McKinsey's Gautam Kumra on India's economic outlook

30 June 2020 Consultancy.in

“Ruthless execution” is the need of the hour for India, be it in terms of rescuing the economy in the short term, or capitalising on global opportunities in the medium to long term. This is according to McKinsey & Company’s India Managing Director Gautam Kumra, who spoke to CNBC.

Kumra labeled his expectations for demand and consumption in this quarter as “horrendous,” bracing for economic contraction of anywhere between 20% and 25% due to the Covid-19 crisis. Some sectors such as groceries, pharmaceuticals or online retail that have been well positioned during the lockdown have remained stable, but most others are grappling with a demand shock.

The government’s response has been to introduce a monetary and fiscal support package of Rs. 20 lakh crore to restore economic momentum, although Kumra suggests that the benefits of this will only kick in over the medium and long term. For now, it appears to be every business for itself.

According to McKinsey & Company Global Managing Partner Kevin Sneader, who joined Kumra in the double-interview with CNBC, finding a well-balanced stimulus package is a challenging task. “We have to understand that the stimulus in many respects focused on two different tasks. One task is simply bridging between where we are now until people can literally get back to work. I think that is different from a stimulus where you can stimulate demand, and both need to be considered.”

Gautan Kumra, Managing Director - McKinsey India

Kumra applauds the government’s reforms for their potential over a longer period. China has been falling out of favour as a global supply powerhouse in recent years, first impacted by trade wars and now by the emergence of the crisis. Many economies are looking to fill China’s spot in the global supply chain, and India is among them.

Kumra has long been calling for economic reform to boost the manufacturing sector in India. When competing against the likes of Vietnam, Bangladesh and Indonesia in the global supply chain, pricing is a crucial factor, and India’s pricing has always been on the higher side compared to these markets, primarily due to high taxation and manufacturing costs.

Economic reforms in the new stimulus package introduced by the government include plans to reduce tariffs, as well as to privatise power distribution companies across India. According Kumra, this will significantly reduce manufacturing costs in India, helping it become more price competitive.

Nevertheless, execution of these plans has always been a key issue in India, according to the McKinsey boss, and he suggests that the near future will require “getting our act together and really competing fiercely with other markets.”

“A lot of the things that have been talked about last week in the stimulus package and even otherwise for folks like us who live in India, many of these ideas, not all of them, some of them have been talked about for quite a while. I think the key today is now ruthless execution,” said Kumra.

In a recent white paper, McKinsey outlined the challenges to reopening India's complex economy.


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