A.T. Kearney boss Johan Aurik elaborates on India's economic outlook

23 February 2018 Consultancy.in 5 min. read

As the world takes stock of the economic scenarios portrayed at the World Economic Forum at Davos early this year, a number of key insights emerged from leaders of the global business arena. Speaking to CNBC India, Managing Partner and Chairman of the Board at A.T.Kearney, Johan Aurik, shed light on the strengths and challenges that face the Indian economy in years to come.

Since the ascension to power of the pro-business Modi administration in India in 2014, the Indian economy has risen to prominence in the world of trade. The administration has placed major emphasis on local manufacturing through its ‘Make in India’ programme, alongside the relaxation of key taxes and restrictions to business, with the primary aim of attracting foreign direct investment (FDI) to the country.

India has a strong economy backed by a large and young population, and is not only expected to drive economic growth for all of Asia over the next few decades, but is also expected to become the second largest economy in the world by 2050. A booming consumer market, combined with a rapidly growing digital audience, is set to make India a hub for business in the near future.

In light of this scenario, Johan Aurik provides his take on where India currently stands, and where it should be going over the next few years.  

You are familiar with the India story in terms of development. Set in that context, what did you make of the Prime Minister’s (Narendra Modi) opening address here at Davos?

Firstly the positioning of his speech demonstrated the prominence of India at this year’s forum. Modi opened the conference on Tuesday, which is a prime spot here and one which was occupied by China in last year’s forum.

In many ways, India’s message was similar to that given by China last year. The gist of the PM’s address was threefold. Firstly, that India is growing and is on its way to becoming a global economy. Secondly, that India is open to the world and to business from all corners of the globe, and lastly, an acknowledgement that India still needs to change and grow a lot, and that it is actively working towards doing so.

Most importantly, the PM emphasised that it is important that we remain an open and liberal world in terms of trade: a message that is extremely important in today’s international scenario.

Johan Aurik, Managing Partner, A.T. Kearney

India is aspiring to become a manufacturing powerhouse, aiming to increase the share of manufacturing to more that 20% of the GDP. However, in a recent report from A.T. Kearney that analysed production readiness in the context of industry 4.0, only 25 out of 100 countries were deemed ready to embrace market changes, and India is not one of them. What would you say is the reason for this?

The short answer is that these things take time. 'Make in India' was announced less than five years ago, which is not enough time to change an entire country or an ecosystem. The leading countries that made it into the top 25 included Japan, South Korea, Germany and the USA, all of which have been investing in and improving their ecosystem for decades before coming to one that really works well. It is important to be realistic in these scenarios.

I applaud India’s ambition in this regard, and the Make in India initiative is crucial, but these things take time to manifest themselves in tangible benefits. I am absolutely certain that India will rise, but there are many steps to take along the way.

India has had record FDI inflow over the last few years. A.T. Kearney does an attractiveness index on FDI, how does India fare in that department?

India is an incredibly attractive market to invest in. Firstly, there is the size of the market. We often forget that population growth is the biggest driver of the GDP, and India is the economy with the largest population growth to support it.

Secondly, changes that are being put in place under the Modi administration, including opening the market up to business, tax changes, investment increases, have all made it an incredible place for business. Any company that is worth its salt and is globally engaged needs to be in India without a doubt, and this is the realisation that drives the growth of the market. We believe that this will continue over the next few years.

Can india put itself at the heart of the supply chain across sectors, like it has done in automotive or pharmaceuticals, for example?

This depends on which sector, and the differing strengths of the Indian economy. However in a broader sense, most investments from abroad come to India for the demand that is generated in India itself.

India is not like Singapore, which acts as a transition hub for trade. Being a transition hub is not India’s place in the world. It’s a gigantic country that has tremendous demand, and will evolve not as a supply-hub but as a substantial market in itself.

The Trump question.

Under Trump, it is crucial to determine whether the US is going to be open to the world, or engage in protectionist policies, as this will have an impact on markets worldwide. No doubt, Trump will protect his ‘make America great again’ agenda, but he could do this through either of the two channels. So far, it would appear as though the US is gravitating towards protectionism, given what they did with solar panels and washing machines (tariffs of up to 50% on both commodities), which was not a good sign, but lets wait and see.