being a significant knowledge hub. You have an incredible pool of talent suitable for white-collar jobs.

Q. What will be the economic challenges in the next 3-4 years?

A. Keeping geopolitical issues in check, boosting the pace of reforms, and gradually lowering high government debt.

Published on: Oct 5, 2015 7:04 PM IST
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