A Need for Patience in Uncertain Times: An Interview with Albright Stonebridge Group’s Dr. Pramath Sinha
March 1, 2012
Dr. Pramath Sinha leads the Albright Stonebridge Group India practice. He was formerly a Partner with McKinsey and Company and a leader of its India Practice and is the founder and Managing Director of 9.9 Mediaworx. Recently, he spoke with journalist Jason Overdorf about the Indian economy and the political regulatory climate. An abridged version of the original article – previously published in the Global Post on February 21 – is below.
ASG’s team works to bring a diverse range of expertise to our clients. From senior-level public sector knowledge, both legislative and executive, to investment, corporate and venture experience, our strength is our ability to understand the Indian system and manage the various constituencies that impact business decisions and outcomes. In New Delhi, in addition to Dr. Sinha, the team includes ASG Senior Advisors Soumya Ghosh, former Senior Vice President in charge of Corporate Affairs at Reliance Power; and Bipul Kiran Singh, a former officer of the Indian Information Service. (For more information about ASG’s full India team please click here.)
Jason Overdorf: We keep hearing that India’s economic reforms have stalled, the government is paralyzed and inflation is out of control. Do these negative signals mean the shine has come off the India story?
Pramath Sinha: We are looking at a period that is going to be full of uncertainty and therefore (without hard decisions being made) any extraordinary growth is not going to be unlocked. We are looking at economic growth in the 6 percent range now when only a few months ago, being bullish, we were looking at the 9-plus range. We are slowing down but the truth is that, given India’s size, a 6 or 6.5 percent growth rate is not insignificant. But whatever the government is doing, whether building roads or infrastructure – it always seems to be one step forward and two steps back. There is enough to keep us growing at 4, 5 or 6 percent but it’s obviously disappointing, given our potential. As a CEO I feel sad that we are under-performing and frittering away our advantage. Some of this lost growth is a lost opportunity, because it just takes much longer to advance as a country.
JO: What, then, are the biggest threats to the India story? Are they solvable problems?
PS: The lack of governance is the biggest threat today. I think there is a real crisis of leadership in this country. What has happened is that our politics has become very fragmented and ‘regionalized’, so a small group of Parliamentarians can call the shots at the centre. The other big trend is that the largest two parties, which have to be involved in the leadership of the country – the Bharatiya Janata Party (BJP) and the Congress – are both facing a crisis of succession. It’s clear that the current set of leaders can’t pull them through, and it’s not clear who their next leaders will be. So there’s confusion in their leadership and fragmentation in politics.
Unless one of these large parties gets its act together, this is going to (adversely) impact decision-making, policy-making and the continued reforms we need in this country. Although what needs to be done to attract investment and drive growth is known and understood, there isn’t any real leadership, so we lurch from crisis to crisis. That, to me, is the biggest risk. If you look at what we’ve done in the last 20 years, (erstwhile Congress Prime Minister) P.V. Narasimha Rao – who doesn’t get much credit – and the BJP, under Atal Behari Vajpayee, provided strong leadership. We’ve not had that kind of leadership – and governance – for the last few years.
The mantra of inclusive growth [introduced by the Congress Party] is a good tagline, but it really does point out that our biggest challenge is inclusion and, despite the supposed progress that we’ve made on the average growth or quality of our economy, the disparities have grown. (Addressing these) almost requires a new business, economic and development model. We’ve given it the name of inclusive growth, but I don’t think we’ve figured out the answers. I see this as a big threat because certain areas of the country are still getting left behind.
JO: Despite all these challenges, and the negative economic signals, what are some of the business opportunities that remain exciting?
PS: The whole economy is really being driven by private [domestic] consumption, and that’s one of the things that’s really resilient and has protected us from shocks in the past. Anything that feeds on the consumption boom and fuels it – whether products or services – is an opportunity. Retail, food, education and health sectors are going to present tremendous opportunities. But investors will have to be patient. The venture capital firm that invests in my media company calls it “patience capital.” Whether you’re in business or an investor in India, you have to have patient capital. You will grow and have opportunities, but you have to be prepared for the long haul. The rules of the game will change, as they just did for telecom investors in India [with the Supreme Court decision to revoke 122 telecom licenses tainted by a corruption scandal]; policies will not move quickly and local companies will provide unfair competition. It’s a tough market and there’s no ‘slam dunk’ opportunity in any one sector.
JO: Are there good opportunities for small and medium-sized enterprises (SMEs) as well?
PS: I think there’s a vibrant opportunity for SMEs also, because large multinationals always have a problem scaling up in India. Sizes of the individual markets are still relatively small. So large multinationals come in and expect India to deliver hockey-stick growth. When it doesn’t happen, they get disappointed. They start comparing it to China, and say it’s not worth it. To some extent I think this is a better market for SMEs, because for them it’s just easier, in terms of scale, to get things done.
JO: When you were at McKinsey, what were the most common misconceptions you confronted with regard to other CEOs?
PS: The most common misconception was that people came into India with a certain business model or product and assumed they could just sell it or that people here were just waiting to buy it from them. They did not understand that our buyers and consumers are quite distinct and don’t settle for a pre-packaged product pushed through in this new market. Most people have had to realize that their strategy has to be ‘India out’. They have to take an approach that says: “How do I customize my entire model, right from the product to my business system, to fit in the Indian context?” Of course you bring in best practices, core technology or your distinctiveness. But how do you make sure that you are sufficiently adapted to the local context? That, to me, has been the biggest learning. The second thing is that people underestimated the quality of local competition.
JO: You’re in the media business these days, which is booming in India even though it’s not doing very well around the world. Do you think there’s time left on the clock here, or can Indian media companies defy the odds and continue to grow?
PS: India is doing well in the media sector. If you look at the under-penetration of media and advertising, we actually have a long way to go. In most parts of the world they had such a large built-up legacy that moving over to this new world of ‘online’ media basically wiped out existing businesses. In India we have the luxury of time, because we have both old and new media flourishing, allowing us to shift over from one to the other. The challenge in India is a different one. We have players who are not economically rational, and are not in media for the money, but for power and influence. They are not looking for economic value creation or rational behavior in terms of pricing, for example. You have television channels owned by politicians or influential people who don’t care what they charge for services. Because of that, the prices for legitimate players are set so low that people just can’t make money anymore. I hope this will change over time. In the long term, there’s very good potential for us to grow.
The original version of this interview first appeared in the Global Post on February 21, 2012. For the full interview, please click here.